And while Mr. Rockefeller was making this lavish expenditure of money

and energy to meet the situation created by the bold development of the

Tidewater, what was his attitude toward that company? One would suppose

that Mr. Rockefeller, of all men, would be the first to acknowledge the

service the Tidewater had rendered the oil business; that in this case

he would have felt an obligation to make an exception to his claim that

the oil business was his; that he would have allowed the new company to

live. But Mr. Rockefeller’s commercial vision is too keen for that; that

would _not_ be business. The Tidewater had been built to feed a few

independent refineries in New York. If these refineries operated outside

of him, they might disturb his system; that is, they might increase the

output of refined and so lower its price. The Tidewater must not be

allowed to live, then. But how could it be put out of commission? It had

money to operate. There were plenty of oil producers glad to give it

their product, because it was independent. The Reading Railroad had gone

heart and soul into its fight—it had refiners pledged to take its oil,

and these refiners had markets of their own at home and abroad. What was

he going to do about it? There were several ways to accomplish his end;

in two of them, at least, Mr. Rockefeller excelled from long practice.

The first was to get out of the way the refineries which the Tidewater

expected to feed, and this was undertaken at once. The refiners were

approached usually by members of the Standard Oil Company as private

individuals, and terms of purchase or lease so generous made to them

that they could not afford to decline. At the same time they were

assured confidentially that the Tidewater scheme was a pure chimera,

that they understood the pipe-line business better than anybody else and

they knew oil could not be pumped over the mountains. All but one firm

yielded to the pressure. Ayres and Lombard stood by the Tidewater, but

soon after their refusal to sell they were condemned as a public

nuisance and obliged to move their works! The Tidewater met the

situation by beginning to build refineries of its own—one at Bayonne,

New Jersey, and another near Philadelphia—in the meantime storing the

oil it had expected to sell.

Having done his best to cut off his rival’s outlet, Mr. Rockefeller

called upon the railroads to carry out that article of their contract

with him which bound them to protect him from “injury by competition.”

What was done was told a few months later to the Committee on Commerce

in the House of Representatives by Franklin B. Gowen, the president of

the Reading Railroad. According to Mr. Gowen the Tidewater and Reading

were no sooner ready to run oil than a meeting of the trunk lines was

held at Saratoga, at which the representatives of the Standard Oil

Company were present, and on that day the through rate on oil was

reduced to twenty cents per barrel to the Standard Oil Company. “It was

subsequently reduced to fifteen cents,” Mr. Gowen told the Committee,

“and I believe, though I do not certainly know, to ten cents per barrel

in cars of the Standard Oil Company; ... and I am told that at the

meeting at Saratoga a time was fixed by the Standard Oil Company within

which they promised to secure the control of the pipe-line—provided the

trunk lines would make the rate for carrying oil so low that all

concerned in transportation would lose money.

“I know this, that only three or four months ago we were told—I do not

mean myself, but the gentlemen who directly represented the pipe-line

which leads to our road—that if they would agree to give all their oil

to the Standard Oil Company to be refined, we could carry 10,000 barrels

a day, and the rates would be advanced by the trunk lines. But, to use

the language of those making the offer, ‘we’ (meaning the Standard Oil

Company) ‘will never permit the trunk lines to advance the rate on oil

until your pipe-line gives us all its product to refine,’ and the

prophesy of four months ago has become the history of to-day.” Mr.

Flagler differs with Mr. Gowen in his explanation of this cut in rates.

Mr. Flagler contends that the Standard Oil Company really opposed it,

but that the railroads insisted on it. Mr. Flagler’s testimony is

interesting reading in connection with all that we know about the

Tidewater Company. It will be found in the appendix.[87]

This was the Tidewater’s first year’s experience. The second and third

were not unlike it. But the company lived and expanded. It bought and

built refineries, it sent its president to Europe to open markets, it

extended its pipe-line still nearer to the seaboard, and it did this by

a series of amazingly plucky and adroit financial moves—borrowing money,

speculating in oil, exchanging credit, chasing checks from bank to bank,

“hustling,” in short, as few men ever did to keep a business alive. And

every move had to be made with caution, for the Standard’s eye was

always on them, its hand always outstretched. Samuel Q. Brown, the

present president of the organisation, when on the witness stand in

December, 1882, said that so much did the Tidewater fear espionage that

they were accustomed to keep their oil transactions as a private and not

a general account, in order that they might not be reported to the

Standard; that even matters which they believed they were keeping in an

absolutely private way frequently leaked out, to the injury of the

business.

[Illustration:

Scale—3 miles to each division. CONDENSED PROFILE OF TIDEWATER PIPE

LINE BETWEEN RIXFORD AND TAMANEND, PENNSYLVANIA

The pipe followed the jagged line representing surface of the ground.

The numbers above the surface line show the location of the pumping

stations from which the oil was forced. The pump at Station 1 lifted

the oil over 600 feet. From here it flowed by gravitation until the

gradient line—the sloping straight line above the surface

line—touched the ground. A new station, No. 2, then lifted the oil

to the next high point, the crest of the Alleghanies. As the

gradient line shows, the oil now would flow to Station 4, making

many steep ascents without further pumping. Station 3 was added to

increase the speed of the flow.

]

By January, 1882, the Tidewater was in such a satisfactory condition

that it decided to negotiate a loan of $2,000,000 to carry out plans for

enlargement. The First National Bank of New York, after a thorough

examination of the business, agreed to take the bonds at ninety cents on

the dollar, but trouble began as soon as the probable success of the

bond issue was known. The officials of the First National Bank were

called upon by stockholders of the Tidewater, men holding nearly a third

of the company’s stock, and assured that the company was insolvent, and

that it would be unsafe for the bank to take the loan. The First

National declined to be influenced by the information, on the ground

that the disgruntled stockholders had sold themselves to the Standard

Oil Company, and were trying to discredit the Tidewater, so that the

Standard might buy it in. It had been planned to place some of these

bonds in Europe, and Franklin B. Gowen was sent over for that purpose.

Mr. Brown said on the witness stand, a few months later, that as soon as

Mr. Gowen started from this side it was cabled to Europe that he was

going over to place bonds which were not sound; that the stockholders

were all of them wealthy men, and if the bonds had been good property

they would have taken them themselves. Mr. Brown declared this report

was spread so generally on the other side that it interfered seriously

with Mr. Gowen’s attempt to place the loan.

These manœuvres failing to ruin the Tidewater’s credit, a more serious

attack was made in the fall of 1882, by the filing of a long bill of

complaint against the management of the company, followed by an appeal

that a receiver be appointed and the business wound up. The appeal came

from E. G. Patterson, a stockholder of the Tidewater, and a man who, up

to this time, had been one of the most intelligent opponents of the

Standard in the Oil Regions. Mr. Patterson was one of the few who had

realised, from the first development of Mr. Rockefeller’s pretensions,

that it was a question of transportation, and that, if the railroads

could be forced by courts and legislatures to do their duty, the

coal-oil business would not belong to Mr. Rockefeller. He had been one

of the strongest factors in the great suits compromised in 1880, and his

disgust at the outcome had been so great that he had washed his hands of

the Producers’ Union. Later he had been engaged by the state of

Pennsylvania to collect evidence on which to support a claim against the

Standard Oil Company for some $3,000,000 of back taxes. The Standard had

made Mr. Patterson’s services unnecessary by coming forward and giving

the attorney-general all the information as to its financial condition

which he desired. Exasperated at the result of all his efforts, and

feeling that he had been deserted by the public he had tried to serve,

Mr. Patterson sent word to the Standard that he proposed still further

to attack them (just how he never explained) unless they would give him,

not to attack, as much as there was in the contract from the state.[88]

They seem to have thought it worth while to buy peace, and agreed to

give Mr. Patterson some $20,000 in all, and secure him a position for a

term of years. The first payment was made at the end of April, 1882, and

$5,000 of the money received Mr. Patterson paid to the Tidewater for

stock he had taken at its organisation. No sooner was the stock in his

hands than he began the preparation of the bill of complaint above

referred to, and in December the case was heard.

The Oil Regions watched it with keenest interest. That Mr. Patterson had

made some settlement with the Standard was generally known, and the

charge was freely circulated that they had bribed him to bring this suit

in hopes of blasting the credit of the Tidewater and getting its stock

for a song. The testimony brought out in the trial did not bear out this

popular notion. The case was rather more complicated. That the suit was

backed by the Standard, one would have to be very naïve to doubt, but

they were using other and stronger parties than Mr. Patterson, and that

was a faction of the company known as the “Taylor-Satterfield crowd.”

These men, controlling some $200,000 worth of Tidewater stock, had been

professing themselves dissatisfied with the management of the business

for some months, though always refusing to sell their holdings at an

advanced price. It was generally believed in the Oil Regions that their

“dissatisfaction” was fictitious, that they were in reality in league

with the Standard in an attempt to create a panic in Tidewater stock, a

belief which was strengthened when it was learned that a big oil

company, which the gentlemen controlled, the Union, had been sold about

that time to the Standard Oil Trust for something like $500,000 in its

stock. The first manœuvre of the Taylor-Satterfield faction had been the

attempt to dissuade the First National Bank from taking the Tidewater

loan referred to above. Failing in this, they seem to have imbued Mr.

Patterson thoroughly with their pretended dissatisfaction and to have

persuaded him to bring the suit. For some reason which is not clear they

failed properly to support him in the suit, and when it came off they

practically deserted him. The Tidewater had no trouble in proving that

the complaints of insolvency and mismanagement were without foundation,

and Judge Pierson Church, of Meadville, before whom the case was argued,

refused to appoint the receiver, intimating strongly that, in his

judgment, the case was an attempt to levy a species of blackmail, in

which it must not be expected that his court would co-operate. Judge

Church’s decision was given on January 15. Two days later a sensation

came in Tidewater affairs, which quite knocked the Patterson suit out of

the public mind; it was nothing less than a bold attempt by the Taylor

party, or, as it was now known, “the Standard party,” to seize the reins

of government. It was a very cleverly planned coup.

The yearly meeting for the election of officers in the company was fixed

for a certain Wednesday in January. By verbal agreement it had been

postponed, in 1882, to some time in February, the controller, D. B.

Stewart, a member of the Taylor faction, representing that he could not

have his statement ready earlier. No notices were sent out to this

effect, although this should have been done. Taylor and his party,

taking advantage of this fact perfectly well known to them, appeared at

the Tidewater offices on January 17, and although one of the Benson

faction, as the majority was known from the name of the company’s

president, was present with sufficient proxies to vote nearly two-thirds

of the stock, they overruled him and elected themselves to the control.

They also elected to the Board of Managers, Franklin B. Gowen, the

president of the Reading, and James R. Keene, the famous speculator,

both large holders of Tidewater bonds. They followed their election

immediately by sending out notices to the banks with which the company

did business not to honour checks drawn by the Benson party, and to the

post-office to deliver mail to no one but themselves.

The announcement caused a terrible commotion in oil circles. Both Mr.

Keene and Mr. Gowen refused to recognise the new board, Mr. Gowen

telegraphing in answer to the notification of his election:

JOHN SATTERFIELD,

Titusville.

At quarter of three o’clock to-day I received a despatch signed with

your name as manager and chairman, stating that a meeting of the

Board of Managers would be held at noon to-day. While the notice

itself is sufficient to render invalid any action you may have

attempted at such meeting as has been held, even if you had power to

act at all, I deny your right to call any meeting or act in any

manner as an officer of the company, and will hold you and all your

associates responsible at law for the occurrences of yesterday, and

for your subsequent action thereunder.

(Signed) F. B. GOWEN.

The Benson party took immediate action, applying for an injunction

restraining the new board from taking possession of the books and

offices. This was granted and a date for a hearing appointed. Up to the

hearing the old board did business behind barricaded doors! The case was

heard in Meadville before Judge Pierson Church—the same who had heard

the Patterson case. As it was a case to be decided on purely technical

matters—the rules governing elections—no sensation was looked for, but

one came immediately. It was a long affidavit from James R. Keene, even

more notorious then than now—there were fewer of his kind—for deals and

corners and devious stock tricks, declaring that both the Patterson case

and this attempt to obtain control were dictated by the “malicious

ingenuity” of the Standard for the purpose of destroying the Tidewater

and getting hold of its property:

“From my first connection with the company,” said Mr. Keene, “it has

been hampered and embarrassed in its business by the unscrupulous

competition of the Standard Oil Company. When it first began to

transport and deliver oil at tidewater, the refineries which

purchased and refined oil were one after another bought up by the

Standard Oil Company or driven out of business by vexatious and

oppressive annoyances. The most private details of our business have

been communicated to the officers of the Standard Oil Company, and

they have, by every means in their power, interfered with our

affairs. By the arrangement which they were able to make with the

railroads leading from the Oil Regions, other than the Philadelphia

and Reading Railroad Company and the Central Railroad of New Jersey,

the Standard Oil Company have been able to obtain a control of the

business of transporting and refining oil, with the exception of

that part of the business which has been carried on by the Tidewater

Pipe Company and their refineries, to which it had made deliveries.

Repeated efforts have been made by parties in their interest to

secure the control of the Tidewater Pipe Company, and if they could

succeed, the monopoly thereby secured would add many million dollars

a year to their profit.”

