partnerships and individuals into, or include them in a common
enterprise, and control them through an agency unknown to the law of
their creation, and all the officers, directors and stockholders of
such corporations sign the agreement, and, in furtherance of its
provisions, transfer their stock to such agency, permit the
corporate executive agencies to make such transfers on the corporate
books, submit without objection to the domination of the agency to
which the stock is so transferred in the selection of directors and
officers, and in the management of the corporate affairs and
business suffer the corporate earnings to go to such agency and be
placed and mingled with the earnings of the other parties in the
combination so created, and, after deductions for uses of the
combination, be divided as part of such common earnings among the
persons interested, in such case the corporations become and are—or
at least will be treated by the courts as—parties to such agreement
and actors in its performance, although their corporate names are
withheld therefrom. Such proceedings constitute actual corporate
conduct, if not formal corporate action, on the part of each
corporation.
“An agreement is in violation of law and void which in effect
creates a partnership between corporations, or where its probable
operation and effect—much more where its inevitable tendency—is to
create a substantial monopoly, or is in restraint of trade or
otherwise injurious to the public.
“Where a corporation, either directly or indirectly, submits to the
domination of an agency unknown to the statute, or identifies itself
with and unites in carrying out an agreement whose performance is
injurious to the public, it thereby offends against the law of its
creation and forfeits all rights to its franchises, and judgment of
ouster should be entered against it.
“Even if the statute which prescribes a time within which an action
against a corporation for forfeiture of its charter shall be
commenced, be applicable to a case of this kind, yet, where the
offences or acts committed or omitted by a corporation for which
forfeiture of its charter is sought at the suit of the state, are
concealed, or are of such character as to conceal themselves, such
offences and acts as against the state are frauds, and such statute
does not begin to run until the frauds are discovered.”
Joseph H. Choate appeared for the defence. The most eminent lawyer in
the country, his argument must have been anxiously awaited by Mr.
Watson. Curiously enough, as it seems to the non-legal mind, Mr. Choate
began his plea by a _prayer for mercy_. Whatever the sins of the
Standard Oil Company of Ohio, pleaded Mr. Choate, do not take away its
charter. Mr. Choate then proceeded with a strong argument in which he
claimed “absolute innocence and absolute merit for everything we have
done within the scope of the matters brought before the court by these
pleadings.”
The argument did not convince the court of the innocence of the Standard
in the questions at issue. The court showed, out of the mouth of the
trust agreement itself, that the Standard Oil Company of Ohio was
“managed in the interest of the Standard Oil Trust—irrespective of what
might be its duties to the people of the state from which it derives its
corporate life.” The court gave as its opinion that an act of a majority
of the stockholders of a corporation affects the property of a company
in the same way that a resolution by the board of directors affects it.
“By this agreement,” said the court, “indirectly, it is true, but none
the less effectually, the defendant is controlled and managed by the
Standard Oil Trust, an association with its principal place of business
in New York City, and organised for a purpose contrary to the policy of
our laws. Its object was to establish a virtual monopoly of the business
of producing petroleum, and of manufacturing, refining and dealing in it
and all its products, throughout the entire country, and by which it
might not merely control the production, but the price, at its pleasure.
All such associations are contrary to the policy of our state and void.
* * * * *
“Much has been said in favour of the objects of the Standard Oil Trust
and what it has accomplished. It may be true that it has improved the
quality and cheapened the cost of petroleum and its products to the
consumer. But such is not one of the usual or general results of a
monopoly; and it is the policy of the law to regard, not what may, but
what usually happens. Experience shows that it is not wise to trust
human cupidity where it has the opportunity to aggrandise itself at the
expense of others. The claim of having cheapened the price to the
consumer is the usual pretext on which monopolies of this kind are
defended.”[131]
From all this the court decided the Standard Oil Company deserved
punishment. The charter was not taken away—the statute of limitations
being advanced as a reason for this leniency, although, as Mr. Watson
and Mr. Warrington showed, the statute of limitations could hardly be
pleaded in this case, when the state had been kept in ignorance by the
concealment of the agreement. The company was allowed to live, but it
was ousted from the privilege of entering into the trust agreement, from
the power of recognising the transfer of the stock, and from the power
of permitting the trustees to control its affairs. It was also ordered
to pay the costs of the action.
The judgment of the court was not rendered until March 2, 1892, almost
two years after the filing of the petition. As soon as it was received
Virgil P. Kline, the chief counsel of the Standard Oil Company of Ohio,
went to New York for consultation with the trustees. Five days later he
wrote to Judge Spear, the chief justice of the Ohio Supreme Court,
saying: “Decisive steps will be taken at once not only to release the
Standard Oil Company from any relations to the trust, but to terminate
the entire trust.” But there were “practical difficulties” in the task.
The company pleaded for a “temporary recognition,” and he asked an
interview where he could explain the situation. This was granted, and on
the 16th of March Mr. Kline explained to the judges in chambers, to Mr.
Watson, and to his successor in office, the situation of the company.
The trustees had all but seven shares of its stock. Trust certificates
had been issued for these ten years before. The Standard Oil Company did
not know who held these certificates, and could only know through the
trustees, therefore the trust certificates must be transferred back, the
owners hunted up, and each one induced to make an exchange. A system
must be devised for doing this. Anybody could see this would take time.
The court was friendly in the matter, and Chief Justice Spear gave to
Mr. Kline an informal note granting an extension. “The court is not
disposed to change its order at this time,” the chief justice wrote,
“but, so long as those in control appear to be engaged, as now, in an
honest effort to dissever the relations of the company with the trust,
and liquidate and wind up the affairs of the trust, the court will not
be disposed to interfere.” Thus time was gained.
While Mr. Kline was securing time, the trustees were pushing a
liquidation scheme. On March 11 the following notice was mailed to all
holders of Standard Oil Trust certificates, and was published in a
newspaper in each state where a Standard Oil Company had been organised:
NOTICE
A special meeting of the holders of Standard Oil Trust certificates
will be held at the office of the trust, Number 26 Broadway, in the
City of New York, on Monday, March 21, 1892, at eleven o’clock A.M.,
for the purpose of voting upon a resolution to terminate the trust
agreement, in accordance with the terms of said agreement, and to
take such further action as may be thereby rendered necessary.
H. M. FLAGLER, _Secretary_.
The meeting was held as called. Mr. Rockefeller was in the chair, and
Mr. Dodd, who had drawn the trust agreement, now presented the
resolution which was to dissolve it. The remarks with which Mr. Dodd
introduced his resolution denied every point which the courts had
charged against the combination:
“Something over ten years ago,” said Mr. Dodd, “a few individuals
owning stocks in a number of corporations engaged in transporting
and refining oil, entered into an agreement by which their stocks
were placed in the hands of trustees, and certificates were issued
by said trustees showing the amount of each owner’s equitable
interest in the stocks so held in trust. This was not done in order
to vest the voting power in the hands of a few persons, because the
persons chosen as trustees then held, and always have held, the
voting power by virtue of their absolute ownership of a majority of
the stocks. It was not done to reduce competition, because the
companies whose stocks were placed in trust were not competing
companies, and could not be so long as their stocks were owned by
these few persons. It was not done to limit production or to
increase prices, but, on the contrary, was done to increase
production, cheapen cost of manufacture, and to lower prices, and it
has been successful in that object far beyond the anticipations of
those who originated the plan. It was called a trust, because it was
a trust in the sense in which the word was then understood. It
vested a fiduciary obligation in a few for the benefit of many, and
the trustees thus created have faithfully observed the trust
confided in them.
“Other persons, however, found this trust plan a convenient one, and
it is alleged that it has been adopted for and adapted to purposes
quite different from those which actuated the framers of this trust.
Whether these allegations be true or false, it is true that a trust
is now defined to be a combination to suppress competition and to
reduce production, and to increase prices. Public opinion has not
unwisely been aroused against combinations for such purposes, and
legislation of more or less severity, and rather more or less
peculiarity, has been directed against them in seventeen or eighteen
states of the Union. All such arrangements are now miscalled trusts,
and all trusts are popularly supposed to partake of the same nature.
For this reason, if for no other, it should be seriously considered
whether this trust should not be terminated. So long as it exists,
misconception of its purposes will exist.
“But another reason exists which seems to make it desirable to
dissolve this trust. Some two years ago a _quo warranto_ issued in
the name of the state of Ohio against the Standard Oil Company, a
corporation of the state of Ohio, setting forth this trust agreement
and alleging that that corporation, by becoming a party thereto, had
done an act beyond its power, and thereby had forfeited its charter.
The defendant corporation denied that it was a party to the
agreement, and alleged that the agreement was on its face, and
plainly, an agreement only between individuals, owners of corporate
stocks, relating to their personal property, and was neither made by
the corporation nor for the corporation. The court, however, held
that the agreement was a corporate agreement, and decreed, among
other things, that the corporation must cease to permit trustees to
vote upon stocks held in trust.
“As this agreement was not entered into as a corporate agreement,
and as this decision gives it an effect quite different from the
intent of the parties who entered into it, it seems better to end
it.”[132]
It is probable that Mr. Dodd had foreseen from the first just such an
attack on his agreement as had come, for he had put into that instrument
a paragraph providing for a dissolution, and it was in accordance with
that article that the trust was now dissolved. The trustees were to
continue to exist—under a new name: “Liquidating trustees.” The property
they had to take care of was vastly in excess of what it had been ten
years before. Then the capital of the thirty-nine constituent companies
was $70,000,000. These companies had been combined until they had been
reduced to twenty, and their combined capital was now $102,233,700.[133]
Property of about $20,000,000 in excess of the capital was held by the
trustees. Mr. Dodd’s resolution provided for the division of this
property, and for the transfer of the trust certificates back to the
corporations to which they belonged. The individual holders of the trust
certificates were to get in exchange a proportionate share in each of
the twenty companies. “A will not get stock in one corporation and B in
another; each will get his due proportion in the stocks of all,” said
Mr. Dodd. All of this change would make no difference with the
management of affairs. Mr. Dodd assured the stockholders: “Your
interests will be the same as now. The various corporations will
continue to do the same business as heretofore, and your proportion of
the earnings will not be changed.”
The trustees went about liquidating at once, but it was not until the
following November that the immense number of certificates held by them
personally were exchanged. The process followed can be easily
illustrated by Mr. Rockefeller’s case. When the trust was ordered
dissolved Mr. Rockefeller held 256,854 of the 972,500 shares of Standard
Oil Trust which were out. He turned over to an attorney an assignment of
this amount, with instructions to secure from each of twenty companies
in the trust stock certificates for the portion belonging to him. The
corporate stocks were turned over to Mr. Rockefeller, and the assignment
of certificate, a properly framed and numbered document, was turned over
to the liquidating trustees. This assignment of legal title, for all
practical purposes, was the same thing as the trust certificate. It
enabled the trustees to collect dividends from the various companies and
pay them just as they had before. The documents showing the formal
procedure in the case of Mr. Rockefeller’s stocks are printed in the
Appendix.[134]
At the end of the first year, after the dissolution of the trust,
477,881 shares were uncancelled. At the end of the second year it was
the same; at the end of the third, 477,881 were still out. At the end of
the fourth, 477,881. The dissolution of the trust seemed to have come to
a stand-still. Mr. Dodd was right; things were going on as they did
before; dividends were issued exactly as before. Nor was there any
indication of an intention on the part of the liquidating trustees to
change this state of things. If the monopolistic power of the Standard
Oil Trust was to be broken, it was evidently not to be by any order of
dissolution by the courts. Something more powerful than the courts was
at work, however. The spirit of individualism was beginning to reassert
itself in the oil industry—a new war for independence had been begun,
was indeed well under way even before the state of Ohio made the
dissolution of the trust necessary.
CHAPTER FIFTEEN
A MODERN WAR FOR INDEPENDENCE
PRODUCERS’ PROTECTIVE ASSOCIATION FORMED—A SECRET INDEPENDENT
ORGANIZATION INTENDED TO HANDLE ITS OWN OIL—AGREEMENT MADE WITH
STANDARD TO CUT DOWN PRODUCTION—RESULTS OF AGREEMENT NOT AS
BENEFICIAL TO PRODUCERS AS EXPECTED—PRODUCERS PROCEED TO ORGANISE
PRODUCERS’ OIL COMPANY, LIMITED—INDEPENDENT REFINERS AGREE TO
SUPPORT MOVEMENT—PRODUCERS AND REFINERS’ COMPANY FORMED—LEWIS EMERY,
JR.’S, FIGHT FOR SEABOARD PIPE-LINE—THE UNITED STATES PIPE
LINE—STANDARD’S DESPERATE OPPOSITION—INDEPENDENT REFINERS ALMOST
WORN OUT—THEY ARE RELIEVED BY FORMATION OF PURE OIL
COMPANY—PURE OIL COMPANY FINALLY BECOMES HEAD OF INDEPENDENT
CONSOLIDATION—INDEPENDENCE POSSIBLE, BUT COMPETITION NOT RESTORED.
John D. Rockefeller’s one irreconcilable enemy in the oil business has
always been the oil producer. There is no doubt that Mr. Rockefeller has
sincerely deplored this. And well he might, for he learned in his first
great raid on the industry in 1872 that the producers aroused and united
made a powerful and dangerous foe.
No doubt, if it had been practical, Mr. Rockefeller would have begun at
the start to take over oil production as he did oil refineries and
pipe-lines, and thus would have gotten his enemy out of the way; but
during the first fifteen years of his work it was not practical. The oil
fields were too vast and undefined. It not being practical to own the
oil fields, and yet essential that those who did own them, and of whose
oil he aspired to be the only buyer, should be kept sufficiently
satisfied not to interfere with his domination or to attempt to handle
the oil for themselves, Mr. Rockefeller, whenever he had the chance,
sought to persuade the producers to do what he would have done had he
owned the oil fields—that was, to keep the supply of crude oil short.
“The dear people,” he said once when asked by an investigating committee
if his monopoly of oil refining and oil transportation had not prevented
the producer from getting his full share of the profits—“the dear
people,” he said, “if they had produced less oil than they wanted, would
have got their full price; no combination in the world could have
prevented that, if they had produced less oil than the world
required.”[135]
It is quite possible that if Mr. Rockefeller had been able to convert
the majority of the producing body to this theory, and the supply of
crude oil had been kept scarce and prices consequently high, the oil
producers would have forgotten their resentment at his early raids and
would have relapsed into indifference toward his control. Material
prosperity is usually benumbing in its effects. There always has been a
factor in the great game playing in the Oil Regions, however, which not
even Mr. Rockefeller could match. Nature has been in the oil game, and
she has taken pains to prevent the only situation which would have
enabled Mr. Rockefeller to reconcile the oil producers. Again and again
when it seemed as if the limits of oil production were set, and when Mr.
Rockefeller and his colleagues must have believed that they would soon
have the industry sufficiently well in hand to pay the producers a
satisfactory price for crude oil, their calculations have been upset by
the discovery of a great deposit of oil which flooded the market and put
down the prices. This happened so often between Mr. Rockefeller’s first
public appearance in the business and the time when he completed his
control of transportation, refineries and markets, that the yearly
production of crude oil had risen from five and a half million barrels
to thirty million barrels, and instead of a half million barrels above
ground in stocks there were in 1883 over thirty-five million barrels, in
1884 nearly thirty-seven million, in 1885 thirty-three and a half
million. The low price for crude which these vast stocks caused, the
high charges for gathering, transporting and storing, all services out
of which the Standard was making big profits, the fact that the profit
on refined oil steadily increased in these years—the result of the
overthrow of independent refiners and pipe-lines—while the profit on
crude steadily diminished, were facts which the oil producers brooded
over incessantly, and the more bitterly because they felt they could do
nothing to help themselves. Every enterprise looking to relief which
they had undertaken had, for one reason or another, failed. They had no
faith that relief was possible. The Standard would never allow any
outside interest to get a foothold. It was the bitterness which this
conviction caused which was at the bottom of the outburst over the
Billingsley Bill described in Chapter XIII. The Billingsley Bill was
defeated, as it deserved to be, but the work done was by no means lost.
For the first time since 1880 the Oil Regions were aroused to concerted
action. The support of the Billingsley Bill had been a spontaneous
movement, a passionate, unorganised revolt against the tyranny of the
Standard, but it served to bring into action men who for six long years
had been saying it was no use to resist, that Mr. Rockefeller’s grip was
too strong to be loosened. It revived their confidence in united action
and steeled them to a determination to take hold of the industry and
force into it again a fair competition in handling oil.
On the very night after the defeat of the bill (April 28, 1887) the oil
men who had gathered in Harrisburg to support the measure, angry and
sore as they were, arranged to call an early meeting in Oil City and
organise. The meeting was held. It was large, and it was followed by
others. In a very short time 2,000 oil men were enrolled in a Producers’
Protective Association, and thirty-six local assemblies were holding
regular meetings throughout the region. There were several important
points about the new association, aside from the enthusiasm and
determination which animated it:
(1) It was a secret order.
(2) Its membership was composed entirely of persons outside of and
opposed to the Standard Oil Trust, one of its by-laws reading: “No
person connected with the Standard Oil Company or any of its allies, as
partners, stockholders, or employees, and friendly thereto, shall be
elected to membership; and members becoming such shall be liable to
expulsion.”
(3) It proposed “to defend the industry against the aggregations of
monopolistic transporters, refiners, buyers and sellers” by _handling
its own oil_.
Hardly had the Producers’ Protective Association been organised before
Mr. Rockefeller had an opportunity to try his plan for conciliation. An
independent movement had been started in the summer of 1887 by certain
large producers in favour of a general “shut-down,” its object, of
course, being to decrease the oil stocks. The president of the
Producers’ Association, Thomas W. Phillips, who at that time was the
largest individual producer in the oil country, his production averaging
not less than 6,000 barrels a day, was called into consultation with the
leaders of the “shut-down” movement. Mr. Phillips promptly told the
gentlemen interested that he would not join in such an undertaking
unless the Standard went into it. He pointed out that the Standard owned
a large proportion of the 30,000,000 barrels of oil above ground. They
had bought it at low prices. If the production was shut down prices
would go up and the Standard would reap largely on the oil they owned.
The producers would, as usual, be standing all the loss.
The upshot of the council was that the Producers’ Protective Association
took hold of the shut-down movement, its representative seeking an
interview with the Standard officials as to their willingness to share
in the cost of reducing the production. Here was a chance for Mr.
Rockefeller to apply his theory of handling the oil producers—conciliate
them when possible—encourage them in limiting their production. The oil
men’s representatives were met half-way, and an interesting and curious
plan was worked out; the producers were to agree to limit their
production by 17,500 barrels a day. They were to do this by shutting
down their producing wells a part or all of the time and by doing no
fresh drilling for a year. If they would do this the Standard agreed to
sell the association 5,000,000 barrels of oil at sixty-two cents, and
let them carry it at the usual rates as long as they wanted to. Whatever
advance in price came from the shut-in movement the producers were to
have on their oil, and it was to be shared by them according to the
amount each shut in his production. Mr. Phillips, before agreeing to
this arrangement, demanded that provision be made for the workingmen who
would be thrown out of employment by the shut-down, and he proposed that
the association set aside for their benefit 1,000,000 barrels of the oil
bought from the Standard, and that the Standard set aside another
million; all the profits above sixty-two cents and the carrying charges
on the 2,000,000 barrels were to go to the workingmen. A memorandum
covering the above points of the agreement was drawn up, and it was
accepted by the two interests represented.[136]
Mr. Rockefeller’s reason for signing the contract he gave to the New
York State Trust Investigating Committee four months later:
_Q._ ... What was the inducement for the Standard Oil Trust to enter
into such an agreement as that?
_A._ The inducement was for the purpose of accomplishing a
harmonious feeling as between the interests of the Standard Oil
Trust and the producers of petroleum; there was great distress
throughout the oil-producing region; as an instance of that distress
there was an outcry that our interest was getting a return, that
theirs was not in the business, and we did not know, as a matter of
fact, that the oil-producing interest was abnormally depressed, and
we felt it to be to the interests of the American oil industry that
a reasonable price should be had by the producer for the crude
material, and we wanted to co-operate to that end.
_Q._ By advancing the price of the crude material you necessarily
advance the price of the refined?
_A._ Yes, sir.[137]
The shut-down went into effect the first of November, 1887. The effect
on stocks and the market was immediate—stocks fell off at the rate of a
million barrels a month, and prices rose by January, 1888, some twenty
cents. But at the end of the year, though oil was higher and stocks
considerably less, the benefits of the shut-down had not been
conspicuous enough to produce that “harmonious feeling” Mr. Rockefeller
so much desired; not sufficient to distract the minds of the producers
from the idea they had in forming their association, and that was a
co-operative enterprise for taking care of their own oil. Throughout
1888 and 1889 two schemes, known as the Co-operative Oil Company,
Limited, and the United Oil Company, Limited, were under consideration.
By the end of the latter year it looked as if something could be done
with the second, and it was turned over by the executive board of the
association to a special committee, of which H. L. Taylor, of the Union
Oil Company, one of the largest and oldest producing concerns of the Oil
Regions, was chairman. How Mr. Taylor had succeeded in getting into the
Producers’ Protective Association it is hard to say, for it was he and
his partner, Mr. Satterfield, who in 1883 had tried to throw the
Tidewater Pipe Line into the hands of the Standard Oil Company, and who,
when that unworthy scheme failed, had sold their stock to the Standard,
thus giving that company its first holdings in the Tidewater.[138] The
independents had forgotten or overlooked this fact, for Taylor was a
member of the Producers’ Protective Association and prominent in its
councils.
The special committee, of which Mr. Taylor was chairman, went actively
to work. Lawyers were employed to consider the safest form of
organisation for a company doing an interstate pipe-line business and
carrying on refineries. Certain German capitalists, owners of tank
steamers and interested in foreign marketing agencies, were brought into
the scheme. Things were going well, when suddenly the committee found
the chairman cooling toward the enterprise. Then came the rumour that
Mr. Taylor and his partners—Mr. Satterfield and J. L. and J. C.
McKinney—had sold the Union Oil Company to the Standard. A meeting of
the executive board was at once called, Messrs. Taylor and J. L.
McKinney both being present. They acknowledged the truth of the report
and were promptly informed their resignations would be accepted.
The rumour of the secret desertion of strong members of the Producers’
Protective Association, while holding positions of trust, soon spread
through the Oil Regions. It was a staggering blow. It took from them one
of the largest single interests represented. It deprived them of men of
ability on whom they had depended. It introduced a fear of treachery
from others. It brought them face to face with a new and serious element
in the oil problem—_the Standard as an oil producer_. Up to 1887, the
year of the organisation of the Producers’ Protective Association, Mr.
Rockefeller had not taken his great combination into oil production to
any extent, and wisely enough from his point of view. It was a business
in which there were great risks, and as long as he could control the
output by being its only buyer, why should he take them? Now, however,
the situation was changing. A number of sure fields had been
developed—Bradford, Ohio, West Virginia. Their value was depressed by
over-production. Mr. Rockefeller had money to invest. The producers were
threatening to disturb his control by a co-operative scheme. It was
certain that he had not yet produced a “harmonious feeling.” It was not
sure he would. If he failed in that they might one day even shut off his
supply of oil, as they had done in 1872, and Mr. Rockefeller, with great
foresight, determined to become a producer. In 1887 he went into Ohio
fields. Soon after he began quietly to buy into West Virginia. When he
learned, in 1890, from Mr. Taylor and his partners, that a co-operative
company of producers was on foot, he naturally enough concluded that the
best way to dismember it was to buy out the largest interest in it. The
Union Oil Company saw the advantage of being a member of the Standard
Oil Trust, and sold. In this one year, 1890, over 40,000 shares of
Standard Oil Trust certificates were issued to oil-producing
companies,[139] as follows:
For stock of Union Oil Company 18,249 shares
For stock of Forest Oil Company 17,378 〃
For stock of North Pennsylvania Oil Company 2,647 〃
For stock of Midland Oil Company 2,000 〃
——————
40,274 〃
There was general consternation in producing circles, and if there had
not been a number of men in the organisation who realised that the life
of the independent effort was at stake, and who turned all their
strength to saving it, the association would undoubtedly have gone to
pieces. Chief among these men were Lewis Emery, Jr., and C. P. Collins,
of Bradford, Pennsylvania; J. W. Lee and David Kirk, of Pittsburg; A. D.
Wood, of Warren; Michael Murphy, of Philadelphia; Rufus Scott, of
Wellsville; J. B. Aiken, of Washington; R. J. Straight, of Bradford;
Roger Sherman and M. W. Quick, of Titusville. They urged an immediate
meeting of the General Assembly, at which a plan for co-operative action
should be adopted and at once put into force.