Mr. Keene’s putting of the case was undoubtedly correct, but pious

horror of commercial brigandage, coming from “Jim” Keene, was useful

only to give joy to a cynical world, unencumbered by the possession of

stock in either concern. The Keene sensation was followed by a second,

an affidavit from John D. Archbold, of the Standard Oil Company, denying

that his company had any interest in the present suit, but adding that

for some time the officers of the Tidewater had been seeking an alliance

with the Standard:

“Byron D. Benson and David McKelvy have at various times for the

past years met me at their own instance, and have proposed to

combine the business of the Tidewater Pipe Company with that of the

Standard Oil Company, desiring the Standard Oil Company to agree on

a division of the business of transporting and refining oil, and to

agree with the Tidewater Pipe Company in fixing the rate of

transporting oil and the price of refined oils. These proposals were

renewed to me by B. D. Benson during the summer of 1882, he coming

to my office at his own instance and urging, by various arguments,

such an arrangement. These proposals, in whatever shape made, have

always been declined. This deponent has also had many interviews

with James R. Keene, and always at his request, upon the same

subject, in which interviews said Keene has earnestly urged such a

combination and has used many arguments in favour of the advantage

which would result from such a combination. These proposals have

always been declined.”

Naturally they were declined—the Standard was not seeking an alliance,

it was seeking ownership of the Tidewater; and it expected so to

discredit the company that it could buy in its stock for a song. Mr.

Archbold’s affidavit cooled popular sympathy for the hunted concern no

little, however. A suggestion of any kind of a compromise with the

Standard was looked upon as rank disloyalty by the Oil Regions, free

competition in rates and in prices being, they contended, the only hope

of the country. Mr. Archbold’s affidavit must have something in it,

everybody thought, though it might be, as Mr. Benson immediately swore,

“grossly inaccurate.”

Such was the character of the charges and countercharges in this purely

technical case. The judge took little notice of them in his decision,

but, after an exhaustive discussion of the points involved in the

election, decided it was illegal and continued the injunction he had

granted against the new board. Judge Church’s decision aroused general

exultation in the Oil Regions—as any failure of the Standard to get what

it wanted was bound to do, and with good reason. The Tidewater’s growth

in the face of the Standard’s constant interference with its business

was proof that independent pipe-lines and independent refineries could

be built up if men had sufficient brains and courage and patience. What

one set of men had done, another could do. Their hope of restoring

freedom of competition to the oil business was still further brightened

in June by the news that the Legislature of Pennsylvania had passed a

free pipe-line bill—the measure that they had been urging for twelve

years without avail. With a sturdy example of independence, like the

Tidewater, before them, and the right of eminent domain for pipes, the

future of competition in oil seemed to be up to the oil men themselves.

But the Oil Regions have always been prone to jump at conclusions. They

were forgetting Mr. Rockefeller’s record when they concluded that he was

through with the Tidewater. Because he had failed in his old South

Improvement Company trick, that is, failed to create a panic among

Tidewater stockholders, and so get their property at panic prices, was

no reason at all to suppose he had abandoned the chase. There still

remained a legitimate method of getting into the company, and, as a last

resort, Mr. Rockefeller accepted it. He bought the minority stock of the

concern, held by the Taylor party. Up to this time Mr. Rockefeller had

appeared in Tidewater affairs as a destroyer. He now appeared in a rôle

in which he is quite as able—as a pacifier, and his extraordinary

persuasiveness was never exercised to better effect. “We own $200,000

worth of your stock,” he could tell the people he had been fighting. “If

you will consent to confine yourselves to a fixed percentage of our

joint business, and will sustain pipage rates and the price of refined

oil, we will let you alone. Let us dwell together in peace.”

The Tidewater, tired of the fight, accepted. And so these men—to whom

the oil business owes one of its most remarkable developments, who, in

face of the most powerful and unscrupulous opposition, had in four years

built up a business worth five and one-half millions of dollars—signed

contracts in October, 1883, fixing the relative amount of business they

were henceforth to do as 11½ per cent. of the aggregate, the Standard

having 88½ per cent. The two simply became allies. The agreement between

them was the same in effect as all Mr. Rockefeller’s running

agreements—it limited and kept up prices.[89] Any benefit the oil

business might have reaped from natural and decent competition between

the two was of course ended by the alliance. For all practical purposes

the two were one. In the phrase of the region, the Tidewater had “gone

over to the Standard,” and there it has always remained. The contract

was made for fifteen years, but since its expiration it has been lived

up to honourably by both parties without other than a verbal

understanding. For, note this: Mr. Rockefeller always keeps his word.

Indeed, in studying his career, one is frequently reminded of Tom

Sawyer’s great resolution—never to sully piracy by dishonesty!

The Tidewater has prospered within the boundary Mr. Rockefeller drew for

it, as those who have accepted submissively his boundaries have never

failed to do. Mr. Rockefeller is right when he says, as he does so

often, that all who come with him prosper. That the company would have

succeeded in becoming eventually a formidable rival of the Standard, and

in controlling much more than eleven per cent. of the business, no one

can doubt who knew Mr. Benson, Major Hopkins, Mr. McKelvy, and their

colleagues. They were business men of the first order, as their

tremendous work from 1878 to 1883 shows.

Once more the good of the oil business was secure, and Mr. Rockefeller

at once proceeded to arrange his great house in the new order made

necessary by the introduction of the seaboard pipe-line. The entire

transportation department of the business had to be reorganised. When

the seaboard pipe-line became a factor in the oil business, in 1879, the

Standard Oil Company owned practically the entire system of

oil-gathering pipe-lines—that is, the lines carrying oil from the wells

to the storing or shipping points. These lines were organised under the

name of the United Pipe Lines, and the organisation was magnificent in

both extent and in character of service rendered. Never, indeed, has the

ability of the men Mr. Rockefeller gathered into his machine shone to

better advantage than in the building up and management of the pipe-line

business. At the end of 1883, when the alliance was made with the

Tidewater, the United Pipe Lines were taking from the wells of

Pennsylvania fully a million and a half barrels of oil a month. Their

pipes, of an aggregate length of 3,000 miles, connected with thousands

of wells scattered all over the wide Oil Regions.

Whenever the oil men opened a new field, no matter how remote from those

already developed, the United Pipe Lines immediately went there to care

for the oil. In more than one case, in these years of rapid and

excessive development of oil territory, the pipe-line company invested

great sums in preparing to take care of oil fields whose yield never

paid the cost of the pipe laid. Thus, in 1882, there was a tremendous

excitement over the opening of the Cherry Grove field. The Standard

spent $2,000,000 getting ready to take care of a great outpouring of

oil—which came, but did not stay. In 1882 Cherry Grove produced

2,345,400 barrels; in 1883, 755,512! It cost the company forty-six cents

a barrel to take care of the production of one short-lived group of

wells in this field, on which they never realised more than twenty cents

pipage.

The Standard not only gathered this oil; it stored it, to wait its

owner’s demand. At this date it controlled 40,000,000 barrels of iron

tankage, in which it stored the enormous stocks, over 35,000,000

barrels, which had accumulated in the five previous years. When the oil

passed to the pipe-line, the owner received his money for it at once, if

he wished, or the line “carried” it. When a producer had 1,000 barrels

in the line, he received a pipe-line certificate for it. In December of

1883 the United Pipe Lines had issued certificates for nearly all of the

35,000,000 barrels of stocks above ground. The oil men thus had a bank

for their oil, a bank recognised generally as sound as any in the United

States.

Such were the returns from the pipe-line for its services that no

business ever justified more fully the extraordinary outlays of money

and energy which it had taken to perfect it. For each barrel of oil the

United Pipe Lines gathered, they received, when it was taken from the

lines, twenty cents. The service cost them perhaps two cents after

installation, though in these years, when they were obliged to carry

some 30,000,000 barrels, they had constantly $6,000,000 on their books

on which they did not at once realise. They could afford to let this sum

stand because of the storage charge. For every 1,000 barrels carried in

their tanks they received $6.25 each fifteen days—$152 a year. Now,

tankage did not cost over $250 per 1,000 barrels, so that the storage

more than paid its cost in two years. There were often great losses by

fire, but these were paid by the owners of the oil—a pro rata assessment

being made. There was a deterioration in quantity and quality of oil

from holding, but this again was paid by the owners in a shrinkage

charge of three per cent., deducted from the quantity of oil when run.

Thus on every side the pipe-line business was guarded. So long as it

could keep out competition and hold up its prices, there was no better

paying business in the United States than piping oil.

As we have seen, Mr. Rockefeller began to add long-distance pipe-lines

to his business as soon as the Tidewater demonstrated their feasibility,

and before the time the Tidewater was brought into harmony he had a

complete system to the seaboard and to his inland refinery points,

organised under the name of the National Transit Company. The United

Pipe Lines and the National Transit Company were really one business,

the former consisting of local lines and the other of trunk lines, and

to make the organisation more compact the former was transferred to the

latter on April 1, 1884. The paid-up capital of the concern at this date

was $31,000,000. Just as Mr. Rockefeller claimed, in 1878, that he was

“prepared to enter into a contract to refine all the petroleum that

could be sold in the markets of the world,” so now he could announce

that he was prepared to gather, store and transport all the crude

petroleum not only that the markets of the world demanded, but that the

producers took from the ground. As things now stood the only remaining

point where he could possibly be affected by competition was the

railroads. A new relation to the railroads was created by the new

development. Mr. Rockefeller was not only independent of them, he was

their competitor, for, like them, he was a common carrier obliged to

transport what was offered. His open rate to New York was forty-five

cents, to Philadelphia forty, though the actual service probably did not

cost over ten cents. By the alliance with the Tidewater any danger of

competition from a pipe-line, which could of course afford to cut the

price, was shut off. The railroads might possibly, however, lower the

prices a little and still make a profit. It was very necessary that the

price be kept up in order that too much encouragement should not be

given to outside refiners. The only group which threatened to grow to

large proportions, at this time, was in the Oil Regions, a group which

was the direct outgrowth of the compromise of 1880. As will be

remembered, the agreement with the Pennsylvania Railroad made then

stipulated that all rates should be open, and that if a rebate was given

to one shipper another could have it on demand. After the compromise the

Pennsylvania had undertaken again to stimulate the growth of independent

refineries, and several plants had been built in Titusville and Oil

City. Having removed the New York group from competition by the alliance

with the Tidewater it was Mr. Rockefeller’s business to make it as hard

as possible for the independents in the Oil Regions to do business, and

to do this he must make a contract with the Pennsylvania.

Moreover, when Mr. Rockefeller entered New Jersey with his seaboard

pipe-line, he had been obliged to cross the Pennsylvania Railroad. He

could not do so without the consent of the company, there being no free

pipe-line in the country. He accordingly had been obliged to make a

traffic arrangement with them to get his pipe through. A new arrangement

was now necessary in order to prevent competition, and in August, 1884,

a contract was signed, for “considerations mutually interchanged,” by

which the National Transit Company agreed to give to the Pennsylvania

Railroad twenty-six per cent. of “all petroleum brought to the Atlantic

seaboard by all existing carriers, whether rail or pipe, now engaged in

transporting such property, or which may hereafter engage in such

transportation in conjunction with the Transit Company’s pipes.” At the

same time that the Transit Company agreed to give the railroad this

amount of oil, it also signed an agreement to carry this oil for the

railroad on a sliding scale. When the open rate of the pipe-line was

forty cents to Philadelphia the railroad was to pay the company eight

cents—with each five cents difference, up or down, in the open rate,

there was to be one cent difference to the railroad, the Transit never

to receive less than six or more than ten cents.[90] Suppose, for

example, that the entire seaboard shipment of oil in the month ending

December 20, 1884, had been 1,000,000 barrels. 260,000 barrels belonged

to the Pennsylvania. If the Transit Company ran all the railroad’s

percentage it would get eight cents a barrel for the service, $20,800,

and it would pay the railroad $104,000 less $20,800, or $83,200. The

pipe-line probably never ran the whole amount. More or less refined

oil—naphtha, benzine, and other petroleum products—would necessarily go

by rail. Large sums were paid monthly by the National Transit, however,

to the railroad. Mr. Rockefeller seems to have been paying the

Pennsylvania Railroad this money not to compete with him as an oil

carrier. It would be difficult to find in our variegated commercial

history a more beautiful example of the beneficence of combination—to

those in the deal!

With the removal of danger of any competition by the Pennsylvania

Railroad, the transportation department of the Standard Oil Trust seems

to have been as nearly a perfect machine, both in efficiency and in its

monopolistic power, as ever has been devised. It was more perfect,

indeed, than the refining end of the trust, for independent refiners did

exist, and since 1880 they had been showing increasing vigour, whereas

there seemed now no opportunity for an independent pipe-line ever again

to develop. Who, with the Tidewater’s story in mind, would be bold

enough to attempt to reach the sea? For the time being, then, the

Standard Oil Company had things all its own way. It collected with its

ally, the Tidewater, practically the entire output of a great raw

product. It manufactured fully ninety per cent. of this product, and

aimed to manufacture 100 per cent. It was a common carrier, and so

obliged to deliver oil to rival refineries if they called for it, but

these refineries paid forty or forty-five cents for a service which cost

the Standard Oil Trust not over one-fourth of the sum.

Mr. Rockefeller had every reason to be satisfied with oil transportation

in 1884, but there was a part of the oil business which was not so

completely in his grasp. The markets of the country were still open.

There the few independent refiners who had escaped strangulation were

free to barter as they could. But the right to make all the oil in the

world, which Mr. Rockefeller claimed, carried with it the right to sell

all the oil the world consumed. The independent was therefore a poacher

in the market and must be driven out.

CHAPTER TEN

CUTTING TO KILL

ROCKEFELLER NOW PLANS TO ORGANISE OIL MARKETING AS HE HAD ALREADY

ORGANISED OIL TRANSPORTING AND REFINING—WONDERFULLY EFFICIENT AND

ECONOMICAL SYSTEM INSTALLED—CURIOUS PRACTICES INTRODUCED—REPORTS OF

COMPETITORS’ BUSINESS SECURED FROM RAILWAY AGENTS—COMPETITORS’

CLERKS SOMETIMES SECURED AS ALLIES—IN MANY INSTANCES FULL RECORDS OF

ALL OIL SHIPPED ARE GIVEN STANDARD BY RAILWAY AND STEAMSHIP

COMPANIES—THIS INFORMATION IS USED BY STANDARD TO FIGHT

COMPETITORS—COMPETITORS DRIVEN OUT BY UNDERSELLING—EVIDENCE FROM ALL

OVER THE COUNTRY—PRETENDED INDEPENDENT OIL COMPANIES STARTED BY THE

STANDARD—STANDARD’S EXPLANATION OF THESE PRACTICES IS NOT

SATISFACTORY—PUBLIC DERIVES NO BENEFIT FROM TEMPORARY LOWERING OF

PRICES—PRICES MADE ABNORMALLY HIGH WHEN COMPETITION IS DESTROYED.

To know every detail of the oil trade, to be able to reach at any moment

its remotest point, to control even its weakest factor—this was John D.

Rockefeller’s ideal of doing business. It seemed to be an intellectual

necessity for him to be able to direct the course of any particular

gallon of oil from the moment it gushed from the earth until it went

into the lamp of a housewife. There must be nothing—_nothing_ in his

great machine he did not know to be working right. It was to complete

this ideal, to satisfy this necessity, that he undertook, late in the

seventies, to organise the oil markets of the world, as he had already

organised oil refining and oil transporting. Mr. Rockefeller was driven

to this new task of organisation not only by his own curious intellect;

he was driven to it by that thing so abhorrent to his mind—competition.

If, as he claimed, the oil business belonged to him, and if, as he had

announced, he was prepared to refine all the oil that men would consume,

it followed as a corollary that the markets of the world belonged to

him. In spite of his bold pretensions and his perfect organisation, a

few obstinate oil refiners still lived and persisted in doing business.

They were a fly in his ointment—a stick in his wonderful wheel. He must

get them out; otherwise the Great Purpose would be unrealised. And so,

while engaged in organising the world’s markets, he incidentally carried

on a campaign against those who dared intrude there.

When Mr. Rockefeller began to gather the oil markets into his hands he

had a task whose field was literally the world, for already, in 1871,

the year before he first appeared as an important factor in the oil

trade, refined oil was going into every civilised country of the globe.

Of the five and a half million barrels of crude oil produced that year,

the world used five millions, over three and a half of which went to

foreign lands. This was the market which had been built up in the first

ten years of business by the men who had developed the oil territory and

invented the processes of refining and transporting, and this was the

market, still further developed, of course, that Mr. Rockefeller

inherited when he succeeded in corralling the refining and transporting

of oil. It was this market he proceeded to organise.

[Illustration:

JOHN D. ROCKEFELLER IN 1880

FROM A PHOTOGRAPH BY SARONY

]

The process of organisation seems to have been natural and highly

intelligent. The entire country was buying refined oil for illumination.

Many refiners had their own agents out looking for markets; others sold

to wholesale dealers, or jobbers, who placed trade with local dealers,

usually grocers. Mr. Rockefeller’s business was to replace independent

agents and jobbers by his own employees. The United States was mapped

out and agents appointed over these great divisions. Thus, a certain

portion of the Southwest—including Kansas, Missouri, Arkansas and

Texas—the Waters-Pierce Oil Company, of St. Louis, Missouri, had charge

of; a portion of the South—including Kentucky, Tennessee and

Mississippi—Chess, Carley and Company, of Louisville, Kentucky, had

charge of. These companies in turn divided their territory into

sections, and put the subdivisions in the charge of local agents. These

local agents had stations where oil was received and stored, and from

which they and their salesmen carried on their campaigns. This system,

inaugurated in the seventies, has been developed until now the Standard

Oil Company of each state has its own marketing department, whose

territory is divided and watched over in the above fashion. The entire

oil-buying territory of the country is thus covered by local agents

reporting to division headquarters. These report in turn to the head of

the state marketing department, and his reports go to the general

marketing headquarters in New York.

To those who know anything of the way in which Mr. Rockefeller does

business, it will go without saying that this marketing department was

conducted from the start with the greatest efficiency and economy. Its

aim was to make every local station as nearly perfect in its service as

it could be. The buyer must receive his oil promptly, in good condition,

and of the grade he desired. If a customer complained, the case received

prompt attention and the cause was found and corrected. He did not only

receive oil; he could have proper lamps and wicks and burners, and

directions about using them.

The local stations from which the dealer is served to-day are models of

their kind, and one can easily believe they have always been so. Oil,

even refined, is a difficult thing to handle without much disagreeable

odour and stain, but the local stations of the Standard Oil Company,

like its refineries, are kept orderly and clean by a rigid system of

inspection. Every two or three months an inspector goes through each

station and reports to headquarters on a multitude of details—whether

barrels are properly bunged, filled, stencilled, painted, glued; whether

tank wagons, buckets, faucets, pipes, are leaking; whether the glue

trough is clean, the ground around the tanks dry, the locks in good

condition; the horses properly cared for; the weeds cut in the yard. The

time the agent gets around in the morning and the time he takes for

lunch are reported. The prices he pays for feed for his horses, for

coal, for repairs, are noted. In fact, the condition of every local

station, at any given period, can be accurately known at marketing

headquarters, if desired. All of this tends, of course, to the greatest

economy and efficiency in the local agents.

But the Standard Oil agents were not sent into a territory back in the

seventies simply to sell all the oil they could by efficient service and

aggressive pushing; they were sent there to sell all the oil that was

bought. “The coal-oil business belongs to us,” was Mr. Rockefeller’s

motto, and from the beginning of his campaign in the markets his agents

accepted and acted on that principle. If a dealer bought but a barrel of

oil a year, it must be from Mr. Rockefeller. This ambition made it

necessary that the agents have accurate knowledge of all outside

transactions in oil, however small, made in their field. How was this

possible? The South Improvement scheme provided perfectly for this, for

it bound the railroad to send daily to the principal office of the

company reports of all oil shipped, the name of shipper, the quantity

and kind of oil, the name of consignee, with the destination and the

cost of freight.[91] Having such knowledge as this, an agent could

immediately locate each shipment of the independent refiner, and take

the proper steps to secure the trade. But the South Improvement scheme

never went into operation. It remained only as a beautiful ideal, to be

worked out as time and opportunity permitted. The exact process by which

this was done it is impossible to trace. The work was delicate and

involved operations of which it was wise for the operator to say

nothing. It is only certain that little by little a secret bureau for

securing information was built up until it is a fact that information

concerning the business of his competitors, almost as full as that which

Mr. Rockefeller hoped to get when he signed the South Improvement

Company contracts, is his to-day. Probably the best way to get an idea

of how Mr. Rockefeller built up this department, as well as others of

his marketing bureau, is to examine it as it stands to-day. First, then,

as to the methods of securing information which are in operation.

Naturally and properly the local agents of the Standard Oil Company are

watchful of the condition of competition in their districts, and

naturally and properly they report what they learn. “We ask our salesmen

and our agents to keep their eyes open and keep us informed of the

situation in their respective fields,” a Standard agent told the

Industrial Commission in 1898. “We ask our agents, as they visit the

trade, to make reports to us of whom the different parties are buying;

principally to know whether our agents are attending to their business

or not. If they are letting too much business get away from them, it

looks as if they were not attending to their business. They get it from

what they see as they go around selling goods.” But there is no such

generality about this part of the agent’s or salesman’s business as this

statement would lead one to believe. As a matter of fact it is a

thoroughly scientific operation. The gentleman who made the above

statement, for instance, sends his local agents a blank like the

following to be made out each month:

[Illustration:

EXHIBIT “B—R.”[92]

]

The local agent gets the information to fill out such a report in

various ways. He questions the dealers closely. He watches the railway

freight stations. He interviews everybody in any way connected with the

handling of oil in his territory. All of which may be proper enough.

When, in the early eighties, Howard Page, of the Standard Oil Company,

was in charge of the Standard shipping department in Kentucky, his

agents visited the depots once a day to see what oil arrived there from

independent shippers. A record of these shipments was made and reported

monthly to Mr. Page. He was able to tell the Interstate Commerce

Commission, in 1887, almost exactly what his rivals had been shipping by

rail and by river. Mr. Page claimed that his agents had no special

privileges; that anybody’s agents would have been allowed to examine the

incoming cars, note the consignor, contents and consignee. It did not

appear in the examination, however, that anybody but Mr. Page had sent

agents to do such a thing. The Waters-Pierce Oil Company, of St. Louis,

once paid one of its Texas agents this unique compliment: “We are glad

to know you are on such good terms with the railroad people that Mr.

Clem (an agent handling independent oil) gains nothing by marking his

shipments by numbers instead of names.” In the same letter the writer

said: “Would be glad to have you advise us when Clem’s first two tanks

have been emptied and returned, also the second two to which you refer

as having been in the yard nine and sixteen days, that we may know how

long they have been held in Dallas. The movement of tank cars enters

into the cost of oil, so it is necessary to have this information that

we may know what we are competing with.”[93]

The superior receiving the filled blanks carefully follows them by

letters of instructions and inquiries, himself keeping track of each

dealer, however insignificant, in the local agent’s territory, and when

one out of line has been brought in, never failing to compliment his

subordinate. But however diligent the agent may be in keeping his eyes

open, however he may be stirred to activity by the prodding and

compliments of his superiors, it is of course out of the question that

he get anything like the full information the South Improvement scheme

insured. What he is able to do is supplemented by a system which

compares very favourably with that famous scheme and which undoubtedly

was suggested by it. For many years independent refiners have declared

that the details of their shipments were leaking regularly from their

own employees or from clerks in freight offices. At every investigation

made these declarations have been repeated and occasional proof has been

offered; for instance, a Cleveland refiner, John Teagle, testified in

1888 to the Congressional Committee that one day in 1883 his bookkeeper

came to him and told him that he had been approached by a brother of the

secretary of the Standard Oil Company at Cleveland, who had asked him if

he did not wish to make some money. The bookkeeper asked how, and after

some talk he was informed that it would be by his giving information

concerning the business of his firm to the Standard. The bookkeeper

seems to have been a wary fellow, for he dismissed his interlocutor

without arousing suspicion and then took the case to Mr. Teagle, who

asked him to make some kind of an arrangement in order to find out just

what information the Standard wanted. The man did this. For twenty-five

dollars down and a small sum per year he was to make a transcript of Mr.

Teagle’s daily shipments with net price received for the same; he was to

tell what the cost of manufacturing in the refinery was; the amount of

gasoline and naphtha made and the net price received for them; what was

done with the tar; and what percentage of different grades of oil was

made; also how much oil was exported. This information was to be mailed

regularly to Box 164 of the Cleveland post-office. Mr. Teagle, who at

that moment was hot on the tracks of the Standard in the courts, got an

affidavit from the bookkeeper. This he took with the money which the

clerk had received to the secretary of the Standard Oil Company and

charged him with bribery. At first the gentleman denied having any

knowledge of the matter, but he finally confessed and even took back the

money. Mr. Teagle then gave the whole story to the newspapers, where it

of course made much noise.

Several gentlemen testified before the recent Industrial Commission to

the belief that their business was under the constant espionage of the

Standard Oil Company. Theodore Westgate, an oil refiner of Titusville,

told the Commission that all of his shipments were watched. The

inference from his testimony was that the Standard Oil Company received

reports direct from the freight houses. Lewis Emery, Jr., of Bradford, a

lifelong contestant of the Standard, declared that he knew his business

was followed now in the same way as it was in 1872 under the South

Improvement Company contract. He gave one or two instances from his own

business experience to justify his statements, and he added that he

could give many others if necessary. Mr. Gall, of Montreal, Canada,

declared that these same methods were in operation in Canada. “When our

tank-cars come in,” Mr. Gall told the Commission, “the Standard Oil

Company have a habit of sending their men, opening a tank-car, and

taking a sample out to see what it contains.” Mr. Gall declared that he

knew this a long time before he was able to get proof of it. He declared

that they knew the number of cars that he shipped and the place to which

they went, and that it was their habit to send salesmen after every

shipment. Mrs. G. C. Butts, a daughter of George Rice, an independent

refiner of Marietta, Ohio, told the Ohio Senate Committee which

investigated trusts in 1898 that a railroad agent of their town had

notified them that he had been approached by a Standard representative

who asked him for a full report of all independent shipments, to whom

and where going. The agent refused, but, said Mrs. Butts: “We found out

later that someone was giving them this information and that it was

being given right from our own works.... A party writing us from the

Waters-Pierce office wrote that we had no idea of the network of

detectives, generally railroad agents, that his company kept, and that

everything that we or our agents said or did was reported back to the

managers through a regular network of detectives who were agents of the

railroads and oil company as well.”

But while the proofs the independents have offered of their charges show

that such leaks have occurred at intervals all over the country, they do

not show anything like a regular system of collecting information

through this channel. From the evidence one would be justified in

believing that the cases were rare, occurring only when a not over-nice

Standard manager got into hot competition with a rival and prevailed

upon a freight agent to give him information to help in his fight. In

1903, however, the writer came into possession of a large mass of

documents of unquestionable authenticity, bearing out all and more than

the independents charge. They show that the Standard Oil Company

receives regularly to-day, at least from the railroads and steamship

lines represented in these papers, information of _all_ oil shipped. A

study of these papers shows beyond question that somebody having access

to the books of the freight offices records regularly each oil shipment

passing the office—the names of consignor and consignee, the addresses

of each, and the quantity and kind of oil are given in each case. This

record is made out usually on a sheet of blank paper, though

occasionally the recorder has been indiscreet enough to use the railroad

company’s stationery. The reports are evidently intended not to be

signed, though there are cases in the documents where the name of the

sender has been signed and erased; in one case a printed head bearing

the name of the freight agent had been used. The name had been cut out,

but so carelessly that it was easy to identify him. These reports had

evidently been sent to the office of the Standard Oil Company, where

they had received a careful examination, and the information they

contained had been classified. Wherever the shipment entered was from

one of the distributing stations of the Standard Oil Company, a line was

drawn through it, or it was checked off in some way. In every other case

in the mass of reports there was written, opposite the name of the

consignee, the name of a person _known_ to be a Standard agent or

salesman in the territory where the shipment had gone.