On January 28, 1891, the General Assembly convened at Warren,
Pennsylvania. The whole miserable story of the co-operative plan which
the executive board had worked out, and its destruction by the desertion
of the Union Oil Company, came out. It was at once evident that, instead
of disheartening the Assembly, it was going to harden their
determination and spur them to action; that they would not leave Warren
until they had something to work on. The session lasted three days, and
before finally adjourning it had adopted a drastic plan, framed by a
committee of nine, of which Mr. Quick was chairman. This plan aimed, so
the resolution adopted by the Assembly stated, _to cut off the supplies
of the producers’ oil from the Standard Trust!_ This was to be
accomplished by forming a limited partnership, whose subscribers should
all be trusted members of the Producers’ Protective Association (only
persons having no affiliation with the Standard Oil Company were members
of the Producers’ Protective Association, it will be remembered), and
which should aim to take care of the crude oil from the wells of the
producers who went into the movement, furnish it local transportation,
and find a market for it either by building independent refineries or by
alliance with those already in existence.
[Illustration:
MICHAEL MURPHY
The present President of the Pure Oil Company.
]
[Illustration:
JAMES W. LEE
The chief counsel of the Pure Oil Company. President of the company
from 1897 to 1901.
]
[Illustration:
DAVID KIRK
The first President of the Pure Oil Company.
]
[Illustration:
THOMAS W. PHILLIPS
A leader in the independent movement, which resulted in the Pure Oil
Company.
]
From Warren the delegates went home to work for the new scheme. J. W.
Lee and J. R. Goldsborough, the secretary of the association, at once
made a tour of the Oil Regions to explain the project and solicit
subscriptions. The response was immediate. In a few weeks over 1,000
producers had subscribed to the new company, which was at once organised
as the Producers’ Oil Company, Limited, its capital being $600,000.
But it is one thing to organise a company, and another to do business.
Where were they to begin? Where to set foot? The only thing of which
they were sure was a supply of crude oil, and in order to take care of
that they began operations by putting up four iron tanks at Coraopolis,
Pennsylvania, near the rich McDonald oil field. But they must have a
market for it, and their first effort was to ship it abroad. At Bayonne,
New Jersey, on the border of the territory occupied by the Standard’s
great plant, stands an independent oil refinery, the Columbia Oil
Company. The Columbia has “terminal privileges,” that is, a place on the
water-front from which it can ship oil—an almost impossible privilege to
secure around New York harbour. The Producers’ Oil Company now obtained
from Hugh King, the president of the Columbia, the use of his terminal.
They at once had fifty tank-cars built, and prepared to ship their crude
oil, but the market was against them, stocks were increasing, prices
dropping. The railroad charged a price so high for running their cars
that there was no profit, and the fifty tank-cars were never used in
that trade. A futile effort to use their crude oil as fuel in Pittsburg
occupied their attention for a time, but it amounted to nothing. It was
becoming clearer daily that they must refine their oil. The way opened
to this toward the end of their first year.
In and around Oil City and Titusville there had grown up since 1881 a
number of independent oil refineries. They had come into being as a
direct result of the compromise made in 1880 between the producers and
the Pennsylvania Railroad, a clause of which stipulated that thereafter
railroad rates should be open and equal to all shippers. The
Pennsylvania seems to have intended at first to live up to this
agreement, and it encouraged refiners in both the Oil Regions and
Philadelphia to establish works. At first things had gone very well.
There were economies in refining near the point where the oil was
produced, and so long as the young independents had a low rate to
seaboard for their export oil they prospered. But in 1884 things began
to change. In that year the Standard Pipe Line made a pooling
arrangement with the Pennsylvania Railroad, by which rates from the Oil
Regions were raised to fifty-two cents a barrel, an advance of seventeen
cents a barrel over what they had been getting, and in return for this
raise the Standard agreed to give the railroad twenty-six per cent. of
all the oil shipped Eastward, or pay them for what they did not get.
This advance put the independents at a great disadvantage. In September,
1888, another advance came. Rates on oil in barrels were raised to
sixty-six cents, while rates on oil in tanks were not raised. The
explanation was evident. The railroad owned no tank-cars, but rented
them from the Standard Oil Company. It refused to furnish these
tank-cars to the independents, but forced them to ship in barrels, and
now advanced the price on oil in barrels. This second advance was more
than the refiners could live under, and they combined and took their
case to the Interstate Commerce Commission, a hearing being given them
in Titusville in May, 1889. No decision had as yet been rendered, and
they in the meantime were having a more and more trying struggle for
life, and their exasperation against the Standard was increasing with
each week. When, therefore, the representatives of the Producers’ Oil
Company proposed a league with the independent refiners they were
cordially welcomed.
We have oil in tanks at Coraopolis, said the producers, plenty of it,
but we have no market. If we build a pipe-line from our tanks to Oil
City and Titusville and give you pipage at fifteen cents a barrel,
five cents less than the Standard charges, will you enter into an
agreement with us to take our oil for five years? The refiners saw at
once the possible future in such an arrangement, and in a short time
they had gone individually into a company to be called the Producers’
and Refiners’ Company, with a capital of $250,000, of which the
Producers’ Oil Company held $160,000, and whose object was the laying
of a pipe-line from the fields in which the producers were interested
to the refineries at Oil City and Titusville. The new plan was carried
out with the greatest secrecy and promptness. Before the Standard men
in the region realised what was going on, a right of way was secured
and the pipe was going down. On January 8, 1893, the first oil was
run. Here, then, was the first link in a practical co-operative
enterprise—independent producers and refiners of oil joined by a
pipe-line of which they were the owners.
While this enterprise was being carried out in Western Pennsylvania, in
the northern part of the state a still more ambitious, independent
project was under way, nothing less than a double pipe-line, one for
refined and the other for crude oil, from the Oil Regions to the sea.
This plan had originated with Lewis Emery, Jr., one of the most
implacable and intelligent opponents Mr. Rockefeller’s pretensions have
ever met. Mr. Emery sympathised with the idea that there was no way for
the producer to get his share of the profits in the oil business except
by handling the product entirely himself. In his judgment a pipe-line to
the seaboard was the first important link in such an attempt, and in
1891, on his own responsibility, he set out to see what hopes there were
of securing a right of way. The Columbia Oil Company, through whom the
Producers and Refiners were exporting, favoured such a scheme. It was
certain many producers would go into it; but on all sides there was much
scepticism about the Standard allowing a line to go through. Mr. Emery’s
first idea was a line from Bradford to Williamsport, on the Reading
road. He consulted the railroad officials. They would be glad of the
freight, they told him, and a preliminary contract was drawn up. The
contract was never completed. Mr. Emery returned to find out why. “If we
give you this contract,” the Reading officials told Mr. Emery, “we shall
disturb our relations with the Standard Oil Trust. We cannot do it.”
Turning from the Reading, he projected a new route, a pipe-line from
Bradford to the New York, Ontario and Western Railway near Hancock, New
York, thence by rail to the Hudson River, and from there by water to New
York harbour. The New York, Ontario and Western officials welcomed the
proposal. It gave them a new and valuable freight. But the pipes must
cross the Erie road near both its terminals. Mr. Emery saw the president
of the road. “Yes,” the president told him, “we are disposed to assist
all progress. Go ahead.” Thus encouraged, he sent his men into the field
to get the right of way. They had made a good beginning before the
project was known, but as soon as it was rumoured there appeared
promptly on the route surveyed a number of men known to be Standard
employees. They, too, wanted a right of way, the same as Mr. Emery
wanted. They bought strips of land across his route, they bought up
mortgages on farms where rights had already been acquired, and, mortgage
in hand, compelled farmers to give them rights. It was an incessant
harassing by men who never used the rights acquired—who did not want
them save to hinder the independent project. This sort of hindrance by
the Standard was certain, whatever route was taken, and Mr. Emery went
ahead undismayed, and in September, 1892, organised his company—the
United States Pipe Line Company—with a capital of $600,000. Among the
incorporators were representatives of the independents’ interests, both
in New York and in the Oil Regions, and much of the stock was soon
placed in the hands of the men who were interested in the independent
concerns described above.
It looked very much as if the United States Pipe Line were to be laid.
Now, the strength of the Standard Oil Trust had always been due to its
control of transportation. An independent pipe-line, especially to the
seaboard, was considered rightly as a much more serious menace to its
power than an independent refinery. The United States Pipe Line could
not be allowed, and prompt and drastic measures were taken to hinder its
work. There is no space here for an account of the wearisome obstructive
litigation which confronted the company, for the constant interference,
even by force, which followed them for months. It culminated when an
attempt was made to join the pipes laid to each side of the Erie tracks
near Hancock, New York, the Eastern terminal of the pipe-line. Mr.
Emery, relying on the promise of the Erie’s president to allow a
crossing, sent his men to the railway to connect the pipes. Hardly had
they arrived before there descended on them a force of seventy-five
railroad men armed for war. These men took possession of the territory
at the end of the pipes and intrenched themselves for attack. The
pipe-line men camped near by for three months, but they never attempted
to join the pipes. Mr. Emery had concluded, on investigation, that the
Erie officials, like the Reading, had found that it would be unwise to
disturb their relations with the Standard, and while his men were
keeping attention fixed on that point he was executing a flank movement,
securing a right of way from a point seventy miles back to Wilkesbarre,
on the Jersey Central. This new movement was executed with such celerity
that by June, 1893, the United States Pipe Line had a crude line 180
miles long connecting the Bradford oil fields with a friendly railway,
and a refined line 250 miles long connecting the independent refiners of
Oil City, Titusville, Warren and Bradford with the same railway.
With the completion of the refined line a question of vital importance
was to be settled: Could refined oil be pumped that distance without
deteriorating? The Standard had insisted loudly that it could not. When
the day came to make the experiment an anxious set of men gathered at
the Wilkesbarre terminal. They feared particularly that the oil would
lose colour, but, to their amazement, not only was the colour kept, but
it was found on experiment that the fire test was actually raised by the
extra agitation the oil had undergone in the long churning through the
pipes. A new advance had been made in the oil industry—the most
substantial and revolutionary since the day the Tidewater demonstrated
that crude oil could be pumped over the mountains. This new discovery,
it is well to note, was not the work of the Standard Oil Trust, but it
was accomplished in the face of their ridicule and opposition by men
driven to find some way to escape from their hard dealings.
The success of the United States refined line aroused the greatest
enthusiasm among the independent interests. It gave them access to the
seaboard, and there was immediate talk of a closer union between them.
Why should the Producers’ and Refiners’ Pipe Lines not be sold to the
United States Line and completed to Bradford? By the spring of 1894 the
project seemed certain of realisation.
The new movement was serious. Let this consolidation take place, and the
producers had exactly what they had set out in 1887 to build up—a
complete machine for handling the oil they produced. As the undertaking
grew in solidity and completeness, the war upon it grew more systematic
and determined. It took two main lines—discrediting the enterprise in
the eyes of stockholders so that they would sell the stock to Standard
buyers, the object being, of course, to get control of the companies;
cutting the refined market until the refiners in the alliance should
fail, or, becoming discouraged, sell. The work of discrediting the
enterprise was turned over to the Standard organs in the Oil Regions,
chief among which is the Oil City Derrick. Since 1885 the editor of this
interesting sheet has been a picturesque Irishman, Patrick C. Boyle by
name. Mr. Boyle’s position as editor and proprietor of the Derrick is
due to the generosity of the Standard Oil Trust, and he has discharged
his allegiance to his benefactor with a zeal which, if it has not always
contributed to the enlightenment of the Oil Regions, has, materially, to
its gaiety. Mr. Boyle now turned all his extraordinary power of
vituperation on three of the independents whose activity was
particularly offensive to him—Mr. Emery, Mr. Wood and Mr. Lee—and he
went so far that each of the three gentlemen finally sued him for libel.
They all got judgments. In Mr. Emery’s case, Mr. Boyle, after signing a
bond of $5,000 to keep the peace—which bond he was obliged later to pay,
with half as much more in costs—published the following retraction:
TO THE PUBLIC
For many years past there have appeared in the editorial and news
columns of the Oil City Derrick various articles reflecting on the
business, social and political character and integrity of Lewis
Emery, Jr.
P. C. Boyle, the editor of the Derrick, was indicted and convicted
for the publication of certain of such articles, and civil suit for
damages was instituted by Mr. Emery against P. C. Boyle for damages
for such publications.
The litigation has now been adjusted, and Mr. Boyle voluntarily
retracts _in toto_ all matters and things which he has said
derogatory to the character, standing, or responsibility of Lewis
Emery, Jr., published by him or under his direction in the past.
Mr. Boyle is fully satisfied that such articles have been published
under a misapprehension of the facts, and is satisfied that Mr.
Emery has been wronged, and should be vindicated, and this
retraction is freely made as such.
Many of the articles have been republished in various papers in this
country and Europe, and it is the desire of Mr. Boyle that this
retraction shall be as freely and fully printed and published as
were the original articles reflecting on Mr. Emery.
(Signed) P. C. BOYLE.
It is a satisfaction to the writer to be able to help gratify Mr.
Boyle’s laudable desire to have this document well circulated!
Although the greater part of the Oil Regions never took Mr. Boyle
himself seriously, the conviction that his attacks were inspired, that
this was the Standard’s way of saying to the producers that their
enterprise would not be allowed to live, gave a sinister look to what he
said. More damaging still was the quiet confidence with which the solid
men of the Standard smiled at the independent effort. What were their
puny hundreds compared to the millions of the trust? What was a band of
scattered “oil-shriekers” against the cold-blooded deliberation of Mr.
Rockefeller’s solid phalanx? The oil men were conscious enough of the
inadequacy of their capital and their organisation, but they hung on,
many of them because their blood was up, and they preferred spending
their last cent to yielding; others on the principle which Mr. Phillips
confesses held him, “that God sometimes chooses the weak things of the
world to confound the mighty”; or that “one might chase a thousand, and
two put ten thousand to flight.”
The efforts which the Standard made to discredit the independent
companies and their leaders were accompanied by a persistent, though
quiet, attempt of Standard agents to buy in all the stock in the
Producers’ Oil Company and the United States Pipe Lines which timid,
indifferent, or financially embarrassed stockholders could be induced to
give up. The movement began to be rumoured and caused no little
uneasiness in independent circles. How much would the Standard get? What
would they do with it? They were soon to find out.
Before the use to be made of the stock developed, however, the Standard
turned against the independents the most powerful and cruel weapon it
wields—its control of the markets. The refiners were to be driven from
the combination. The extent to which cutting was carried on for two
years, beginning with the fall of 1893, is clear from a comparison of
prices. In January of 1893 crude oil was selling at 53½ cents a barrel
and refined oil for export at 5.33 cents a gallon. Throughout the year
the price of crude advanced until in December it was 78⅜ cents. Refined,
on the contrary, fell, and it was actually eighteen points lower in
December than it had been twelve months before. Throughout 1894 the
Standard kept refined oil down; the average price of the year was 5.19
cents a gallon, in face of the average crude market of 83¾
cents[140]—lower than in January, 1893, with crude at 53½ cents a
barrel!
This much for the New York end of the export business. In Germany, where
the export oil of the independents all went, it being handled there by
one dealer, Herr Poth, whose depot was Mannheim, on the Rhine, prices
were cut at every point which the independent oil reached. It was a
matter of life and death to keep the foreign market they had developed,
and for twenty months the independent refiners met the demand of their
export agents and foreign dealers for lower prices with cut cargoes. For
twenty months they lost money on every barrel they sold. Oil was sold by
the Titusville refiners as low as 1.98 cents a gallon. The Lewis Emery
works at Bradford sold one cargo at 1.07 cents net, and many at or below
two cents. Had it not been for the union with pipe-lines such prices
would have been impossible, but all through the struggle in the market
the United States Pipe Line and the Producers’ and Refiners’ lines
carried oil at cost or below. The pipe-lines were heavily in debt to the
Reading Iron Works, but that company stood by them valiantly, extending
their notes until the struggle was over and the pipe-lines able to meet
them.
Such a situation could not go on forever, evidently. It had come
apparently to be a question of how long the refiner had money to lose,
and, as month after month the independents saw their bank accounts
diminishing, and no relief in sight, the courage of a few began to ooze.
Finally, late in 1894, a committee of the Western refiners, consisting
of John Fertig of Titusville, H. P. Burwald of Titusville and S. W.
Ramage of Oil City, went to New York to consult the Standard. Is there
no hope of a better market? Is there any chance for us? None whatever,
they were told, except to sell. We will buy the refineries and the stock
of the independent concerns, but that is all we can do. The committee
came home to report. The situation was hopeless, they said, and, as for
them, they should sell. As they represented three of the largest
concerns in the Union, and all carried stock in the allied enterprises,
their withdrawal seemed at the moment a death-blow. It was a glum and
beaten body of men which listened to the report, surrender written in
every line of their faces.
Now Mr. Lee and Mr. Wood, two active men of the Producers Oil Company,
had been invited to the meeting of the refiners. They realised fully
that if the refiners pulled out of the Union now, the independent effort
would in all probability go to pieces, and before a vote to sell could
be taken Mr. Lee was on his feet. In an impassioned speech he pleaded
for one more effort. He pointed out the fact that the abnormal condition
of the oil market could not remain, that crude oil was steadily rising,
and that no monopoly could permanently hold down a manufactured product
in the face of the rising raw product. The Standard had done this for
nearly two years—but it was contrary to the laws of nature that they do
it for two years more. He told them that already conditions were better
in Germany; that Mr. Emery had recently gone with Herr Poth, their
foreign buyer, to several members of the German government, and
presented to them the discrimination in prices of oil practised in the
empire, oil from one and a half to three cents higher on the Elbe than
on the Rhine, at points where freights were the same. He told the
refiners of the interest that had been taken by the government in their
case, and how they said, “Go home, gentlemen, and this shall stop,” and
that it had stopped. If criminal underselling can be checked in Germany,
Mr. Lee argued, we can keep our market. He reminded the refiners that it
was not merely a business they were establishing; it was a cause they
were defending—the right of men to work in their own way without
unlawful interference. The honour not only of themselves but of the Oil
Regions was at stake. They were struggling for great principles. They
were demonstrating that pluck, patience, and energy and brains can
conquer any combination that ability and unscrupulousness can devise.
“Do not give in,” pleaded Mr. Lee. “Hold on, and we will go to the
producers, lay your plight before them, and raise money to keep up the
fight.”
Aroused by his plea, all of the refiners, excepting Messrs. Fertig,
Burwald and Ramage, who had seen the Standard, decided to make another
effort if the producers would help them out. In the next few days the
leading men of the independent alliance worked with fury to call the Oil
Regions into a mass-meeting. They travelled from assembly to assembly
exhorting to action; they circulated dodgers announcing the gathering,
and finally, in January, 1895, ran special trains to Butler, the
rallying place. There was no lack of enthusiasm and blunt talk at the
Butler mass-meeting. All the bitterness and determination of the region
poured forth against the Standard, and when a resolution was offered by
David Kirk, one of the most active and forceful of the independents, to
raise money to form a new company, to be called the Pure Oil Company,
its immediate object being to take care of the refiners in the tight
place where they were, it went through with a whoop, and in a few
moments $75,000 had been subscribed. A few days later this sum was
raised to $200,000.
The objects of the company, as set forth in its prospectus issued at
this time, were:
To maintain and uphold the inherent right to do business, the right
to transport and market the producer’s own product, and his right to
the just reward of his labour and capital invested.
Another clause of the prospectus is interesting:
To prevent any interference of that monopoly which has obtained
control of the oil business, the voting power of one-half of the
stock of the Pure Oil Company is placed by the owners in the hands
of five champions of this right of independence, who are bound by
the terms of a permanent trust bond to vote only for such men and
measures as shall forever make this company INDEPENDENT, so that no
sales of interest will carry with them any power to jeopardise the
policy or existence of the company, or the investments of its
remaining members.
The Pure Oil Company had been organised none too soon. It was but a few
months after it was well under way before a hurried meeting of the
independents was called in New York. With scared faces the members
learned that the German dealer, who for four years had been handling
ninety per cent. of their export oil, had sold to the Standard marketing
concern, the Deutsche-Amerikanische Company. Consternation was great.
The independents had depended on the loyalty of Herr Poth as they did on
that of each other. He had been enlisted in their cause by Mr. Emery,
who, with the tragic earnestness which had characterised his entire
struggle for independence, had asked him for an oath of loyalty, and,
hand on his heart, Herr Poth had pledged his faith. In every respect he
had served them loyally. His desertion was inexplicable and
disheartening. Later they learned the truth, that Herr Poth had been
informed, by what he supposed to be reliable authority, that the
American independent interests had sold to the Standard. Believing that
this would cut off his supply, he had turned over his concern to the
Deutsche-Amerikanische. A few weeks later Herr Poth died suddenly. The
story goes in independent circles that when he learned the truth he
literally died of grief, believing he had perjured himself.
Herr Poth’s sale left the independents in serious shape. They had
cargoes of oil ready for Europe and no tankage in Europe to take
it—nobody there to sell it. A meeting was at once called in Pittsburg to
raise money, and in a few days Mr. Emery and Mr. Murphy went abroad,
and, as quickly as such work could be done, they secured privileges in
Hamburg and Rotterdam to erect tanks and establish marketing stations.
The Pure Oil Company was in Europe. Once more the independents had been
driven to depend on themselves, and once more they had proved sufficient
to the emergency. But war was by no means over. With the establishment
of the Pure Oil Company came the foreshadowing of a still closer union
of the companies. At all hazards this was to be prevented. The Standard
determined to play the stock of the Producers’ Oil Company, Limited, and
the United States Pipe Line, which it had been picking up quietly.
Already one attempt had been made to get into the former concern through
one of the most conspicuous and successful producers of the oil
country—Colonel John J. Carter, of Titusville, the president of the
Carter Oil Company. Colonel Carter owned 300 shares of the stock of the
Producers’ Oil Company, Limited, and had been elected a member on it;
according to the rules governing limited partnership in Pennsylvania, a
stockholder must be elected to membership before he can vote his stock.
In February, 1894, when a union of the pipe-lines had first been voted,
he suddenly appeared in court and got an injunction against the sale. In
the hearings on the injunction there came out a fact in regard to
Colonel Carter which aroused a storm of wrath against him among the
independents. The Standard Oil Company owned sixty per cent. of the
Carter Oil Company! A harder fact was to be digested. On April 11, 1894,
the company met in Warren, Pennsylvania. Colonel Carter was present and
voted not only his 300 shares, but 13,013 more! Where had he got them?
There was but one conclusion, and it proved to be true—the 13,013
belonged to the Standard Oil Company. They had been _loaned_ to Mr.
Carter; there was a form of transfer, but no sale, not even a price
having been decided on—evidently in the hope that he, with a few other
stockholders who were disaffected, would control the meeting and prevent
the union of the pipe-lines. The attempt failed, for the Carter-Standard
faction succeeded in getting together only 21,848 shares, while the
independents held 30,560. The bitterness over this attack aroused
terrible excitement. More than one member of the Warren meeting shouted
“traitor” at Colonel Carter, and when the news of what happened reached
the Producers’ Protective Association there was a general demand that he
be expelled from the Titusville assembly. It was done promptly, Mr.
Carter not being given even a hearing.
The Standard took back its 13,013 shares and patiently went on picking
up more. By January, 1896, they held 29,764 shares, enough, with Colonel
Carter’s 300, to give them a clean majority. Colonel Carter appeared at
26 Broadway at this opportune moment and offered to buy the stock at
100. Mr. Archbold and his colleagues thought it worth 150. (They are
said to have paid as high as 220 for some of it.) Mr. Carter, in his
frank colloquial testimony when on the witness-stand, described the
conversation over the price:
“Mr. Archbold says, ‘I don’t know, John, but what you are asking us
to sell that stock too cheap. Don’t you think it is worth more
money?’ I says, ‘Not to me, it is not.’ I says, ‘I am willing to
start in on this thing and put it on a paying basis and pay par for
it.’ ‘Well,’ he says, ‘I guess that we will have to think that thing
over,’ and it dropped right there.”
There were several interviews between Mr. Archbold, Mr. Rogers and Mr.
Carter. They wanted to know how he proposed to run the Producers’ Oil
Company if he obtained a majority of the stock. “If I run that
pipe-line,” Mr. Carter reports himself as saying, “I am going to run it
according to law and business principles. Any man that wants oil of me,
and has the money to pay for it, shall have it.”
“Will you let Mr. Emery have some oil if he wants it?” asked Mr. Rogers.
“Yes, I will.” “And all the outside refiners?” “Yes, I will. I shall
make no discrimination against the outside refiner and in favour of the
Standard Oil Company, or _vice versa_.”
The Standard Oil seems to have been convinced that Colonel Carter was
their friend—they probably never had any doubt of their ability to
manage _him_, and it is evident from the Colonel’s testimony that _he_
never had any doubt about his own ability to manage both independents
and Standard—and the sale was made at 100, Colonel Carter giving his
check for $297,640 on the Seaboard Bank.
Stock in hand, Colonel Carter went back to the Oil Regions to take
possession. It was not so easy as he anticipated. The secretary refused
to transfer the stock. He sought the president, Mr. Lee. What took place
Colonel Carter himself told later on the witness-stand:
“Senator Lee and myself retired to my room in the hotel and we had
quite a preliminary conversation on the situation and in regard to
the Producers’ Pipe Line. Then I stated to him my ownership of the
majority of the stock of the Producers’ Oil Company, Limited, and
stated furthermore that I purchased it from the National Transit
Company; that my desire was to stop all contention on the part of
the producers and myself, to run the business on a business
principle, so that the stock belonging to the various members and
myself might pay something, instead of dragging its slow length
along as it had been for the past six years. I told him,
furthermore, that I was perfectly willing that he should elect what
portion of the directors that his stock would warrant him, and I
would elect those that I could. The Senator replied then: ‘You
propose to take charge of the association?’ ‘Yes,’ I said; ‘I did.’