Now what is this for? Copies of letters and telegrams accompanying the

reports show that as soon as a particular report had reached Standard

headquarters and it was known that a carload, or even a barrel, of

independent oil was on its way to a dealer, the Standard agent whose

name was written after the shipment on the record had been notified. “If

you can stop car going to X, authorise rebate to Z (name of dealer) of

three-quarters cent per gallon,” one of the telegrams reads. There is

plenty of evidence to show how an agent receiving such information

“stops” the oil. He _persuades_ the dealer to countermand the order.

George Rice, when before the House Committee on Manufactures in 1888,

presented a number of telegrams as samples of his experience in having

orders countermanded in Texas. Four of these were sent on the same day

from different dealers in the same town, San Angelo. Mr. Rice

investigated the cause, and, by letters from the various firms, learned

that the Standard agent had been around “threatening the trade that if

they bought of me they would not sell them any more,” as he put it.

Mrs. Butts in her testimony in 1898 said that her firm had a customer in

New Orleans to whom they had been selling from 500 to 1,000 barrels a

month, and that the Standard representative made a contract with him to

pay him $10,000 a year for five years to stop handling the independent

oil and take Standard oil! Mrs. Butts offered as evidence of a similar

transaction in Texas the following letter:

“LOCKHART, TEXAS, November 30, 1894.

“Mr. Keenan, who is with the Waters-Pierce people at Galveston, has

made us several visits and made us propositions of all kinds to get

us out of the business. Among others, he offered to pay us a monthly

salary if we would quit selling oil and let them have full control

of the trade, and insisted that we name a figure that we would take

and get out of the business, and also threatened that if we did not

accept his proposition they would cut prices below what oil cost us

and force us out of business. We asked him the question, should we

accept his proposition, would they continue to sell oil as cheap as

we were then selling it, and he stated most positively that they

would advance the price at once should they succeed in destroying

competition.

“J. S. LEWIS AND COMPANY.”

In the Ohio Investigation of 1898 John Teagle, of Cleveland, being upon

his oath, said that his firm had had great difficulty in getting goods

accepted because the Standard agents would persuade the dealers to

cancel the orders. “They would have their local man, or some other man,

call upon the trade and use their influence and talk lower prices, or

make a lower retail price, or something to convince them that they’d

better not take our oil, and, I suppose, to buy theirs.” Mr. Teagle

presented the following letter, signed by a Standard representative,

explaining such a countermand:

“DES MOINES, IOWA, January 14, 1891.

“JOHN FOWLER,

Hampton, Iowa.

“_Dear Sir_:—Our Marshalltown manager, Mr. Ruth, has explained the

circumstances regarding the purchase and subsequent countermand of a

car of oil from our competitors. He desires to have us express to

you our promise that we will stand all expense provided there should

be any trouble growing out of the countermand of this car. We

cheerfully promise to do this; we have the best legal advice which

can be obtained in Iowa, bearing on the points in this case. An

order can be countermanded either before or after the goods have

been shipped, and, in fact, can be countermanded even if the goods

have already arrived and are at the depot. A firm is absolutely

obliged to accept a countermand. The fact that the order has been

signed does not make any difference. We want you to absolutely

refuse, under any circumstances, to accept the car of oil. We are

standing back of you in this matter, and will protect you in every

way, and would kindly ask you to keep this letter strictly

confidential....

“Yours truly, E. P. PRATT.”

Peter Shull, of the Independent Oil Company of Mansfield, Ohio,

testified before the same committee to experiences similar to those of

Mr. Teagle.

“If I put a man on the road to sell goods for me,” said Mr. Shull, “and

he takes orders to the amount of 200 to 300 barrels a week, before I am

able to ship these goods possibly, the Standard Oil Company has gone

there and compelled those people to countermand those orders under a

threat that, if they don’t countermand them, they will put the price of

oil down to such a price that they cannot afford to handle the goods.”

In support of his assertion Mr. Shull offered letters from firms he has

been dealing with. The following citations show the character of them:

“TIFFIN, OHIO, February 1, 1898.

“INDEPENDENT OIL COMPANY,

Mansfield, Ohio.

“_Dear Sirs_:—The Standard Oil Company, after your man was here, had

the cheek to come in and ask how many barrels of oil we bought and

so forth, then asked us to countermand the order, saying it would be

for our best; we understand they have put their oil in our next door

and offer it at six cents per gallon, at retail. Shall we turn tail

or show them fight? If so, will you help us out any?...

“Yours truly,

“TALBOTT AND SON.”

“TIFFIN, OHIO, January 24, 1898.

“INDEPENDENT OIL COMPANY.

“_Dear Sirs_: ... I am sorry to say that a Standard Oil man from

your city followed that oil car and oil to my place, and told me

that he would not let me make a dollar on that oil, and was dogging

me around for two days to buy that oil, and made all kinds of

threats and talked to my people of the house while I was out, and

persuaded me to sell, and I was in a stew what I should do, but I

yielded and I have been very sorry for it since. I thought I would

hate to see the bottom knocked out of the prices, but that is why I

did it—the only reason. The oil was all right. I now see the

mistake, and that is of getting a carload—two carloads coming in

here inside of a week is more than the other company will stand....

“Yours truly,

“H. A. EIRICK.”

In case the agent cannot persuade the dealer to countermand his order,

more strenuous measures are applied. The letters quoted above hint at

what they will be. Many letters have been presented by witnesses under

oath in various investigations showing that Standard Oil agents in all

parts of the country have found it necessary for the last twenty-five

years to act at times as these letters threaten. One of the most

aggressive of these campaigns waged at the beginning of this war of

exterminating independent dealers was by the Standard marketing agent at

Louisville, Kentucky—Chess, Carley and Company. This concern claimed a

large section of the South as its territory. George Rice, of Marietta,

Ohio, had been in this field for eight or ten years, having many regular

customers. It became Chess, Carley and Company’s business to secure

these customers and to prevent his getting others. Mr. Rice was

handicapped to begin with by railroad discrimination. He was never able

to secure the rates of his big rival on any of the Southern roads. In

1888 the Interstate Commerce Commission examined his complaints against

eight different Southern and Western roads, and found that no one of

them treated him with “relative justice.” Railroad discriminations were

not sufficient to drive him out of the Southwest, however, and a war of

prices was begun. According to the letters Mr. Rice himself has

presented he certainly in some cases began the cutting, as he could well

afford to do. For instance, Chess, Carley and Company were selling

water-white oil in September, 1880, in Clarksville, Tennessee, at

twenty-one cents a gallon delivered in carloads—export oil was selling

in barrels in New York at that date at 10⅝ cents a gallon. Rice’s agent

offered at eighteen cents. The dealer to whom he made the offer,

Armstrong by name, wished to accept, but as he had been buying of Chess,

Carley and Company, went first to see them about the matter. He came

back “scared almost out of his boots,” wrote the agent to Rice.

“Carley told him he would break him up if he bought oil of anyone

else; that the Standard Company had authorised him to spend $10,000

to break up any concern that bought oil from anyone else; that he

(Carley) would put all his drummers in the field to hunt up

Armstrong’s customers and sell his customers groceries at five per

cent. below Armstrong’s prices, and turn all Armstrong’s trade over

to Moore, Bremaker and Company, and settle with Moore, Bremaker and

Company for their losses in helping to break Armstrong up, every

thirty days.

“That if Armstrong sent any other oil to Clarksville, Tennessee, he

(Carley) would put the price of oil so low in Clarksville as to make

the party lose heavily, and that they (the Standard) would break up

anyone that would sell him (Armstrong) oil, and that he (Carley) had

told Stege and Reiling the same thing. Did you ever? What do you

think of that?”

[Illustration]

Very soon after this, Chess, Carley and Company took in hand a Nashville

firm, Wilkinson and Company, which was buying of Rice. “It is with great

reluctance,” they wrote, “that we undertake serious competition with any

one, _and certainly this competition will not be confined to coal-oil or

any one article, and will not be limited to any one year_. We always

stand ready to make reasonable arrangements with any one who chooses to

appear in our line of business, and it will be unlike anything we have

done heretofore if we permit any one to force us into an arrangement

which is not reasonable. Any loss, however great, is better to us than a

record of this kind.” And four days later they wrote: “If you continue

to bring on the oil, it will simply force us to cut down our price, and

no other course is left to us but the one we have intimated.” Wilkinson

and Company seem to have stuck to Rice’s oil, for sixteen months later,

we find Chess, Carley and Company calling on the agent of a railroad,

which already was giving the Standard discriminating rates, to help in

the fight.

The screw was turned, Mr. Rice affirms, his rate being raised fifty per

cent. in five days.

Rice carried on his fight for a market in the most aggressive way, and

everywhere he met disastrous competition. In 1892 he published a large

pamphlet of documents illustrating Standard methods, in which he

included citations from some seventy letters from dealers in Texas,

received by him between 1881 and 1889, showing the kind of competition

his oil met there from the Waters-Pierce Oil Company, the Standard’s

Texas agents. A dozen sentences, from as many different towns, will show

the character of them all:

“I have had wonderful competition on this car. As soon as my car

arrived the Waters-Pierce Oil Company, who has an agent here,

slapped the price down to $1.80 per case 110.”

“... Oil was selling at this point for $2.50 per case, and as soon

as your car arrived it was put down to $1.50, which it is selling at

to-day.”

“The Waters-Pierce Oil Company reduced their prices on Brilliant oil

from $2.60 to $1.50 per case and is waging a fierce war.”

“Waters-Pierce Oil Company has our state by the throat and we would

like to be extricated.”

“I would like to handle your oil if I could be protected against the

Waters-Pierce Oil Company. I am afraid if I would buy a car of oil

from you this company would put the oil way below what I pay and

make me lose big money. I can handle your oil in large quantities if

you would protect me against them.”

“The Waters-Pierce Oil Company has cut the stuffing out of coal-oil

and have been ever since I got in my last car. They put the price to

the merchants at $1.80 per case.”

“We have your quotations on oil. While they are much lower than what

we pay, yet unless a carload could be engaged it would pay no firm

to try and handle, as Waters-Pierce Oil Company would cut below cost

on same.”

“The day your oil arrived here, their agent went to all my customers

and offered their Eupion oil at ten cents per gallon in barrels and

$1.50 per case, and lower grades in proportion, and told them if

they did not refuse to take the oil he would not sell them any more

at any price, and that he was going to run me out of the business,

and then they would be at his mercy.”

“Now we think Waters-Pierce Oil Company have been getting too high a

price for their oil. They are able and do furnish almost this entire

state with oil. They cut prices to such an extent when any other oil

is offered in this state that they force the parties handling the

oil to abandon the trade.”

“Trace and hurry up car of oil shipped by you. We learn it is

possible that your oil is side-tracked on the line, that

Waters-Pierce might get in their work.”

“If we were to buy a car or more, the Waters-Pierce Oil Company

would manage to sell a little cheaper than we could, and continue

doing so until they busted me up.”

“In regard to oil, we are about out now, and Waters-Pierce have put

their oil up again and quote us at the old price.”

“Jobbers say when they take hold of another oil they are at once

boycotted by Waters-Pierce Oil Company, who not only refuse to sell

them, but put oil below what they pay for it, and thus knock them

out of the oil trade, unless they sell at a loss.”

“If I find that I can handle your oil in Texas without being run out

and losing money by this infernal corporation, the Waters-Pierce Oil

Company, I want to arrange with you to handle it extensively. I

received verbal notice this morning from their agent that they would

make it hot for me when my oil got here.”

Mr. Rice claims, in his preface to the collection of letters here quoted

from, that he has hundreds of similar ones from different states in the

Union, and the writer asked to examine them. The package of documents

submitted in reply to this request was made up literally of hundreds of

letters. They came from twelve different states, and show everywhere the

same competitive method—cutting to kill. One thing very noticeable in

these letters is the indignation of the dealers at the Standard methods

of securing trade. They resent threats. They complain that the Standard

agents “nose” about their premises, that they ask impudent questions,

and that they generally make the trade disgusting and humiliating. In

Mississippi, in the eighties, the indignation of the small dealers

against Chess, Carley and Company was so strong that they formed

associations binding themselves not to deal with them.

These same tactics have been kept up in the Southwest ever since. A

letter, dated April 28, 1891, from the vice-president of the

Waters-Pierce Oil Company, A. M. Finlay, to his agent at Dallas, Texas,

says bluntly: “We want to make the prices at Dallas and in the

neighbourhood on Brilliant and water-white oil, that will prevent Clem

(an independent dealer) from doing any business.” And Mr. Finlay adds:

“Hope you will make it a point to be present at the next meeting of the

city council, to-morrow night, and do everything possible to prevent

granting a permit to build within the city limits, unless building

similar to ours is constructed, for it would not be fair to us to allow

someone else to put up constructions for the storage of oil, when they

had compelled us to put up such an expensive building as we have.”[94]

Mr. Rice is not the only independent oil dealer who has produced similar

testimony. Mr. Teagle and Mr. Shull, in Ohio, have furnished

considerable. “The reason we quit taking your oil is this,” wrote a

Kansas dealer to Scofield, Shurmer and Teagle, in 1896: “The Standard

Oil Company notified us that if we continued handling your oil they

would cut the oil to ten cents retail, and that we could not afford to

do, and for that reason we are forced to take their oil or do business

for nothing or at a loss.” “The Standard agent has repeatedly told me

that if I continued buying oil and gasoline from your wagon,” wrote an

Ohio dealer to the same firm in 1897, “they would have it retailed here

for less than I could buy. I paid no attention to him, but yesterday

their agent was here and asked me decidedly if I would continue buying

oil and gasoline from your wagon. I told him I would do so; then he went

and made arrangements with the dealers that handle their oil and

gasoline to retail it for seven cents.”

Mr. Shull summed up his testimony before the same committee to which Mr.

Teagle gave the above, by declaring: “You take $10,000 and go into the

business and I will guarantee you won’t be in business ninety days.

Their motto is that anybody going into the oil business in opposition to

them they will make life a burden to him. That is about as near as you

can get to it.”

Considerable testimony of the same sort of practices was offered in the

recent “hearing before the Industrial Commission,” most of it general in

character. The most significant special case was offered by Mr.

Westgate, the treasurer of the American Oil Works, an independent

refinery of Titusville, Pennsylvania.

The American Oil Works, it seems, were in 1894 shipping oil called

“Sunlight” in barrels to South Bend, Washington. This was in the

territory of the Standard agents at Portland, Oregon, one of whom wrote

to a South Bend dealer when he heard of the intrusion: “We will state

for your information that never a drop of oil has reached South Bend of

better quality than what we have always shipped into that territory.

They can name it ‘Sunlight,’ ‘Moonlight,’ or ‘Starlight,’ it makes no

difference. You can rest assured if another carload of ‘Sunlight’

arrives at your place, it will be sold very cheap. We do not purpose to

allow another carload to come into that territory unless it comes and is

put on the market at one-half its actual cost. You can convey this idea

to the young man who imported the carload of ‘Sunlight’ oil.”

When John D. Archbold, of the Standard Oil Company, had his attention

called to this letter by Professor Jenks, of the Industrial Commission,

Mr. Archbold characterised the letter as “a foolish statement by a

foolish and unwise man” and promised to investigate it. Later he

presented the commission with an explanation from the superior of the

agent, who declared that the writer of the letter did not have any

authority to say that oil would be sold on the basis mentioned. “The

letter,” he continued, “was intended to be written in a jocular manner

to deny a claim that he was selling oil inferior in quality to that sold

by others.” It is hard for the mere outsider to catch the jocularity of

the letter, and it must have been much more difficult for the dealer who

received it to appreciate it.

Independent oil dealers of the present day complain bitterly of a rather

novel way employed by the Standard for bringing into line dealers whose

prejudices against buying from them are too strong to be overcome by the

above methods. This is through what are called “bogus” oil companies.

The obdurate dealer is approached by the agent of a new independent

concern, call it the A B C Oil Company, for illustration. The agent

seeks trade on the ground that he represents an independent concern and

that he can sell at lower prices than the firm from which the dealer is

buying. Gradually he works his way into the independent’s trade. As a

matter of fact, the new company is merely a Standard jobbing house which

makes no oil, and which conceals its real identity under a misleading

name. The mass of reports from railroad freight offices quoted from in

this article corroborate this claim of the independents. The A B C Oil

Company is mentioned again and again as shipping oil, and in the audited

reports it is always checked off in the same fashion as the known

Standard companies, and none of its shipments is referred to Standard

agents. Independents all over the country tell of loss of markets

through underselling by these “bogus” companies. The lower price which a

supposedly independent concern gives to a dealer who will not, under any

condition, buy of the Standard, need not demoralise the Standard trade

in the vicinity if the concession is made with caution. After the trade

is secure, that is, after the genuine independent is ousted, the

masquerading concern always finds itself obliged to advance prices. When

the true identity of such a company becomes known its usefulness

naturally is impaired, and it withdraws from the field and a new one

takes its place.

There is never a dealer in oil too small to have applied the above

methods of competition. In recent years they have frequently been

applied even to oil peddlers. In a good many towns of the country oil is

sold from door to door by men whose whole stock in trade is their

peddling wagons. Many of these oil peddlers build up a good trade. As a

rule they sell Standard oil. Let one take independent oil, however, and

the case is at once reported. His customers are located and at once

approached by a Standard tank-wagon man, who frequently, it is said, not

only sells at a lower price than they have been paying, but even goes so

far as to clean and fill the lamps! In these raids on peddlers of

independent oil, refined oil has been sold in different cities at the

doors of consumers at less than crude oil was bringing at the wells, and

several cents per gallon less than it was selling to wholesale dealers

in refined. It is claimed by independents that at the present time the

“bogus” companies generally manage this matter of driving out peddlers,

thus saving the Standard the unpopularity of the act and the

dissatisfaction of the rise in price which, of course, follows as soon

as the trade is secured.

The general explanation of these competitive methods which the Standard

officials have offered, is that they originate with “over-zealous”

employees and are disapproved of promptly if brought to the attention of

the heads of the house. The cases seem rather too universal for such an

explanation to be entirely satisfactory. Certainly the system of

collecting information concerning competitive business is not practised

by the exceptional “over-zealous” employee, but is a recognised

department of the Standard Oil Company’s business. In the mass of

documents from which the reports of oil shipments referred to above were

drawn, are certain papers showing that the system is nearly enough

universal to call for elaborate and expensive bookkeeping at the

headquarters of each Standard marketing division. For instance, on the

next page is a fragment illustrating the page of a book kept at such a

headquarters.

What does this show? Simply that every day the reports received from

railroad freight agents are entered in records kept for the purpose;

that there is on file at the Standard Oil headquarters a detailed list

of the daily shipments which each independent refiner sends out, even to

the initials and number on the car in which the shipment goes. From this

remarkable record the same set of documents shows that at least two sets

of reports are made up. One is a report of the annual volume of business

being done by each particular independent refiner or wholesale jobber,

the other of the business of each individual local dealer, so far as the

detectives of the Standard have been able to locate it. For instance,

among the documents is the report on a well-known oil jobbing house in

one of the big cities of the country—reproduced on the next page.

[Illustration:

The figures, dates, consignees and destination on the above are

fictitious. The names of shippers were copied from the original in

possession of the writer.

]

A comparison of this report with the firm’s own accounts shows that the

Standard came within a small per cent. of an accurate estimate of the X

Y Z’s business.

[Illustration:

The above is similar to the form compiled by the Standard Oil Company.

]

Another curious use made of these reports from the freight offices is

forming a card catalogue of local dealers. (See form on page 55.) Oil is

usually sold at retail by grocers. It is with them that the local agents

deal. Now the daily reports from the freight offices show the oil they

receive. The competition reports from local agents also give more or

less information concerning their business. A card is made out for each

of them, tabulating the date on which he received oil, the name and

location of the dealer he got it from, the quality, and the price he

sells at. In a space left for remarks on the card there is written in

red ink any general information about the dealer the agent may have

picked up. Often there is an explanation of why the man does not buy

Standard oil—not infrequently this explanation reads: “Is opposed to

monopolies.” It is impossible to say from documentary evidence how long

such a card catalogue has been kept by the Standard; that it has been a

practice for at least twenty-five years the following quotation from a

letter written in 1903 by a prominent Standard official in the Southwest

to one of his agents shows: “Where competition exists,” says the

official, “it has been our custom to keep a record of each merchant’s

daily purchase of bulk oil; and I know of one town at least in the

Southern Texas Division where that record has been kept, whether there

was competition or not, for the past fifteen years.”[95]

[Illustration:

The names, figures, and locations on the above form are fictitious.

The remarks are copied from cards in possession of the writer.

]

The inference from this system of “keeping the eyes open” is that the

Standard Oil Company knows practically where every barrel shipped by

every independent dealer goes; and where every barrel bought by every

corner-grocer from Maine to California comes from. The documents from

which the writer draws the inference do not, to be sure, cover the

entire country, but they do cover in detail many different states, and

enough is known of the Standard’s competitive methods in states outside

this territory to justify one in believing that the system of gathering

information is in use everywhere. That it is a perfect system is

improbable. Bribery is not as dangerous business in this country as it

deserves to be—of course nothing but a bribe would induce a clerk to

give up such information as these daily reports contain—but, happily,

such is the force of tradition that even those who have practised it for

a long time shrink from discovery. It is one of those political and

business practices which are only respectable when concealed. Naturally,

then, the above system of gathering information must be handled with

care, and can never have the same perfection as that Mr. Rockefeller

expected when he signed the South Improvement Company charter.

The moral effect of this system on employees is even a more serious

feature of the case than the injustice it works to competition. For a

“consideration” railroad freight clerks give confidential information

concerning freight going through their hands. It would certainly be

quite as legitimate for post-office clerks to allow Mr. Rockefeller to

read the private letters of his competitors, as it is that the clerks of

a railroad give him data concerning their shipments. Everybody through

whose hands such information passes is contaminated by the knowledge. To

be a factor, though even so small a one, in such a transaction, blunts

one’s sense of right and fairness. The effect on the local Standard

agent cannot but be demoralising. Prodded constantly by letters and

telegrams from superiors to secure the countermand of independent oil,

confronted by statements of the amount of sales which have gotten away

from him, information he knows only too well to have been secured by

underhand means, obliged to explain why he cannot get this or that trade

away from a rival salesman, he sinks into habits of bullying and

wheedling utterly inconsistent with self-respect. “Is there nothing you

independents can do to prevent our people finding out who you sell to?”

an independent dealer reports a hunted Standard agent asking him. “My

life is made miserable by the pressure brought on to chase up your

sales. I don’t like such business. It isn’t right, but what can I do?”

The system results every now and then, naturally enough, in flagrant

cases of bribing employees of the independents themselves. Where the

freight office does not yield the information, the rival’s own office

may, and certainly if it is legitimate to get it from one place it is

from the other. It is not an unusual thing for independent refiners to

discharge a man whom they have reason to believe gives confidential

information to the Standard. An outrageous case of this, which occurred

some ten years ago, is contained in an affidavit which has been recently

put at the writer’s disposition. It seems that in 1892 the Lewis Emery

Oil Company, an independent selling concern in Philadelphia, employed a

man by the name of Buckley. This man was discharged, and in September of

that year he went into the employ of the leading Standard refinery of

Philadelphia, a concern known as the Atlantic Refining Company.

According to the affidavit made by this man Buckley, the managers of the

Standard concern, some time in February, 1893, engaged him in

conversation about affairs of his late employer. They said that if they

could only find out the names of the persons to whom their rival sold,

and for what prices, they could soon run him out of business! And they

asked Buckley if he could not get the information for them. After some

discussion, one of the Standard managers said: “What’s the matter with

the nigger?” alluding to a coloured boy in the employment of the Lewis

Emery concern. Buckley told them that he would try him. “You can tell

the nigger,” said one of the men, “that he needn’t be afraid, because if

he loses his position there’s a position here for him.”

Buckley saw the negro and made a proposition to him. The boy agreed to

furnish the information for a price. “Starting from February, 1893,”

says Mr. Buckley, “and lasting up to about August of the same year, this

boy furnished me periodically with the daily shipments of the Lewis

Emery concern, which I took and handed personally, sometimes to one and

sometimes to the other manager. They took copies of them, and usually

returned the originals.” The negro also brought what is known as the

price-book to Buckley, and a complete copy of this was made by the

Standard managers. “In short,” says Mr. Buckley in his affidavit, “I

obtained from the negro all the inside facts concerning the Lewis Emery

Oil Company’s business, and I furnished them all to the Standard

managers.” In return for this information the negro lad was paid various

sums, amounting in all to about ninety dollars. Buckley says that they

were charged upon the Standard books to “Special Expenses.” The

transaction was ended by the discharge of the coloured boy by the Lewis

Emery concern.

The dénouement of this case is tragic enough. The concern was finally

driven out of business by these and similar tactics, so Mr. Emery and

his partner both affirm. The negro was never taken into the Atlantic

Refinery, and Buckley soon after lost his position, as he of course

richly deserved to. A man who shows himself traitorous, lying, thieving,

even for the “good of the oil business,” is never kept long in the

employment of the Standard Oil Company. It is notorious in the Oil

Regions that the people who “sell” to the Standard are never given

responsible positions. They may be shifted around to do “dirty work,” as

the Oil Regions phrase goes, but they are pariahs in the concern. Mr.

Rockefeller knows as well as any man ever did the vital necessity of

honesty in an organisation, and the Buckleys and negroes who bring him

secret intelligence never get anything but money and contempt for their

pains.

For the general public, absorbed chiefly in the question, “How does all

this affect what we are paying for oil?” the chief point of interest in

the marketing contests is that, after they were over, the price of oil

has always gone back with a jerk to the point where it was when the

cutting began, and not infrequently it has gone higher—the public pays.

Several of the letters already quoted in this chapter show the immediate

recoil of the market to higher prices with the removal of competition. A

table was prepared in 1892 to show the effect of competition on the

price of oil in various states of the Union. The results were startling.