The Senator then stated emphatically that I could not do it; he
would not permit it; if he had to spend the whole capital of the
company he would resist it.... He gave me to understand emphatically
that there was not anything except the management of the company by
himself and his associates that would be tolerated, and I told him
then I was sorry that I would have to go into court and determine my
rights in court. That was about all, but it is only fair,
furthermore, to say that at the time the Senator was rather warm,
and I presume I was warm in the collar myself. I stated to him
plainly that if there was any attempt to eject me from a legally
constituted meeting in which I was there, I would resist it if I
killed the man that attempted to put me out.”
Mr. Carter’s cool announcement that he meant to run the company “from a
business stand-point, and not from the stand-point of a gadfly”—there
seems to be a doubt about its being the producers who had played the
part of the gadfly—exasperated the independents to the last degree, and
in June, 1896, they met the colonel in court. His ownership of a
majority of the company’s stock was admitted, but it was urged by the
independents that the Producers’ Oil Company was a limited partnership,
and that under the Pennsylvania law no one owning stock can become a
member without being elected by a majority in number and value of the
interests. Colonel Carter had been elected member on only 300 shares.
Both the lower and supreme courts sustained the independents, and
Colonel Carter found himself an owner of a majority of the concern’s
stock without the right of control. Under those circumstances neither he
nor the Standard wanted the stock, and the company bought it below par.
The winning of the Carter case gave encouragement that a similar suit
brought by the Standard pipe-lines against the United States Pipe Line
might fail. As already noted, the Standard began to buy into that
company as soon as it was under way, and by the summer of 1895 they had
collected 2,613 shares. In August of that year the annual meeting of the
company was held, and the agent of the Standard Oil Company who had been
buying the stock, J. C. McDowell, presented himself prepared to vote. He
was stopped at the door by Michael Murphy, the present president of the
Pure Oil Company, and told emphatically that they considered that he was
sent there by the Standard Oil Company to spy on their actions; that,
legal or illegal, they would throw him out if he crossed the threshold.
Mr. Murphy is well known to be a man of his word, and as he was backed
by young and athletic independent stockholders, Mr. McDowell discreetly
withdrew. Naturally a suit followed, but this time the independents
lost. The United States Pipe Line, being a corporation, was obliged to
recognise the Standard interest in the concern and eventually to allow
them a director on its board.
The humiliation and disgust over this result shook the independents’
interests to their foundation. There perhaps was never a period of more
heart-breaking discouragement for many of the men than when they saw
their dearest hopes frustrated, and a Standard representative in their
councils. This defeat came, too, when they were smarting under a
continued and intolerable interference by the Standard with the
extension of their pipe-lines to the seaboard. That both the crude and
refined lines should ultimately reach the sea had, of course, been the
intention from the first. But it was not until 1895 that the company
felt firm enough in its finances to push the extension. The route laid
out was from Wilkesbarre to Bayonne, New Jersey, by way of Hampton
Junction, on the Jersey Central Railroad. By this course two railroads
were to be crossed, the Pennsylvania and the Delaware, Lackawanna and
Western. Under both of them ran the pipe-lines of the Standard and the
Tidewater, and the United States Pipe Line officials believed they had
an equal right to go under, but they took it for granted they would be
opposed, and prepared for it. Looking over the titles of the land along
the Pennsylvania, Mr. Emery, the president of the company, who was
personally directing the extension, found one for an acre; the owner did
not know of his possession and was glad to sell it. This gave the United
States people a crossing, but even then they were obliged to carry on a
long litigation in the courts before they were free to use their right.
Coming to the Delaware, Lackawanna and Western, they decided to test
their position by laying a pipe. It was promptly torn out. A farm over
which the railroad passed was then purchased and preparations made to
lay the pipe in a roadway under the tracks. As this road was some
seventeen feet below the rails, any claim that there was possible danger
from the oil seemed feeble. Knowing that the point was watched, Mr.
Emery tried strategy. Taking fifty men with him he went in the night to
the culvert under which he meant to cross, laid his pipes four feet
under ground, fastened them down with heavy timbers, piled rocks on
them, anchored them with chains, established a camp on each side of the
track, and prepared for war. They soon had it. First, with a body of
railroad men armed with picks and bars, who invaded the camp. “I told
the boys,” said Mr. Emery in describing the incident to the Industrial
Commission in 1899, “to take the men by the shoulders and the seat of
the pants, and take them out and lay them down carefully, which they
did.” The next day two wrecking-cars, with 250 men, came down the road
and charged the camp, but again they were routed. The matter was taken
by mutual agreement into court, and while Mr. Emery was before the
justice of the peace, two locomotives were run down and the camp
attacked with hot water and coals!
[Illustration:
LAYING A SIX-INCH PIPE LINE, CAIRO, WEST VIRGINIA
]
By this time the whole countryside was aroused. The unfairness of the
thing was so patent that even the railroad employees engaged in it did
not hesitate to say, in excuse of their employers, that it was the
Standard Oil Company which was at the bottom of the opposition! As for
the inhabitants, they offered any aid they could give. The local G. A.
R. sent forty-eight muskets to the scene of war. Mr. Emery bought
eighteen Springfield rifles, the camp was barricaded, and for seven
months the pipes were guarded while the courts were deciding the legal
title to the crossing.
This interim was employed by the pipe-line people in an attempt to get a
free pipe-line bill through the New Jersey Legislature. If this could be
done they could go under the Delaware, Lackawanna and Western without
its consent. The bill was introduced in February, 1896, J. W. Lee, Hugh
King and Lewis Emery, Jr., all appearing before the committee to argue
for it. At first there seemed to be no opposition to it. Everybody
agreed it was a just and proper measure. Then, suddenly, within a few
days of the end of the session, a violent opposition sprang up. Trenton
became alive with lobbyists—men well enough known to politicians. The
newspapers came out boldly with the charge that the railroads and
Standard were going to defeat the bill. Its friends could not believe
it, nor did they until they found, the morning it was to be presented,
that the Senator having it in charge had disappeared, taking with him
the bill and everything concerning it. Four days later the Legislature
adjourned, and the precious Senator, when next heard from, was in the
far West!
[Illustration:
TRUNK AND LOCAL PIPE LINES OF THE PURE OIL COMPANY.
There are two lines from Oil City to Marcus Hook, near Philadelphia,
one for crude and one for refined oil.
]
Deprived of this hope, and condemned to a litigation which was certain
to be made as long, as vexatious, and as costly as lawyers could make
it, the chief counsel of the United States Pipe Line, Roger Sherman,
advised a bold move—to bring suit against the Standard Trust under the
Sherman anti-trust law. The summons was issued in July, 1897, by John
Cunneen, of Buffalo. A very pretty list of wrongs it was of which the
plaintiff complained: the instigation of lawsuits and the causing of
injunctions without cause, and solely for the purpose of preventing the
independent line from doing business; the publishing of libellous matter
concerning the company and its officers in newspapers controlled by the
trust; engaging bodies of men to tear up parts of pipe-line already
laid; enticing away from the enterprise officers, agents and employees;
chartering or purchasing any vessels carrying independent oil, solely
for the purpose of interfering with the independent market; intimidating
merchants by threats of underselling until they refused to buy the oil
contracted for; criminal underselling solely for destroying the
plaintiff’s markets.
It was a serious case Mr. Sherman made out, and the evidence he
collected was elaborate and detailed. But, for a sad reason, it was
never to come to trial. Less than two months after the summons was
issued Mr. Sherman died suddenly in New York City. The shock of his
death was such that the independent companies had no heart for the suit,
but allowed it to lapse.
There was nothing now but the slow course of Jersey justice for the
United States Pipe Line, and for four long years it dragged itself
through the courts. Twice it won, but at last, in 1899, decisions of the
lower courts were reversed and the pipe-line had to come up. Ordered out
of New Jersey, the independents had to turn back to Pennsylvania. In
that state there is a free pipe-line bill. Philadelphia is a shipping
point. Luckily for the company, Mr. Murphy had, some time before this,
and in anticipation of a defeat in New Jersey, bought on his own
responsibility the land for a terminal at Marcus Hook, on the Delaware.
This terminal he now sold to the company at the nominal price he had
paid for it, and the United States Pipe Line was started again from
Wilkesbarre to the sea. Finally, on May 2, 1901, after nine years of
struggle in the face of an interference intolerable and unjust, after a
quarter of a million dollars spent in litigation, in useless surveys, in
laying and pulling up pipes, in loss of business, the first refined oil
ever piped from the Oil Regions to the seaboard reached Philadelphia.
Mr. Emery, in telling his story of the difficulties of the United Pipe
Line to the Industrial Commission in 1899, did not hesitate to attribute
them to the Standard Oil Trust. John D. Archbold made a “general
denial”: “We have not at any time had any different relations with
reference to any obstruction or effort at obstruction of their line
_than would attach to any competitor in a line of business engaging
against another_.”[141] “We asked our friends on the railroad and in the
New Jersey Legislature to look after our interests, of course,” a
Standard official told the writer in discussing this case. “That was our
right.” Mr. Boyle, the editor of the Derrick, took the stand before the
Industrial Commission that the Standard Oil Trust’s opposition to the
United States Pipe Line was merely fair competition, as justifiable as
offering a higher price for land which your competitor is after.
From the Standard point of view it is evident that all this is
legitimate business. They do not wish the United States Pipe Line to
reach New York. They say to their friends of the Delaware, Lackawanna
and Western, and in the Legislature of New Jersey: “These people are our
competitors.” Apparently neither the Delaware, Lackawanna and Western
nor the New Jersey Legislature can afford to forget who are the
competitors of the Standard Oil Trust. When the case becomes public and
clamour is raised against such methods, the Standard disclaims all
responsibility. It was the railroad who fought the pipe-line!
It was not only from without that trouble came upon these men. There
were the inevitable internal struggles. They saw their stockholders
diminish from discontent and timidity. One of their staunchest members
withdrew because of his disbelief in the wisdom of a majority action,
and twice they were robbed by death of their most valued members. In
December, 1895, A. D. Wood, of Warren, died. Mr. Wood had been one of
the most inspiring members in the independent work, and there was nobody
left who could do what he had been doing there. In 1897 the chief
counsel, Roger Sherman, died. He had conducted the enormous and
vexatious litigation of the various concerns with consummate skill, and
there was nobody to take his place. Mr. Emery, overwhelmed by the death
of Roger Sherman and worn out by his six years of work and worry over
the United States Pipe Line, fell ill and was obliged to resign. On
every side it was fight and loss and despair, and yet these men hardened
under it. Not only hardened, they expanded. Ten years after the
unorganised uprising which brought them together in 1887 and forced from
them the resolution to take care of their own product, what had they? A
company of nearly 600 individual oil producers organised on a business
basis, and connected by pipe-lines with some dozen individual oil
refineries. For transporting this oil they had pipe-lines carrying both
crude and refined from the Oil Regions to within fifty miles of the sea,
and for markets they had those they had themselves worked up in the
United States and Europe. They had something more. In spite of the
continued hostility of the Standard they had the conviction that there
was a future for their venture; but they saw clearly that to realise it
they must get themselves into still more compact form—that their
holdings must be put into the hands of trustees in a single company if
they were to be free from the danger of the eventual dominance of the
Standard. Now, in November, 1895, as we have seen, the independents had
incorporated in New Jersey a marketing concern called the Pure Oil
Company. After months of discussion it was decided to enlarge the
capital of this company to $10,000,000, $2,000,000 in preferred and
$8,000,000 in common stock, and put into this concern all their
interests. There was opposition to the consolidation from some of the
strongest interests concerned, but finally the idea prevailed, and in
1900 a majority of the stock of the Producers’ Oil Company, the
Producers’ and Refiners’ Company, and the United States Pipe Line was
turned over to the Pure Oil Company.
The purpose of the combination was frankly stated to be the maintenance
of the independence of the company. This was to be effected in the
following way: the holders of 16,000 shares of stock—more than a
majority—vested the voting power of these shares in fifteen persons for
twenty years, and it was agreed that one-half of all shares thereafter
subscribed should be transferred to those same trustees. Shares can be
sold and transferred, but this transfer does not give the purchaser any
right other than provided in the trust agreement. Any trustee may be
summarily removed by three-fifths of the trustees, together with
three-fifths of the shareholders in trust. It certainly looks as if the
Pure Oil Company has devised an organisation which will effectually
preserve its independence so long as its shareholders desire that
independence. Mr. Archbold, in describing this voting trust of the Pure
Oil Company to the Industrial Commission, called it “iniquitous.” It is
difficult to understand just how it is iniquitous, unless it is because
of its success so far in keeping the Standard out of its councils. It is
not a secret arrangement. It aims at no monopoly, at no restraint of
trade. It claims only to be a device for protecting its obvious right to
handle its own product. Of course, if we admit that the oil business
belongs to the Standard, as Mr. Rockefeller claims, then the Pure Oil
Company is certainly in the wrong!