In California, oil which sold at non-competitive points at 26½ cents a

gallon, at competitive points brought 17½ cents. In Denver, Colorado,

there was an “Oil War” on in the spring of 1892, and the same oil which

was selling at Montrose and Garrison at twenty-five cents a gallon, in

Denver sold at seven cents. This competition finally killed opposition

and Denver thereafter paid twenty-five cents. The profits on this price

were certainly great enough to call for competition. The same oil which

was sold in Colorado in the spring of 1892 at twenty-five cents, sold in

New York for exportation at 6.10 cents. Of course the freight rates to

Colorado were high, the open rate was said to be nine cents a gallon,

but that it cost the Standard Oil Company nine cents a gallon to get its

oil there, one would have to have documentary proof to believe, and,

even if it did, there was still some ten cents profit on a gallon—five

dollars on a barrel. In Kansas, at this time, the difference between the

price at competitive and non-competitive points was seven cents; in

Indiana six cents; in South Carolina four and one-half cents.[96]

In 1897 Scofield, Shurmer and Teagle, of Cleveland, prepared a circular

showing the difference between prices at competitive and non-competitive

points in Ohio, and sent it out to the trade. According to this circular

the public paid from 25 to 33⅓ per cent. more where there was no

competition. The fact that oil is cheaper where there is competition,

and also that the public has to pay the cost of the expensive “Oil Wars”

which have been carried on so constantly for the last twenty-five years

all over the country, is coming to be recognised, especially in the

Middle West of this country, by both dealers and communities. There is

no question that the attempts of Standard agents to persuade or bully

dealers into countermanding orders, or giving up an independent with

whose oil they are satisfied, meet with much less general success than

they once did. It even happens now and then that communities who have

had experience with “Oil Wars” will stand by an independent dealer for

months at a time, resisting even the temptation to have their lamps

cleaned and filled at next to nothing.

Briefly put, then, the conclusion, from a careful examination of the

testimony on Standard competitive methods, is this:

The marketing department of the Standard Oil Company is organised to

cover the entire country, and aims to sell all the oil sold in each of

its divisions. To forestall or meet competition it has organised an

elaborate secret service for locating the quantity, quality, and selling

price of independent shipments. Having located an order for independent

oil with a dealer, it persuades him, if possible, to countermand the

order. If this is impossible, it threatens “predatory competition,” that

is, to sell at cost or less, until the rival is worn out. If the dealer

still is obstinate, it institutes an “Oil War.” In late years the

cutting and the “Oil Wars” are often intrusted to so-called “bogus”

companies, who retire when the real independent is put out of the way.

In later years the Standard has been more cautious about beginning

underselling than formerly, though if a rival offered oil at a less

price than it had been getting—and generally even small refineries can

contrive to sell below the non-competitive prices of the Standard—it

does not hesitate to consider the lower price a declaration of war and

to drop its prices and keep them down until the rival is out of the way.

The price then goes back to the former figure or higher. John D.

Archbold’s testimony before the Industrial Commission in 1898

practically confirms the above conclusion. Mr. Archbold said that the

Standard was in the habit of fighting vigorously to hold and advance its

trade—even to the extent of holding prices down to cost until the rival

gives way—though he declared it to be his opinion that the history of

the company’s transactions would show that the competitor forces the

fight. Mr. Archbold told the commission that he personally believed it

was not advisable to sell below cost for the sake of freezing out a

smaller rival, save in “greatly aggravated cases,” though he admitted

the Standard sometimes did it. The trouble is that, accepting Mr.

Rockefeller’s foundation principle that the oil business belongs to him,

any competition is “an aggravated case.” All that is reassuring in the

situation has come from the obstinate stand of individuals—the refiners

who insisted on doing an independent business, on the theory that “this

is a free country”; the grocers who resented the prying and bullying of

Standard agents, and asserted their right to buy of whom they would; the

rare, very rare, community that grasped the fact that oil sold below

cost temporarily, meant later paying for the fight. These features of

the business belong to the last decade and a half. At the period we have

reached in this history—that is, the completion of the monopoly of the

pipe-lines in 1884 and the end of competition in transporting oil—there

seemed to the independents no escape from Mr. Rockefeller in the market.

The sureness and promptness with which he located their shipments seemed

uncanny to them. The ruthlessness and persistency with which he cut and

continued to cut their prices drove them to despair. The character of

the competition Mr. Rockefeller carried on in the markets, particularly

of the South and Middle West of this country, at this time, aggravated

daily the feeble refining element, and bred contempt far and wide among

people who saw the cutting, and perhaps profited temporarily by it, but

who had neither the power nor the courage to interfere. The knowledge of

it fed greatly the bitterness in the Oil Regions. Part of the stock in

conversation of every dissatisfied oil producer or ruined refiner became

tales of disastrous conflicts in markets. They told of crippled men

selling independent oil from a hand cart, whose trade had been wiped out

by a Standard cart which followed him day by day, practically giving

away oil. They told of grocers driven out of business by an attempt to

stand by a refiner. They told endless tales, probably all exaggerated,

perhaps some of them false, yet all of them believed, because of such

facts as have been rehearsed above. There came to be a popular

conviction that the “Standard would do anything.” It was a condition

which promised endless annoyance to Mr. Rockefeller and his colleagues.

It meant popular mistrust, petty hostilities, misinterpretations,

contempt, abuse. There were plenty of people even willing to deny Mr.

Rockefeller ability. That the Standard was in a venture was enough in

those people’s minds to damn it. Anything the Standard wanted was wrong,

anything they contested was right. A verdict for them demonstrated the

corruption of the judge and jury; against them their righteousness. Mr.

Rockefeller, indeed, was each year having more reason to realise

monopoly building had its trials as wells as its profits.

CHAPTER ELEVEN

THE WAR ON THE REBATE

ROCKEFELLER’S SILENCE—BELIEF IN THE OIL REGIONS THAT COMBINED

OPPOSITION TO HIM WAS USELESS—INDIVIDUAL OPPOSITION STILL

CONSPICUOUS—THE STANDARD’S SUIT AGAINST SCOFIELD, SHURMER AND

TEAGLE—SEEKS TO ENFORCE AN AGREEMENT WITH THAT FIRM TO LIMIT OUTPUT

OF REFINED OIL—SCOFIELD, SHURMER AND TEAGLE ATTEMPT TO DO BUSINESS

INDEPENDENTLY OF THE STANDARD AND ITS REBATES—FIND THEIR LOT

HARD—THEY SUE THE LAKE SHORE AND MICHIGAN SOUTHERN RAILWAY FOR

DISCRIMINATING AGAINST THEM—A FAMOUS CASE AND ONE THE RAILWAY

LOSES—ANOTHER CASE IN THIS WAR OF INDIVIDUALS ON THE REBATE SHOWS

THE STANDARD STILL TO BE TAKING DRAWBACKS—THE CASE OF GEORGE RICE

AGAINST THE RECEIVER OF THE CINCINNATI AND MARIETTA RAILROAD.

The apathy and inaction which naturally flow from a great defeat lay

over the Oil Regions of Northwestern Pennsylvania long after the

compromise with John D. Rockefeller in 1880, followed, as it was, by the

combination with the Standard of the great independent seaboard

pipe-line which had grown up under the oil men’s encouragement and

patronage. Years of war with a humiliating outcome had inspired the

producers with the conviction that fighting was useless, that they were

dealing with a power verging on the superhuman—a power carrying

concealed weapons, fighting in the dark, and endowed with an altogether

diabolic cleverness. Strange as the statement may appear, there is no

disputing that by 1884 the Oil Regions as a whole looked on Mr.

Rockefeller with superstitious awe. Their notion of him was very like

that which the English common people had for Napoleon in the first part

of the 19th century, which the peasants of Brittany have even to-day for

the English—a dread power, cruel, omniscient, always ready to spring.

This attitude of mind, altogether abnormal in daring, impetuous, and

self-confident men, as those of the Oil Regions were, was based on

something more than the series of bold and admirably executed attacks

which had made Mr. Rockefeller master of the oil business. The first

reason for it was the atmosphere of mystery in which Mr. Rockefeller had

succeeded in enveloping himself. He seems by nature to dislike the

public eye. In his early years his home, his office, and the Baptist

church were practically the only places which saw him. He did not

frequent clubs, theatres, public meetings. When his manœuvres began to

bring public criticism upon him, his dislike of the public eye seems to

have increased. He took a residence in New York, but he was unknown

there save to those who did business with him or were interested in his

church and charities. His was perhaps the least familiar face in the

Standard Oil Company. He never went to the Oil Regions, and the Oil

Regions said he was afraid to come, which might or might not have been

true. Certainly the Oil Regions never hesitated to express opinions

about him calculated to make a discreet man keep his distance.

Even in Cleveland, his home for twenty-five years, Mr. Rockefeller was

believed to conceal himself from his townsmen. It is certain that the

operations of his great business were guarded with the most jealous

care. The New York Sun sent an “experienced observer” to Cleveland in

1882 to write up the Standard concern. He speaks with amazement in his

letters of the atmosphere of secrecy and mystery which he found

enveloping everything connected with Mr. Rockefeller. You could not get

an interview with him, the observer complained; even his home papers had

ceased to go to the Standard offices to inquire about the truth of

rumours which reached them from the outside. The hundreds of employees

of the trust in the town were as silent as their master in all that

concerned the business, and if one talked—well, he was not long an

employee of Mr. Rockefeller. There was between the Standard Oil Company

and the town and press of Cleveland none of the _camaraderie_, the

mutual good-will and pride and confidence which usually characterise the

relations between great businesses and their environment.

In Cleveland, as in the Oil Regions, Mr. Rockefeller’s careful effort to

cover up his intentions and his tracks had been at first met with jeers

and blunt rebuffs, but he had finally succeeded in silencing and awing

the people. It is worth noting that while all of the members of the

Standard Oil Company followed Mr. Rockefeller’s policy of saying

nothing, there was no such popular dread of any other one of them. In

the Oil Regions, for instance, there was a bitter hatred of the Standard

Oil Company as an organisation, but for the most part the people liked

the men who served it, and certainly had no awe of them, for these men

circulated freely among their fellow-townsmen; they were active in all

the pleasures and enterprises of the communities in which they lived;

they were generous, able, cordial, and whatever the people said of the

concern they served, they generally qualified it by expressing their

personal likings for the men themselves.

A second reason for the popular dread of Mr. Rockefeller was that this

man, whom nobody saw and who never talked, knew everything—even

unexpected and trivial things—and those who saw the effect of this

knowledge and did not see how he could obtain it, regarded him as little

short of an omniscient being. There was really nothing in the least

occult about Mr. Rockefeller’s omniscience. He obtained part of his

knowledge of other people’s affairs by a most extensive and thoroughly

organised system of news-gathering, such as any bright business man of

wide sweep might properly employ. But he combined with this perfectly

legitimate work the sordid methods of securing confidential information

described in the last chapter. Certainly there is nothing of the

transcendental in this kind of omniscience, and the feeling of

supernaturalism which Mr. Rockefeller had inspired by 1884 has entirely

evaporated since, as evidence of his methods has been circulated. The

source was, however, long secret, and when again and again men who could

hardly suppose their existence known to Mr. Rockefeller saw movements

anticipated which they believed known only to themselves and their

confidential agents, they began to dread him and to invest him with

mysterious qualities. If Mr. Rockefeller had been as great a

psychologist as he is business manipulator he would have realised that

he was awakening a terrible popular dread, and he would have foreseen

that one day, with the inevitable coming to light of his methods, there

would spring up about his name a crop of scorn which would choke any

crop of dollars and donations which the wealth of the earth could

produce.

The effect of this dread was deplorable, for it intensified the feeling,

now wide-spread in the Oil Regions, that it was useless to make further

effort at a combined resistance. And yet these men, who were now lying

too supine in Mr. Rockefeller’s steel glove even to squirm, had laid the

foundation of freedom in the oil business. It has taken thirty years to

demonstrate the inestimable value of the efforts which in 1884 they

regarded as futile—thirty years to build even a small structure on the

foundation they had laid, though that much has been done.

The situation was saved at this critical time by individuals scattered

through the oil world who were resolved to test the validity of Mr.

Rockefeller’s claim that the coal-oil business belonged to him. “We have

a right to do an independent business,” they said, “and we propose to do

it.” They began this effort by an attack on the weak spot in Mr.

Rockefeller’s armour. The twelve years just passed had taught them that

the realisation of Mr. Rockefeller’s great purpose had been made

possible by his remarkable manipulation of the railroads. It was the

rebate which had made the Standard Oil Trust, the rebate, amplified,

systematised, glorified into a power never equalled before or since by

any business of the country. The rebate had made the trust, and the

rebate, in spite of ten years of combination, Petroleum Associations,

Producers’ Unions, resolutions, suits in equity, suits in quo warranto,

appeals to Congress, legislative investigations—the rebate still was Mr.

Rockefeller’s most effective weapon. If they could wrest it from his

hand they could do business. They had learned something else in this

period—that the whole force of public opinion and the spirit of the law

were against the rebate, and that the railroads, knowing this, feared

exposure of discrimination, and could be made to settle rather than have

their practices made public. Therefore, said these individuals, we

propose to sue for rebates and collect charges until we make it so

harassing and dangerous for the railroads that they will shut down on

Mr. Rockefeller.

The most interesting and certainly the most influential of these private

cases was that of Scofield, Shurmer and Teagle, of Cleveland, one of the

firms which, in 1876, entered into a “joint adventure” with Mr.

Rockefeller for limiting the output and so holding up prices.[97] The

adventure had been most successful. The profits were enormous. Scofield,

Shurmer and Teagle had made thirty-four cents a barrel out of their

refinery the year before the “adventure.” With the same methods of

manufacture, and enjoying simply Mr. Rockefeller’s control of

transportation rates and the enhanced prices caused by limiting output,

they made $2.52 a barrel the first year after. This was the year of the

Standard’s first great coup in refined oil. The dividends on 88,000

barrels this year were $222,047, against $41,000 the year before. In

four years Scofield, Shurmer and Teagle paid Mr. Rockefeller $315,345 on

his investment of $10,000—and rebates.

After four years the Standard began to complain that their partners in

the adventure were refining too much oil—the first year the books showed

they had exceeded their 85,000–barrel limitation by nearly 3,000, the

second year by 2,000, the third by 15,000, the fourth by 5,000.

Dissatisfied, the Standard demanded that the firm pay them the entire

profit upon the excess refined; for, claimed Mr. Rockefeller, our

monopoly is so perfect that we would have sold the excess if you had not

broken the contract, consequently the profits belong to us. Scofield,

Shurmer and Teagle paid half the profit on the excess, but refused more,

and they persisted in exceeding their quota; then Mr. Rockefeller,

controlling by this time the crude supply in Cleveland through ownership

of the pipe-lines, shut down on their crude supply. If they would not

obey the contract of their own will they could not do business. The firm

seems not to have been frightened. “We are sorry that you refuse to

furnish us crude oil as agreed,” they wrote Mr. Rockefeller; “we do not

regard the limitation of 85,000 barrels as binding upon us, and as we

have a large number of orders for refined oil we must fill them, and if

you refuse to furnish us crude oil on the same favourable terms as

yourselves, we shall get it elsewhere as best we can and hold you

responsible for its difference in cost.”

[Illustration:

WILLIAM C. SCOFIELD

Senior member of the firm of Scofield, Schurmer and Teagle, of

Cleveland. Plaintiff in important suits against Lake Shore Railroad

for freight discriminations.

]

[Illustration:

DANIEL SCHURMER

Associate of Mr. Scofield and Mr. Teagle in the war on railroad

rebates which the firm waged for nearly twenty years.

]

[Illustration:

JOHN TEAGLE

Independent refiner of Cleveland, Ohio, prominent in struggle against

freight discriminations by the railroads.

]

[Illustration:

CHARLES B. MATTHEWS

Independent refiner of Buffalo. Plaintiff in “Buffalo case,” where

members of the Standard Oil Company were indicted for conspiracy.

]

Mr. Rockefeller’s reply was a prayer for an injunction against the

members of the firm, restraining them individually and collectively

“from distilling at their said works at Cleveland, Ohio, more than

85,000 barrels of crude petroleum of forty-two gallons each in every

year, and also from distilling any more than 42,500 barrels of crude

petroleum of forty-two gallons each, each and every six months, and also

from distilling any more crude petroleum until the expiration of six

months from and after July 20, 1880, and also from directly and

indirectly engaging in or being concerned in any business connected with

petroleum or any of its products except in connection with the plaintiff

under their said agreement, and that on the final hearing of this case

the said defendants may in like manner be restrained and enjoined from

doing any of said acts until the expiration of said agreement, and for

such other and further relief in the premises as equity can give.” In

this petition, really remarkable for its unconsciousness of what seems

obvious—that the agreement was preposterous and void because confessedly

in restraint of trade—the terms of the joint adventure are renewed in a

way to illustrate admirably the sort of tactics with refiners which, at

this time, was giving Mr. Rockefeller his extraordinary power over the

price of oil.[98]

Scofield, Shurmer and Teagle did not hesitate to take up the gauntlet,

and a remarkable defence they made. In their answer they declared the

so-called agreement had at all times been “utterly void and of no effect

as being by its terms in restraint of trade and against public policy.”

They declared that the Standard Oil Company had never kept the terms of

the agreement, that it had intentionally withheld the benefits of the

advantages it enjoyed in freight contracts, and that it now was pumping

crude oil from the Oil Regions to Cleveland at a cost of about twelve

cents a barrel and charging them (Scofield, Shurmer and Teagle) twenty

cents. They denied that the Standard had sustained any damage through

them, but claimed that their business had been carried on at a large

profit. “There is such a large margin between the price of crude oil and

refined,” declared the defendants, “that the manufacture and sale of

refined oil is attended with large profit; it is impossible to supply

the demand of the public for oil if the business and refineries of both

plaintiff and defendant are carried on and run to their full capacities,

and if the business of the defendants were stopped, as prayed for by the

plaintiff, it would result in a still higher price for refined oil and

the establishment of more perfect monopoly in the manufacture and sale

of the same by plaintiff.” To establish such a monopoly, the defendants

went on to declare, had been the sole object of the Standard Oil Company

in making this contract with them, and similar ones with other firms, to

establish a monopoly and so maintain unnaturally high prices,[99] and

certainly Scofield, Shurmer and Teagle knew whereof they swore, for they

had shared in the spoils of the winter of 1876 and 1877, and at this

very period, October, 1880, they were witnessing an attempt to repeat

the coup.

The charge of monopoly Scofield, Shurmer and Teagle sustained by a

remarkable array of affidavits—the most damaging set for the Standard

Oil Company which had ever been brought together. It contained the

affidavits of various individuals who had been in the refining business

in Cleveland at the time of the South Improvement Company and who had

sold out in the panic caused by it. It contained a review of the havoc

which that scheme and the manipulation of the railroads by the Standard

which followed it had caused in the refining trade in Pennsylvania, and

it gave the affidavits of Mrs. B—— and of her secretary and others

concerning the circumstances of her sale in 1878 (see Chapter VI). The

affidavits filed by John D. Rockefeller, Oliver H. Payne and Henry M.

Flagler in reply to the set presented by Scofield, Shurmer and Teagle

are curious reading. From the point of view of our present knowledge

they deny a number of things now known to be true.[100]

It was not necessary, however, for the defendants to have presented

their elaborate array of evidence to support the charge of intended

monopoly. The character of the agreement itself was sufficient to

prevent any judge from attempting to enforce it. The amazement was that

the Standard Oil Company ever had the hardihood to ask for its

enforcement. “That it should venture to ask the assistance of a court of

equity to enforce a contract to limit the production and raise the price

of an article of so universal use as kerosene oil,” said the Chicago

Tribune, “shows that the Standard Oil Company believed itself to have

reached a height of power and wealth that made it safe to defy public

opinion.” This case is not the only one belonging to the period which

goes to support the opinion of the Tribune.

Scofield, Shurmer and Teagle were now obliged to stand on their own

feet. They could refine all the oil they wished, but they must make

their own freight contracts, and they found rates when you worked with

Mr. Rockefeller were vastly different from rates when you competed with

him. The agent of the Lake Shore Railroad, by which most of their

shipments went, told them frankly that they could not have the rates of

the Standard unless they gave the same volume of business. The

discrimination against them was serious. For instance, in 1880, when the

Standard paid sixty-five cents a barrel from Cleveland to Chicago,

Scofield, Shurmer and Teagle paid eighty. From April 1 to July 1, 1881,

the Standard paid fifty-five cents and their rival eighty cents; from

July 1 to November 1, 1881, the rates were thirty-five and seventy cents

respectively, and so it went on for three years, when the firm,

despairing of any change, took the case into court. This case, fought

through all the courts of Ohio, and in 1886 taken to the Supreme Court

of the United States, is one of the clearest and cleanest in existence

for studying all the factors in the rebate problem—the argument and

pressure by which the big shipper secures and keeps his advantage, the

theory and defence of the railroad in granting the discrimination, the

theory on which the suffering small shipper protests, and finally the

law’s point of view. The first trial of the case was in the Court of

Common Pleas, and the refiners won. The railroad then appealed to the

District Court (the present Circuit Court), where it was argued. So

“important and difficult” did the judges of the District Court find the

questions involved to be, that on the plea of the railroad they sent

their findings of the facts in the case to the Supreme Court of the

state for decision—a privilege they had under the law in force at that

time.

These findings are elaborate, including some twenty-three

propositions.[101] They have been confused by certain writers with the

_opinion_ on them given later by the Supreme Court; for instance, in an

economic study recently published—“The Rise and Progress of the Standard

Oil Company,”—the twelfth and thirteenth and part of the fourteenth

proposition which the District Court sent up to the Supreme Court in its

“findings of facts” are quoted separately, and the inference from the

context is that the writer supposed he was citing part of the court’s

_opinion_. As the reader will see from what follows, the paragraphs in

question are important, for, taken as quoted, they seem to show that the

rebate the Standard received, and which Scofield, Shurmer and Teagle

wanted, was on account of facilities it gave which the other refiners

could not give:

“The court further find that prior to 1875 it was a question whether

the Standard Oil Company would remain in Cleveland or remove its

works to the oil-producing country, and such question depended

mainly upon rates of transportation from Cleveland to market; that

prior thereto said Standard Company did ship large quantities of its

products by water to Chicago and other lake points, and from thence

distributed the same by rail to inland markets; that it then

represented to defendant the probability of such removal; that water

transportation was very low during the season of navigation; that

unless some arrangement was made for rates at which it could ship

the year round as an inducement, it would ship by water and store

for winter distribution; that it owned its tank-cars and had tank

stations and switches, or would have, at Chicago, Toledo, Detroit

and Grand Rapids, on and into which the cars and oil in bulk could

be delivered and unloaded without expense and annoyance to

defendant; that it had switches at Cleveland leading to its works at

which to load cars, and would load and unload all cars; that the

quantity of oil to be shipped by the company was very large, and

amounted to ninety per cent. or more of all the oil manufactured or

shipped from Cleveland, and that if satisfactory rates could be

agreed upon it would ship over defendant’s road all its oil products

for territory and markets west and northwest of Cleveland, and agree

that the quantity for each year should be equal to the amount

shipped the preceding year; that upon the faith of these

representations the defendant did enter into the contract and

arrangement substantially as set forth in defendant’s answer; that

the rates were not fixed rates, but depended upon the general card

tariff rates as charged from time to time, but substantially to be

carried from time to time for about ten cents per barrel less than

tariff rates, and, in consideration of such reduced rates as to bulk

oil, the Standard Company agreed to furnish its own cars and tanks,

load them on switches at distributing points, and unload them into

distributing tanks, and was also to load and unload oil shipped in

barrels, and without expense to defendant, and with, by reason

thereof, less risk to defendant, which entered into the

consideration, and was also to ship all its freight to points west

and northwest of Cleveland, except small quantities to lake ports

not reached by rail, and to so manage the shipments, as to cars and

times, as would be most favourable to defendant; that defendant then

agreed to said terms; that said agreement so made in 1875 has

remained in force ever since.

“That, at a cost exceeding $100,000, said Standard Company had and

constructed the terminal facilities promised and herein found; that,

in fact, the risk of danger from fire to defendant, the expense of

handling, in loading and unloading, and in the use of the Standard

tank-cars is less (but how much the testimony does not show) than

upon oil shipped without the use of such or similar terminal

facilities; that said Standard Company commenced by shipping about

450,000 barrels a year over defendant’s road, which increased from

year to year until, in 1882, the year before filing the petition in

this action, the quantity so shipped on defendant’s road amounted to

742,000 barrels, equal to 2,000 barrels or one full train-load per

day.

“That said arrangement was not exclusive, but was at all times open

to others shipping a like quantity and furnishing like service and

facilities; that it was not made or continued with any intention on

the part of the defendant to injure the plaintiffs in any manner.”

Now, as a matter of fact, other propositions in this same set from which

the above are quoted, find that Scofield, Shurmer and Teagle offered the

railroad exactly the same facilities as the Standard, a switch, loading

racks, exemption from loss by fire or accident.[102] “The manner of

making shipments for plaintiffs and for the Standard Oil Company was

precisely the same, and the only thing to distinguish the business of

the one from the other was the aggregate yearly amounts of freight

shipped,” said Judge Atherton, of the Supreme Court, who gave the

decision on the findings of fact, and he held in common with his

predecessors that a rebate on account of volume of business only was “a

discrimination in favour of capital,” and contrary to a sound public

policy, violation of that equality of rights guaranteed to every

citizen, and a wrong to the disfavoured person. “We hold, ...” he said,

“that a discrimination in the rate of freights resting extensively on

such a basis ought not to be sustained. The principle is opposed to

sound public policy. It would build up and foster monopolies, add

largely to the accumulated power of capital and money, and drive out all

enterprise not backed by overshadowing wealth. With the doctrine, as

contended for by the defendants, recognised and enforced by the courts,

what will prevent the great grain interest of the Northwest, or the coal

and iron interests of Pennsylvania, or any of the great commercial

interests of the country bound together by the power and influence of

aggregated wealth and in league with the railroads of the land, driving

to the wall all private enterprises struggling for existence, and with

an iron hand thrusting back all but themselves?” Judge Atherton was

scathing enough in his opinion of the contract between the Lake Shore

and the Standard. Look at it, he said, and see just what is shown. In

consideration of the company giving to the railroad its entire freight

business in oil, they transport this freight about ten cents a barrel

cheaper than for any other customer. “The understanding was to keep the

price _down_ for the favoured customer, but _up_ for all others, and the

inevitable tendency and effect of this contract was to enable the

Standard Oil Company to establish and maintain an overshadowing

monopoly, to ruin all other operators and drive them out of business in

all the region supplied by the defendant’s road, its branches and

connecting lines.”

Judge Atherton was particularly hard on the portion of the contract[103]

which pledged the Standard to give the Lake Shore _all_ its freight in

return for the rebates, and for this reason: In 1883 a new road Westward

was opened from Cleveland, the New York, Cincinnati and St. Louis. It

might become an active competitor in transporting petroleum for

customers other than the Standard Oil Company. It might establish such a

tariff of rates that other operators in oil might successfully compete

with the Standard Oil Company. To prevent this, the Lake Shore road, on

the completion of the new road, entered into a tariff arrangement giving

to it a portion of the Westward shipments of the Standard Oil Company,

on condition of its uniting in carrying out the understanding in regard

to rebates to the Standard Oil Company. “How peculiar!” exclaimed Judge

Atherton. “The defendant, by a contract made in 1875, was entitled to

all the freights of the Standard Oil Company, and yet, say the District

Court, ‘for the purpose of securing the _greater part_ of said trade,’

they entered into a contract to divide with the new railroad, if the

latter would only help to keep the rates _down_ for the Standard and

_up_ for everybody else.” Such a contract so carried out was, in the

opinion of the court, “not only contrary to a sound public policy, but

to the lax demands of the commercial honesty and ordinary methods of

business.”