As it stands to-day, the independents have a good showing for their
fight. They have fully 900 stockholders, most of them producers. They
handle a daily production of 8,000 barrels of crude oil; operate 1,500
miles of crude pipe-line and 400 miles of refined; are allied with some
fourteen refineries, in some of which all the by-products of oil, as
well as naphtha and illuminating oils, are produced; own one
tank-steamer, the Pennoil, with a capacity of 42,000 fifty-gallon
barrels, and charter several others; own oil barges on the Rhine, the
Elbe and the Baltic; have fully equipped stations in Europe at Hamburg,
Mannheim, Riesa, Stettin and Dusseldorf, in Germany; Rotterdam and
Amsterdam, Holland; London and Manchester, England; and, in the United
States, New York and Philadelphia. With conservative and loyal
management, there seems to be no reason that the Pure Oil Company should
not become a permanent independent factor in the oil business. Such a
thing is worth the best efforts of the men who have made it. Their
courageous and persistent struggle no doubt seems to most of them as of
purely personal and local meaning. All they asked was to get a fair
share of the profits in their business. They knew they did not get it,
and they believed it was because there was not fair play on the part of
the railroads and the Standard Oil Company. Aroused, they each fought
for the particular thing which would give them relief. They only
combined because driven to. They have become a strong organisation
almost solely because of the persistent opposition of the Standard Oil
Trust. The Standard’s efforts to break up the Producers’ Protective
Association by buying out the biggest producers precipitated a
co-operative company for handling oil. Its efforts to drive out the
independent refineries by the manipulation of the railroads drove the
producers and refiners to combine. The heavy charges for handling oil by
the Standard pipe-line and by the railways drove these independents to
build a seaboard pipe-line for both refined and crude, and to
demonstrate that refined as well as crude could be pumped to the sea in
pipes. The buying out of their foreign agents forced them to develop
their own market in Europe. The secret buying in of their stock, and the
combined effort to force the Standard directors on them, compelled them
into their present close trust organisation. It looks very much as if in
trying to make way with several small scattered bodies Mr. Rockefeller
had made one strong, united one.
But while the experience of the Pure Oil Company demonstrates that it is
possible to-day to build up an independent oil business if men have the
requisite patience and fighting quality, it by no means follows that the
success of the Pure Oil Company has restored competition in the oil
business or that by its success the public is getting any marked
reduction in the price of oil. That the control of that price—within
limits—is now and has been almost constantly since 1876 in the hands of
the Standard Oil Company is demonstrated, the writer believes, by the
figures and diagrams of the next chapter.
CHAPTER SIXTEEN
THE PRICE OF OIL
EARLIEST DESIGNS FOR CONSOLIDATION INCLUDE PLANS TO HOLD UP THE
PRICE OF OIL—SOUTH IMPROVEMENT COMPANY SO INTENDS—COMBINATION OF
1872–1873 MAKES OIL DEAR—SCHEME FAILS AND PRICES DROP—THE
STANDARD’S GREAT PROFITS IN 1876–1877 THROUGH ITS SECOND
SUCCESSFUL CONSOLIDATION—RETURN OF COMPETITION AND LOWER
PRICES—STANDARD’S FUTILE ATTEMPT IN 1880 TO REPEAT RAID OF
1876–1877—STANDARD IS CONVINCED THAT MAKING OIL TOO DEAR WEAKENS
MARKETS AND STIMULATES COMPETITION—GREAT PROFITS OF
1879–1889—LOWERING OF THE MARGIN ON EXPORT SINCE 1889 BY REASON
OF COMPETITION—MANIPULATION OF DOMESTIC PRICES EVEN MORE
MARKED—HOME CONSUMERS PAY COST OF STANDARD’S FIGHTS IN FOREIGN
LANDS—STANDARD’S VARIOUS PRICES FOR THE SAME GOODS AT HOME—HIGH
PRICES WHERE THERE IS NO COMPETITION AND LOW PRICES WHERE THERE
IS COMPETITION.
It is quite possible that in keeping the attention fixed so long on Mr.
Rockefeller’s oil campaign the reader has forgotten the reason why it
was undertaken. The reason was made clear enough at the start by Mr.
Rockefeller himself. He and his colleagues went into their first
venture, the South Improvement Company, not simply because it was a
quick and effective way of putting everybody but themselves out of the
refining business, but because, everybody but themselves being put out,
they could control the output of oil and put up its price. “There is no
man in this country who would not quietly and calmly say that we ought
to have a better price for these goods,” the secretary of the South
Improvement Company told the Congressional Committee which examined him
when it objected to a combination for raising prices.
Four years after the failure of the first great scheme, a similar one
went into effect. What was its object? J. J. Vandergrift, one of the
directors of the Standard Oil Company at that time, questioned once
under oath as to what they meant to do, said: “Simply to hold up the
price of oil—to get all we can for it.” Nobody pretended anything else
at the time. “The refiners and shippers who are in the association
intend there shall be no competition.” “It is a struggle for a margin.”
“The scope of the association is an attempt to control the refining of
oil, with the ultimate purpose of advancing its price and reaping a rich
harvest in profits.” These are some of the comments of the contemporary
press. The published interviews with the leaders confirm these opinions.
Mr. Rockefeller, always discreet in his remarks, denied that the scheme
was to make a “corner” in oil; it was “to protect the oil capital
against speculation and to regulate prices.” H. H. Rogers was more
explicit: “The price of oil to-day is fifteen cents per gallon” (March,
1875). “The proposed allotment of business would probably advance the
price to twenty cents.... Oil to yield a fair profit should be sold for
twenty-five cents per gallon.”
What was the exact status of this refining business out of which it was
necessary to make more in the year 1871, when the first scheme to
control it was hatched? The simplest and safest way to study this
question is by means of the chart of prices on pages 194 and 195.[142]
On this chart the line A shows the variation in the average monthly
price, per gallon, of export oil in barrels in New York from 1866 to
June 1, 1904. The line B shows the average monthly price, per gallon, of
crude oil in bulk at the wells. A glance at the chart will show the
difference or margin between the two prices. It is out of this
difference that the refiner must pay the cost of transporting,
manufacturing, barrelling and marketing his product, and get his
profits. Now in 1866, the year after Mr. Rockefeller first went into
business, he had, as this chart shows, an average annual difference of
35 cents a gallon between what he paid for his oil and what he sold it
for. In 1867 he had from 26½ to 20 cents; in 1868, from 20 to 22½; in
1869, from 21 to 18; in 1870, from 20 to 15.[143]
[Illustration:
CHART SHOWING PRICE OF OIL FROM 1866 TO 1904.
The above chart is adapted from one published in the Report of the
Industrial Commission, Volume 1, 1900, and is brought up to date.
The figures at the right and left stand for the price per gallon in
cents. The dates are placed at the top. The figures on which the
export and crude lines are based are those taken from the “Oil City
Derrick Hand-Book.” Those on which the water-white line is based are
from the Oil, Paint and Drug Reporter.
A shows the variations in the price per gallon of refined oil for
export in barrels in New York. The price of barrels varies slightly,
but is usually estimated at 2½ cents per gallon.
B shows the variations in the price per gallon of crude oil in bulk at
the wells.
C shows the variations in the price per gallon of water-white oil
(150° test) in barrels in New York. This is the usual domestic oil.
The margin or difference between the price of crude and refined is
easily calculated. Thus at the end of 1876 the crude line shows the
price of crude to be about nine cents—the price of refined about
twenty-nine; the margin was therefore twenty cents.
]
There were many reasons why this margin fell so enormously in these
years. All of the refiners’ expenses had rapidly decreased. In 1866 but
two railroads came into the oil country; by 1872 there were four
connections, and freights fell in consequence. In 1866 carrying oil from
the wells by pipe-lines was first practised with success, by 1872 all
oil was gathered by pipes, thus saving the tedious and expensive
operations of teaming. Tank-cars for carrying crude oil in bulk had
replaced barrels and rack cars. The iron tank, holding 20,000 barrels,
was used instead of the wooden tank holding 1,000 barrels. On every side
there had been economies, and because of them the margin had fallen. But
not only were the expenses coming down; so were the profits. The money
which had been made in refining oil had led to a rapid multiplication of
refineries at all the centres. In 1872 there was a daily refining
capacity of about 46,000 barrels in the country, and the daily
consumption of that year had been but 15,000 barrels. This large
capacity produced the liveliest competition in selling, and every year
the margin of profit grew smaller.
Now it is natural that men should struggle to keep up a profit. The
refiners had become accustomed to making from twenty-five per cent. to
fifty per cent., and even more, on every gallon of oil they put out.
They had the same extravagant notion of what they should make as the oil
producers of those early days had. No oil producer thought in the
sixties that he was succeeding if his wells did not pay for themselves
in six months! And as their new industry slowly but surely came under
the laws of trade, increased its production, was subjected to severe
competition, as they saw themselves, in order to sustain their business,
forced to practise economies and to accept smaller profits, they loudly
complained. There was never a set of men who found it harder to accept
the limitations of economic laws than the oil producers of Pennsylvania.
The oil refiners showed the same dislike of the harness, and in 1871, as
we have seen, Mr. Rockefeller and a few of his friends combined to throw
it off. What they proposed to do was simply to get all the refineries of
the country under their control, and thereafter make only so much oil as
they could sell at their own interpretation of a paying price.
There was not enough profit in the margin of 1871. Now what was the
profit? According to the best figures accessible of the cost of oil
refining at that day, the man who sold a gallon of oil at 24¼ cents (the
average official price for that year) made a profit of not less than 1¼
cents—52½ cents a barrel.[144] Josiah Lombard, a large independent
refiner of New York City, when questioned by the Congressional Committee
which, in 1872, looked into Mr. Rockefeller’s scheme for making oil
dearer, said that his concern was making money on this margin. “We could
ship oil and do very well.” A. H. Tack told the Congressional Committee
of 1888, which was trying to find out why he had been obliged to go out
of the refining business in 1873, that he could have made twelve per
cent. on his capital with a profit of ten cents a barrel. Scofield,
Shurmer and Teagle, of Cleveland, made a profit of thirty-four cents a
barrel in 1875, and cleared $40,000 on an investment of $65,000.
Fifty-two cents a barrel profit then was certainly not to be despised.
The South Improvement Company gentlemen were not modest in the matter of
profits, however, and they launched the scheme whose basic principles
have figured so largely in the development of the Standard Oil Trust.
The success which Mr. Rockefeller had in getting the refiners of the
country under his control, and the methods he took to do it, we have
traced. It will be remembered that for a brief period in 1872 and 1873
he held together an association pledged to curtail the output of oil,
but that in July, 1873, it went to pieces.[145] It will be recalled that
three years after, in 1875, he put a second association into operation,
which in a year claimed a control of ninety per cent. of the refining
power of the country, and in less than four years controlled ninety-five
per cent.[146] This large percentage Mr. Rockefeller has not been able
to keep, but from 1879 to the present day there has not been a time when
he has not controlled over eighty per cent. of the oil manufacturing of
the country. To-day he controls about eighty-three per cent.
Now it is generally conceded that the man or men who control over
seventy per cent. of a commodity control its price—within limits, very
strict limits, too, such is the force of economic laws. In the case of
the Standard Oil Company the control is so complete that the price of
oil, both crude and refined, is actually issued from its headquarters.
Now, with the help of the chart, let us see what Mr. Rockefeller and his
colleagues have been able to do from 1872 to 1904 with their power over
the price of oil. The first association which worked was brought about
late in 1872. What happened? Prices for refined oil were run up from 23
cents a gallon in June to 27 cents a gallon in November, and the margin
increased from 13.6 cents to 17.7 cents. From a profit of about 1½ cents
a gallon they rose to one of over 4 cents. Unfortunately, however, the
refiners of that period were not educated to the self-restraint
necessary to carry out this scheme. They very soon failed to keep down
their output of oil and overstocked the market, and the whole machine
went to pieces. Mr. Rockefeller had been able to make oil dear for a
short time, but only for a short time. Worse than that, what he had been
able to do brought severe public condemnation. It had, indeed, produced
exactly the result the economists tell us too high prices must
produce—limitation of the market and stimulation of competition in rival
goods. Mr. Rockefeller’s second scheme to work out the good of the oil
business by making oil dear resulted in decreasing oil exports for the
first time since the discovery of oil.[147] It also increased one of the
chief grievances of the American refinery—that was, the exporting of the
crude oil to be refined in Europe. Where the exports of crude had been
something over eleven million gallons in 1871, they were now over
sixteen millions. And it set the shale-oil factories of Scotland to work
merrily. It was cheaper for Great Britain to use oil from Scottish
shales than to buy oil sold under Mr. Rockefeller’s great plan for
benefiting the oil business. So for the time the scheme fell down.