Another fact found by the District Court incensed Judge Atherton. This

was that the contract “was not made or continued with any intention on

the part of the defendant to injure the plaintiffs in any manner.” It

does not “make any difference in the case,” he declared. “The plaintiffs

were not doing business in 1875, when the contract was entered into,

and, of course, it was not made to injure them in particular. If a man

rides a dangerous horse into a crowd of people, or discharges loaded

firearms among them, he might, with the same propriety, select the man

he injures and say he had no intention of wounding him. And yet the law

holds him to have intended the probable consequences of his unlawful act

as fully as if purposely directed against the innocent victim, and

punishes him accordingly. And this contract, made to build up a monopoly

for the Standard Oil Company and to drive its competitors from the

field, is just as unlawful as if its provisions had been aimed directly

against the interests of the plaintiffs.”[104]

Having lost their case in the Supreme Court of the state, the Lake Shore

now appealed to the Supreme Court of the United States, and the record

was filed in November, 1886. It was never heard; the railroad evidently

concluded it was useless, and finally withdrew its petition, thereby

accepting the decision of the Supreme Court of Ohio restraining it from

further discrimination against Scofield, Shurmer and Teagle.

[Illustration:

BURST IN A PIPE LINE

]

This case, which was before the public constantly during the six or

seven years following the breaking up of the Producers’ Union, in which

the Oil Regions presented no united front to Mr. Rockefeller, served to

keep public attention on the ruinous effect of the rebate and to

strengthen the feeling that drastic legislation must be taken if Mr.

Rockefeller’s exploit was to be prevented in other industries.

One other case came out in this war of individuals on the rebate system

which heightened the popular indignation against the Standard. It was a

case showing that the Standard Oil Company had not yet abandoned that

unique feature of its railroad contracts by which a portion of the money

which other people paid for their freight was handed over to them! This

peculiar development of the rebate system seems to have belonged

exclusively to Mr. Rockefeller. Indeed, a careful search of all the

tremendous mass of materials which the various investigations of

railroads produced shows no other case—so far as the writer knows—of

this practice. It was the clause of the South Improvement contracts

which provoked the greatest outcry. It was the feature of Mr. Cassatt’s

revelations in 1877 which dumfounded the public and which no one would

believe until they saw the actual agreements Mr. Cassatt presented. The

Oil Regions as a whole did not hesitate to say that they believed this

practice was still in operation, but, naturally, proof was most

difficult to secure. The demonstration came in 1885, through one of the

most aggressive and violent independents which the war in oil has

produced, George Rice, of Marietta, Ohio. Mr. Rice, an oil producer, had

built a refinery at Marietta in 1873. He sold his oil in the state, the

West, and South. Six years later his business was practically stopped by

a sudden raise in rates on the Ohio roads—an advance of fully 100 per

cent. being made on freights from Marietta, where there were several

independent refineries, although no similar advance was made from

Wheeling and Cleveland, where the Standard refineries were located.

These discriminations were fully shown in an investigation by the Ohio

State Legislature in 1879. From that time on Mr. Rice was in constant

difficulty about rates. He seems to have taken rebates when he could get

them, but he could never get anything like what his big competitors got.

In 1883 Mr. Rice began to draw the crude supply for his refinery from

his own production in the Macksburg field of Southeastern Ohio, not far

from Marietta. The Standard had not at that time taken its pipe-lines

into the Macksburg field; the oil was gathered by a line owned by A. J.

Brundred, and carried to the Cincinnati and Marietta Railroad. Now, Mr.

Brundred had made a contract with this railroad by which his oil was to

be carried for fifteen cents a barrel, and all other shippers were to

pay thirty cents. Rice, who conveyed his oil to the railroad by his own

pipe-line, got a rate of twenty-five cents by using his own tank-car.

Later he succeeded in getting a rate of 17½ cents a barrel. Thus the

rebate system was established on this road from the opening of the

Macksburg field. In 1883 the Standard Oil Company took their line into

the field, and soon after Brundred retired from the pipe-line business

there. When he went out he tried to sell the Standard people his

contract with the railroad, but they refused it. They describe this

contract as the worst they ever saw, but they seem to have gone Mr.

Brundred one better, for they immediately contracted with the road for a

rate of ten cents on their own oil, instead of the fifteen cents he was

getting, and a rate of thirty-five on independent oil. And in addition

they asked that the extra twenty-five cents the independents paid _be

turned over to them_! If this was not done the Standard would be under

the painful necessity of taking away its shipments and building

pipe-lines to Marietta. The Cincinnati and Marietta Railroad at that

time was in the hands of a receiver, one Phineas Pease—described as a

“fussy old gentleman, proud of his position and fond of riding up and

down the road in his private car.” It is probably a good description.

Certainly it is evident from what follows that the receiver was much

“fussed up” ethically. Anxious to keep up the income of his road, Mr.

Pease finally consented to the arrangement the Standard demanded. But he

was worried lest his immoral arrangement be dragged into court, and

wrote to his counsel, Edward S. Rapallo, of New York City, asking if

there was any way of evading conviction in case of discovery.

“Upon my taking possession of this road,” the receiver wrote, “the

question came up as to whether I would agree to carry the Standard

Company’s oil to Marietta for ten cents per barrel, in lieu of their

laying a pipe-line and piping their oil. I, of course, assented to

this, as the matter had been fully talked over with the Western and

Lake Erie Railroad Company before my taking possession of the road,

and I wanted all the revenue that could be had in this trade.

“Mr. O’Day, manager of the Standard Oil Company, met the general

freight agent of the Western and Lake Erie Railroad and our Mr.

Terry, at Toledo, about February 12, and made an agreement (verbal)

to carry their oil at ten cents per barrel. But Mr. O’Day compelled

Mr. Terry to make a thirty-five cent rate on all other oil going to

Marietta, and that we should make the rebate of twenty-five cents

per barrel on all oil shipped by other parties, and that the rebate

should be paid over to them (the Standard Oil Company), thus giving

us ten cents per barrel for all oil shipped to Marietta, and the

rebate of twenty-five cents per barrel going to the Standard Oil

Company, making that company say twenty-five dollars per day clear

money on George Rice’s oil alone.

“In order to save the oil trade along our line, and especially to

save the Standard Oil trade, which would amount to seven times as

much as Mr. Rice’s, Mr. Terry verbally agreed to the arrangement,

which, upon his report to me, I reluctantly acquiesced in, feeling

that I could not afford to lose the shipment of 700 barrels of oil

per day from the Standard Oil Company. But when Mr. Terry issued

instructions that on and after February 23 the rate of oil would be

thirty-five cents per barrel to Marietta, George Rice, who has a

refinery in Marietta, very naturally called on me yesterday and

notified me that he would not submit to the advance, because the

business would not justify it, and that the move was made by the

Standard Oil Company to crush him out. (Too true.) Mr. Rice said: ‘I

am willing to continue the 17½ cent rate which I have been paying

from December to this date.’

“Now, the question naturally presents itself to my mind, if George

Rice should see fit to prosecute the case on the ground of unjust

discrimination, would the receiver be held, as the manager of this

property, for violation of the law? While I am determined to use all

honourable means to secure traffic for the company, I am not willing

to do an illegal act (if this can be called illegal), and lay this

company liable for damages. Mr. Terry is able to explain all minor

questions relative to this matter.”[105]

Mr. Rapallo, after consulting his partner and “representative

bondholders,” “fixed it” for the receiver in the following amazing

decision:

“You may, with propriety, allow the Standard Oil Company to charge

twenty-five cents per barrel for all oil transported through their

pipes to your road; and I understand from Mr. Terry that it is

practicable to so arrange the details that the company can, in

effect, collect this direct without its passing through your hands.

You may agree to carry all such oil of the Standard Oil Company, or

of others, delivered to your road through their pipes, at ten cents

per barrel. You may also charge all other shippers thirty-five cents

per barrel freight, _even though they deliver oil to your road

through their own pipes_; and this, I gather from your letter and

from Mr. Terry, would include Mr. Rice.”[106]

Now, how was this to be done “with propriety”? Simply enough. The

Standard Oil Company was to be charged ten cents per barrel, less an

amount equivalent to twenty-five cents per barrel upon all oil shipped

by Rice. “Provided your accounts, bills, vouchers, etc., are consistent

with the real arrangement actually made, you will incur no personal

responsibility by carrying out such an arrangement as I suggest.” Even

in case the receiver was discovered nothing would happen to _him_, so

decided the counsel. “It is possible that, by a proper application to

the court, some person may prevent you, in future, from permitting any

discrimination. Even if Mr. Rice should compel you, subsequently, to

refund to him the excess charge over the Standard Oil Company, the

result would not be a loss to your road, taking into consideration the

receipts from the Standard Oil Company.”

Fortified by his counsel, Receiver Pease put the arrangement into force,

and beginning with March 20, 1885, a joint agent of the Standard

pipe-line and of the Cincinnati and Marietta road collected thirty-five

cents per barrel on the oil of all independent shippers from Macksburg

to Marietta. Ten cents of this sum he turned over to the receiver and

twenty-five cents to the pipe-line. When Mr. Rice found that the rate

was certainly to be enforced he began to build a pipe of his own to the

Muskingum River, whence he was to ship by barge to Marietta. By April 26

he was able to discontinue his shipments over the Cincinnati and

Marietta road. This was not done until a rebate of twenty-five cents a

barrel had been paid to the Standard Oil Company on 1,360 barrels of his

oil—$340 in all.

Mr. Rice, outraged as he was by the discrimination, was looking for

evidence to bring suit against the receiver, but it was not until

October that he was ready to take the matter into court. On the 13th of

that month he applied to Judge Baxter of the United States Circuit Court

for an order that Phineas Pease, receiver of the Cleveland and Marietta

Railroad, report to the court touching his freight rates and other

matters complained of in the application. The order was granted on the

same day the application was made. It was specific. Mr. Pease was to

report his rates, drawbacks, methods of accounting for discrimination,

terms of contracts, and all other details connected with his shipment of

oil. No sooner was this order of the court to Receiver Pease known than

the general freight agent, Mr. Terry, hurried to Cleveland, Ohio, to

meet Mr. O’Day of the Standard Oil Company, with whom he had made the

contract. The upshot of that interview was that on October 29, twelve

days _after_ the judge had ordered the contracts produced, a check for

$340, signed by J. R. Campbell, Treasurer (a Standard pipe-line

official), was received from Oil City, headquarters of the Standard

pipe-line, by the agent who had been collecting and dividing the freight

money. This check for $340 was the amount the pipe-line had received on

Mr. Rice’s shipments between March 20 and April 25. The agent was

instructed to send the money to the receiver, and later, by order of the

court, the money was refunded to Mr. Rice. But the Standard was not out

of the scrape so easily.

Receiver Pease filed his report on November 2, but the judge found it

“evasive and unsatisfactory,” and further information was asked for.

Finally the judge succeeded in securing the correspondence between Mr.

Pease and Mr. Rapallo, quoted above, and enough other facts to show the

nature of the discrimination. He lost no time in pronouncing a judgment,

and he did not mince his words in doing it:

“But why should Rice be required to pay 250 per cent. more for the

carriage of his oil than was exacted from his competitor? The answer

is that thereby the receiver could increase his earnings. This

pretence is not true; but suppose it was, would that fact justify,

or even mitigate, the injustice done to Rice? May a receiver of a

court, in the management of a railroad, thus discriminate between

parties having equal claim upon him, because thereby he can

accumulate money for the litigants? It has been repeatedly adjudged

that he cannot legally do so. Railroads are constructed for the

common and equal benefit of all persons wishing to avail themselves

of the facilities which they afford. While the legal title thereof

is in the corporation of individuals owning them, and to that extent

private property, they are by the law and consent of the owners

dedicated to the public use. By its charter and the general

contemporaneous laws of the state which constitute the contract

between the public and the railroad company—the state, in

consideration of the undertaking of the corporators to build, equip,

keep in repair and operate said road for the public accommodation,

authorised it to demand reasonable compensation from everyone

availing himself of its facilities, for the service rendered. But

this franchise carried with it other and correlative obligations.

“Among these is the obligation to carry for every person offering

business under like circumstances, at the same rate. All unjust

discriminations are in violation of the sound public policy, and are

forbidden by law. We have had frequent occasions to enunciate and

enforce this doctrine in the past few years. If it were not so, the

managers of railways in collusion with others in command of large

capital could control the business of the country, at least to the

extent that the business was dependent on railroad transportation

for its success, and make and unmake the fortunes of men at will.

“The idea is justly abhorrent to all fair minds. No such dangerous

power can be tolerated. Except in the modes of using them, every

citizen has the same right to demand the service of railroads on

equal terms that they have to the use of a public highway or the

government mails. And hence when, in the vicissitudes of business, a

railroad corporation becomes insolvent and is seized by the court

and placed in the hands of a receiver to be by him operated pending

the litigation, and until the rights of the litigants can be

judicially ascertained and declared, the court is as much bound to

protect the public interests therein as it is to protect and enforce

the rights of the mortgagers and mortgagees. But after the receiver

has performed all obligations due the public and every member of

it—that is to say, after carrying passengers and freight offered,

for a reasonable compensation not exceeding the maximum authorised

by law, if such maximum rates shall have been prescribed, upon equal

terms to all, he may make for the litigants as much money as the

road thus managed is capable of earning.