As the diagram shows, the margin dropped rapidly back after this brief
success from eighteen to thirteen cents, nor did it stay there. With the
return of competition, in the fall of 1873, it continued to drop
rapidly. By the end of the year it was down to eleven cents; by the end
of 1874 to nine. What had done it? A decline in expenses, coming from
the multiplication of pipe-lines, reduction in freight charges, and free
competition in the markets. Nothing else.
[Illustration:
1866 TO 1872.
Fragment of oil chart, showing decline of margin between crude and
refined oil in the first seven years after the pipe-line was proved
practical. Notice sudden rise in refined oil in 1872 caused by the
first Refiners’ Association.
]
[Illustration:
1872 TO 1877.
Fragment of oil chart, showing decline in margin after the failure of
the Refiners’ Association in 1872, and the abnormal increase in the
margin in 1876, when the next combination was perfected.
]
In spite of the obvious economic effects of his scheme in 1872 Mr.
Rockefeller did not give up his theory that to make oil dear was for the
good of the business. He went steadily ahead, developing quietly his
plan of a union of all refiners, pledged to limit their output of oil to
an allotment he should assign, to accept the freight rates he should
arrange for, to buy and sell at the prices he set. It was a year before
the alliance was nearly enough complete to make its power felt. By the
summer of 1876 it claimed to have nine-tenths of the refiners in the
country in line. At that time a situation rose in the crude oil market
well calculated to help it in its intention to raise prices. This was a
falling off in the production of crude oil. An advance in its price had
come in the summer of 1876. Refined had, of course, responded to the
rise. But as the fall came on and the exporters prepared to load their
cargoes, the syndicate demanded a price for refined much above that for
which the market price of crude called. The embargo which followed has
already been described in Chapter VII of this narrative. It was as
straight a hold-up as our commercial history offers, rich as it is in
that sort of operations. From October to February refined oil was held
at a price purely arbitrary. It was the first fruits of the Great
Scheme.
The winter’s work was a great one for the Standard Combination. It not
only demonstrated that Mr. Rockefeller was correct in his theory that
the way to make oil dear was to refuse to sell it cheap, but not since
the coup of 1872, with the South Improvement Company, had Mr.
Rockefeller reaped such rewards. The profits were staggering. One of the
leading gentlemen in this pretty affair told the writer once that he had
sold one cargo at thirty-five cents a gallon, oil which cost him on
board the ship a trifle under ten cents. To-day one-fourth of a cent
profit a gallon is considered large on export oil. The Standard Oil
Company of Ohio had always paid a good dividend,[148] but the year of
this raid, 1877, it surpassed all bounds. On a capitalisation of
$3,500,000 it paid $3,248,650.01, only a fraction less than 100 per
cent. One of its stockholders, the late Samuel Andrews, when on the
witness-stand in 1879, said they might have paid the dividend twice over
and had money to spare.
The profits were great, but notice the forces set in motion by this
coup. The exporters were angry. The buyers in Europe were angry. If the
Americans are going to force up prices in this way, they said, we will
not buy their refined oil. We will import their crude and refine it
ourselves. We will go back to shale oil. A first result, then, of this
attempt to hold prices up to a point conspicuously out of proportion to
the raw product was that the exports of illuminating oil fell off—they
were less by a million gallons in 1878 than in 1877. In the United
States the market was threatened in the same way. There had been much
trouble in the years just preceding these events with extortionate
prices for gas—particularly in New York and Brooklyn. Illuminating oil
was so much cheaper that it had been largely substituted, but this
artificial forcing of the oil market in 1876–1877 caused a threat to
return the next year to gas.
The effect on the refiners who were operating with Mr. Rockefeller in
running arrangements was decidedly bad. Each refiner was under bonds to
use only a certain percentage of his capacity, and to shut down entirely
if Mr. Rockefeller said so. Scofield, Shurmer and Teagle, independents
of Cleveland, who had yielded to the attractiveness of Mr. Rockefeller’s
scheme, and had gone into a running arrangement with him to limit their
output, made $2.52 a barrel on their oil from July, 1876, to July, 1877!
They had been satisfied with thirty-four cents profit a barrel the year
before. Since making oil paid so well, why not make more? Why keep their
allotment down to exactly 85,000 barrels, as they had agreed, when they
were prepared to make 180,000? They did not. They put out a few extra
thousand barrels each year. Others did the same. It was, of course,
fatal to the “good of the oil business.” Not only did these profits
tempt many refiners to overrun their allotment; the few independents
left profited by the prices and increased their plants; the great Empire
Transportation Company combined refineries with its pipe-lines as Mr.
Rockefeller was adding pipe-lines to his refineries. Thus competition
was stimulated.
The effect on the men who produced oil was, of course, bad. They had
found it impossible at any time, while the refined was kept so high, to
force crude up to a corresponding point, though every effort was made.
The producers threatened to combine and refine their own oil. When the
Empire Transportation Company went into refining the producers heartily
favoured the movement, and throughout the next year a severe competition
kept prices down. The Empire was finally wiped out; the producers,
aroused by this failure, combined against the Standard in one of the
greatest associations they ever had. From 1878 to 1880 they fought
continuously to restore competition. They secured the introduction into
Congress of a bill to regulate interstate commerce; they fought for more
drastic laws against railroad discrimination in the state of
Pennsylvania; they persuaded the state to prosecute the Pennsylvania
Railroad for discrimination; they indicted Mr. Rockefeller and eight of
his colleagues for criminal conspiracy; and they supported by money and
influence a scheme for a seaboard pipe-line connected with the
independent refineries.[149]
If one will look at the chart he will see graphically the effect on Mr.
Rockefeller’s ambition of this fundamentally sound independent movement.
The margin between crude and refined, thrust up to over twenty cents by
the combination of 1878, fell rapidly under the combined efforts of the
independents through 1877, 1878 and 1879. In the latter year it touched
five cents for the first time in the history of the business.
Competition resulting in economies, in a revolutionising transportation
invention—the seaboard pipe-line—in a greatly extended foreign market,
brought down this margin in 1879. Nothing else.
[Illustration:
1876 TO 1880.
Fragment of chart, showing decline in margin after the coup of
1876–1877, caused by alliance of independent oil men and the success
of the first seaboard pipe-line.
]
Those who have read this history know what became of the competitive
movement of these years of 1878–1879. They remember how the Producers’
Union compromised its suits and abandoned its efforts for interstate
commerce regulation. They remember, too, how, just before the great
seaboard pipe-line project was proved to be a success, all but one of
the independent refineries were, by one means or another, persuaded to
sell or to combine with the Standard, leaving the Tidewater without an
outlet for its oil. Before the end of 1879 the Standard claimed
ninety-five per cent. of the refining business. Now examine the chart
for the effect on the price of oil in 1880, of this doing away with
competition—another sudden uplift of the price of refined, this time
without the excuse of a rise or probable rise in crude. For three years
oil had not been sold so high as it was in 1880, when the exporters
began to take on their winter’s supply. An interesting contemporary
account of this coup of 1880, and the way in which it was managed, is
found in the excellent monthly Petroleum Trade Report, published by John
C. Welch. It is dated November, 1880, and headed “Very Sharp Practice”:
“There is made each day in New York what is known as an official
quotation for refined oil, this official quotation being made as a
matter of convenience in cabling the price of refined oil throughout
the world. Refined oil not being sold at an open board, it is
sometimes difficult to quote it accurately, but by having an
‘official quotation’ this can be quoted, and the difficulty is
supposed to be, in a measure at least, remedied. The ‘official
quotation’ is made by three petroleum brokers appointed by the
Produce Exchange for that purpose, who meet each day after exchange
hours for the purpose of establishing it. There is one party, and
one party only, that have very large lots to sell, and so important
a position do they hold in the business that their prices are
ordinarily the market. Of course, to make transactions, their prices
and buyers’ prices have to come together, and transactions establish
a market much better than prices offered to buy or sell at, but
without transactions. At many times, if the Standard do not sell,
there are no transactions, and, consequently, the Standard’s asking
price is leaned upon to establish an official quotation. During
September, the official quotation went up from 9⅜ cents to 11⅞
cents, with comparatively little demand, as the foreign stocks were
large, and very little oil was required to supply the world’s wants.
The upward movement was, consequently, purely arbitrary. Arbitrary
prices are, however, a part of the Standard’s every-day life, and I
am not taking at this time any exception to them. All through
October and up to November 13, the official quotation was 12 cents,
or sometimes a little over and sometimes a little under, and as this
price did not meet the views of buyers to but slight extent, the
Standard were supposed to be exercising a Roman virtue in not
selling. Twelve cents continued as the official quotation to
November 13, without any wavering, but from the 13th to the 18th,
while ‘12 cents asked by refiners’ continued in the quotation, such
sentences as these were included at different dates: ‘Other lots
obtainable at 11 cents.’ ‘Sales at 10½ cents, offered at that.’
‘Other lots obtainable at irregular prices, from 10 to 10½ cents.’
On November 18, the quotation was ‘10 to 12 cents.’ I give the
following quotation of the New York refined market as published in
my Oil City daily report of November 11: ‘The New York market
yesterday closed, secretly offered and unsalable at 11½ cents, and
probably at 11¼ cents by resales and outside refiners, and likely by
Standard, though they openly ask 12.’
“The point that seems apparent is that the official quotation of 12
cents ceased to be an honest quotation a considerable time before it
was abandoned. The committee making the quotation can probably
justify their position by the custom of the trade of regarding the
prices the Standard openly ask as the market, nevertheless they, and
the Produce Exchange whom they represent, were the bulwark from
behind which the Standard were able to get off their hot shot
against the consuming trade in the United States and the consuming
trade in Europe, who all this time were buying Standard oil on the
basis of 12 cents at New York, the supplies at the time being drawn
from their stock in Europe and from their various depots in the
United States.”
But the performance of 1876 and 1877 was not forgotten in Europe. In
1879 the exporters and buyers from all the great foreign markets had met
in Bremen in an indignation meeting over the way the Standard was
handling the oil business. Remonstrances came from the consuls at
Antwerp and Bremen to our State Department concerning even the quality
of oil which had been sent to Europe by the Standard. John C. Welch, who
was abroad in 1879, was told by a prominent Antwerp merchant: “I am of
the opinion that if the petroleum business continues to be conducted as
it has been in the past in Europe, it will go to smash.”[150] The
attempt to repeat in 1880 what had been done in 1876 failed. The exports
of illuminating oil that year fell much below what they had been the
year before. In 1879, 365,000,000 gallons of refined oil were exported;
in 1880, only 286,000,000 gallons. Exports of crude, on the contrary,
rose from about 28,000,000 gallons to nearly 37,000,000 gallons. The
foreigners could export and refine their own oil cheaper than they could
buy from Mr. Rockefeller. Competition was after him, too, for the
Tidewater, whose refineries he had cut off, had stored their oil, built
new plants, and were again ready to compete in the market.
This third corner of the oil market seems to have convinced Mr.
Rockefeller and his colleagues at last that, however great the fun and
profits of making oil very dear, in the long run it does not pay; that
it weakens markets and stimulates competition. They learned a lesson in
these years they have never forgotten—that when you make a scoop it must
not be so big that you will never have a chance to make another one;
that if you want to keep your power to manipulate the market you must
use that power so modestly that the public in general will not realise
you have it. Again and again the effect of the experiences of 1872, 1876
and 1880 crops out in the testimony of Standard officials. Benjamin
Brewster once said to a Federal Investigating Committee, which had asked
if the Standard could not fix the price of oil as it wished: “At the
moment many things may be done, but the reaction is like a relapse of
typhoid fever. The Standard Oil Company can never afford to sell goods
dear. The people would go to dipping tallow candles in the old-fashioned
way if we got the price too high.” The after-effects of the first great
raids, then, were salutary. The Standard learned the limitations set on
monopolies by certain great economic laws.
[Illustration:
1879 TO 1889.
Fragment of chart, showing how margin reached in 1879 by competition
was raised and sustained for ten years under the monopoly achieved
by the Standard Oil Company in 1880. The sudden rise in refined in
the fall of 1880 was a purely arbitrary price. Notice that crude was
stationary at the time.
]
But if the Standard Oil Company learned in its first attempts to raise
the price of oil that they could not in the long run afford to make from
100 to 350 per cent., they by no means gave up their attempt to keep
their control, and to hold up profits as high as they could without
injuring the market or inviting too strong competition. If one will look
at the chart showing the fluctuations from 1879, when control was
achieved, to the beginning of 1889, one will find that for ten years the
margin between refined oil and crude never fell below the point reached
by competitive influences in the former year, though frequently it rose
considerably above. Yet it is in this period that the Standard did all
its great work in extending markets, in developing by-products, and in
introducing the small and varied economies on which it rests its claim
to be a great public benefactor. The first eight years of its existence
had been spent in bold and relentless warfare on its competitors.
Competition practically out of the way, it set all its great energies to
developing what it had secured. In this period it brought into line the
foreign markets and aided in increasing the exports of illuminating oil
from 365,000,000 gallons in 1879 to 455,000,000 in 1888; of lubricating,
from 3,000,000 to 24,000,000, and yet this great extension of the volume
of business profited the consumer nothing. In this period it laid hands
on the idea of the Tidewater, the long-distance pipe-lines for
transporting crude oil, and so rid itself practically of the railroads,
and yet this immense economy profited the public nothing. In spite of
the immense development of this system and the enormous economies it
brought about—a system so important that Mr. Rockefeller himself has
said: “The entire oil business is dependent upon this pipe-line system.
Without it every well would shut down, and every foreign market would be
closed to us”—the margins never fell the fraction of a cent from 1879 to
1889, though it frequently rose. In this period, too, the by-products of
oil were enormously increased. The waste, formerly as much as ten per
cent. of the crude product, was reduced until practically all of the oil
is worked up by the Standard people, and yet, in spite of the extension
of by-products between 1879 and 1889, the margin never went below the
point competition had forced it to in 1879.
The enormous profits which came to the Standard in these ten years by
keeping out competition are evident if we consider for a moment the
amount of business done. The exports of illuminating oil in this period
were nearly 5,000,000,000 gallons; of this the Standard handled well
toward ninety per cent. Consider what sums lay in the ability to hold up
the price on such an amount even an eighth of a cent a gallon. Combine
this control of the price of refined oil with the control over the crude
product, the ability to depress the market for purchasing, an ability
used most carefully, but most constantly; add to this the economies and
development Mr. Rockefeller’s able and energetic machine was making, and
the great profits of the Standard Oil Trust between 1879 and 1889 are
easily explained. In 1879, on a capital of $3,500,000, the Standard Oil
Company paid $3,150,000 dividends; in 1880 it paid $1,050,000. In 1882
it capitalised itself at $70,000,000. In 1885, three years later, its
net earnings were over $8,000,000; in 1886, over $15,000,000; in 1888,
over $16,000,000; in 1889, nearly $15,000,000. In the meantime the net
value of its holdings had increased from $72,000,000; in 1883, to over
$101,000,000. While the Standard was making these great sums, the men
who produced the oil saw their property depreciating, and the value of
their oil actually eaten up every two years by the prices the Standard
charged for gathering and storing it.
But to return to the chart. With the beginning of 1889 the margin begins
to fall. This is so in spite of a rising crude line. It would look as if
the Standard Oil Company had suddenly had a change of heart. In the
report of that year’s business made to the trustees of the Standard Oil
Trust, the following elaborate and interesting calculation was
presented:
“The quantity of crude oil consumed by the Standard manufacturing
interests in 1889 was 896,250,325 gallons, or 20,339,293 barrels, an
increase over the previous year of 119,073,589 gallons, or 2,835,085
barrels, an increase of 15.3 percent.
“The sales of crude oil by our interests for purposes other than
their own manufacture were 135,788,959 gallons, or 3,232,832
barrels, an increase of 43¼ per cent. over the previous year, making
the total consumption of crude oil through our interests
1,032,029,284 gallons, or 24,572,126 barrels, an increase over 1888
of 3,809,917 barrels, or 18.35 per cent., and exceeding the
consumption of 1887, which was the largest of any previous year, by
12.7 per cent.
“The quantity of refined oil produced was 666,742,547 gallons, or
13,334,851 barrels of 50 gallons each; of lubricating paraffine and
compounded oils 43,862,795 gallons, or 877,256 barrels, and of other
products 160,712,183 gallons, or 3,214,243 barrels, making a total
of all products of 871,371,525 gallons, or 17,426,350 barrels,
valued at over $46,000,000.
“The average cost of the crude consumed in refining was .211 of a
cent more than in 1888, while the average price realised per gallon
of crude was .090 of a cent less, showing a decrease in the margin
between the crude and finished product of .301 of a cent. This
represents a saving to the consumer over what the finished products
would have cost him if the same margin had been maintained on the
increased price of crude of $2,697,000. This has been done without a
corresponding loss to our interests by a decrease in cost of
manufacturing and marketing, and by the increased quantity handled
.204 of a cent, effecting a saving of $1,860,000, and the difference
has been more than made up by further reductions of cost of
marketing by our distributing interests, as well as in the increased
quantity handled. Although the average price of crude has been the
highest this year of any of the last five years, the increase over
the price of 1887 (when the price on both crude and refined was the
lowest for that period) being about 22¼ per cent., the average price
of products has increased but 12¼ per cent., showing a saving to the
consumer of 10 per cent. We have therefore continued to make good
the claim that the Standard has heretofore maintained of cheapening
the cost of the products to the consumers by giving them the
benefits of the saving in costs effected by consolidation of
interests.”[151]
This certainly sounds just—even philanthropic. It is exactly what the
consumer claims is his due—to have a share of the economies which
undoubtedly may be effected by such complete and intelligent
consolidation as Mr. Rockefeller has effected. But was it combination
that caused this falling of the margin? As a matter of fact this
lowering of the margin was the direct result of competition. In 1888 a
German firm, located in New York City, erected large oil plants in
Rotterdam and Bremerhaven. They put up storage tanks at each place of
90,000 barrels’ capacity. They also established a storage depot of
30,000 barrels at Mannheim, and took steps to extend their supply
stations in Germany and Switzerland. They built tank steamers in order
to ship their oil in bulk. These oil importers allied themselves with
certain independent refiners, and interested themselves also in the
co-operative movement which the producers of Pennsylvania were striving
to get into operation at this time. The extent of the undertaking
threatened serious competition. In the same year imports of Russian oil
into the markets of Western Europe began for the first time to assume
serious proportions. Russian oil had, from the beginning, been a
possible menace to American petroleum, for the wonderful fields on the
Caspian were known long before oil was “struck” in Pennsylvania. They
did not begin to be exploited in a way to threaten competition until
late in the eighties. In 1885 consuls at European ports began to report
its appearance—fifty barrels were landed at Bremen that year as against
180,855 of American oil. In this year, too, the first Russian oil went
to Asia Minor, where “Pratt” oil had long held sway. The first cargo
reported at Antwerp was in March, 1886. In April, 1890, the consul at
Rotterdam, in calling attention to the independent American competition,
said of Russian oil: “It is no longer a serious competitor for the
petroleum trade of Western Continental Europe.” The consul said that
while the American oil shipments to the five principal continental ports
were fully 4,000,000 barrels per year, those of Russian were less than a
tenth of that number. However, a growth of 400,000 barrels in five years
was something, and the Standard Oil Trust was the last to underestimate
such a growth. Prices of export oil immediately fell. There was nothing
in the world that gave oil consumers the benefit of the Standard’s
savings by economies in 1889 but the competition threatened by Russia
and the American and German independent alliance. The Standard, to
offset it, not only lowered its price, but it followed the German
company to Rotterdam in order to put up an oil plant similar to the one
which had been erected by those independents. They also purchased at
this time the great oil establishments at Bremen and Hamburg which had
hitherto been owned and operated by Germans. A full account of this new
development in the oil trade was reported by the American consul at
Rotterdam in April of 1890, and is to be found in the consular reports
of that year.
[Illustration:
1890 TO 1904.
Fragment of chart, showing relation between crude and refined oil in
the last fourteen years. Notice effect on margin from 1890 to 1894
of rise of strong competitive forces. Notice also how margin between
price of crude and of domestic oil increased in the winter of
1903–1904, during the coal famine.
]
Follow the lines a little farther. Notice how, in 1892, the price of
refined oil begins to fall, although crude is stationary. Notice how the
refined line remains steady throughout 1893 and 1894, although the crude
line steadily rises. This went on for nearly three years, until there
was a margin of only three cents between crude and refined oil. The
barrel, which is always reckoned in the official quotations of export
refined oil, costs two and a half cents per gallon, and the price of
manufacturing is usually put at one-half a cent. The cost of
transporting the oil was not covered by the margin the greater part of
the year 1894. Now, the Standard Oil Company were not selling oil at a
loss at this time out of love for the consumers, although they made
enough money in 1894 on by-products and domestic oil to have done
so—their net earnings were over $15,000,000 in 1894, and they reckoned
an increase in net value of property of over $4,000,000—they were
fighting Russian oil and the independent combination started in 1889. By
1892 this combination was in active operation. The extent of this
movement was described in the last chapter of this narrative. At the
same time certain large producers in the McDonald oil field built a
pipe-line from Pittsburg to Baltimore, the Crescent Line, and began to
ship crude oil to France in great quantities. It looked as if both
combinations meant to do business, and the Standard set out to get them
out of the way. One method they took was to prevent the refiners in the
combination making any money on export oil.
The extent to which cutting was carried on for two years, beginning with
the fall of 1892, has been referred to in the last chapter, but is
perhaps worth repeating in this connection. In January of 1892 crude oil
was selling at 53½ cents a barrel at the wells, and refined oil for
export at 5.33 cents a gallon in barrels. Throughout the year the price
of crude advanced, until in December it was 78⅜ cents. Refined, on the
contrary, fell, and it was actually 18 points lower in December than it
had been twelve months before. Throughout 1894 Standard kept refined oil
down; the average price of the year was 5.19 cents a gallon, in face of
an average crude market of 83¾ cents, lower than in January, 1893, with
crude at 53½ cents a barrel.
After two years they gave it up. It was too expensive. The Crescent Line
sold to them, but the other independents were too plucky. They had lost
money for two years, but they were still hanging on like grim death, and
the Standard concluded to concentrate their attacks on other points of
the combination rather than on this export market where it was costing
them so much.
About the end of 1894 the depression of export oil was abandoned, as the
chart shows. Notice that from 1895 to 1898 the margin remained at about
four cents, that in 1900 it rose to six cents, and from that time until
June, 1904, it swung between four and a half and five. The increasing
competition in Western Europe of independent American oils, and the
rapid rise since 1895, particularly of Russian oil, are what has kept
this margin down. It is doubtful, such is the growing strength of these
various competitive forces, if the Standard Oil Trust will ever be able
to put up the margin on export oils. If there were only the American
independents to reckon with, a compromise might be possible, but Russia,
Burmah and Sumatra are all in the game. By 1896 Russia was exporting
210,000,000 gallons of petroleum products (America in that year exported
over 931,000,000 gallons), and these products were going to nearly every
part of Europe and Asia. They began to cut heavily into the trade of the
Standard in China, India, Great Britain and France. By 1899 the exports
of Russian oil were over 347,000,000 gallons; in 1901, over 428,000,000
gallons. In China, India, and Great Britain particularly, has the
Russian competition increased. While at one time the Standard Oil
Company had almost the entire oil trade at the port of Calcutta, last
year, 1903, out of 91,500,000 gallons imported, only about 6,500,000
gallons were of American oil. In China, Sumatra oil is now ahead of
American, the report for 1903 being: American, 31,060,527 gallons;
Sumatra, 39,859,508.
For the Standard there is good profit in this margin of four and a half
cents for export oil. The expenses the margin must cover are the
transportation of the crude from the wells to New York, the cost of
manufacture, the barrel and the loading. For twenty-five years the
published charge of the Standard Oil Company for gathering oil from the
wells has been twenty cents a barrel. The charge for bringing it to New
York has been forty cents, a little less than one and a half cents a
gallon. It costs, by rough calculation, one-half a cent to make the oil
and load it. The barrel is usually reckoned at two and a half cents.
Here are four and a half cents for expenses—the entire margin. Where the
Standard has the advantage is in its ownership of oil transportation. A
common carrier gathering and transporting in 1902 all but perhaps 10,000
barrels of the 150,000 barrels’ daily production of Eastern oil, the
service for which the outsider pays sixty cents, costs it from ten to
twelve cents at the most liberal estimate. Here is over a cent saved on
a gallon, and a cent saved, where millions of gallons are in question,
makes not only great profits, but keeps down competition. The refiner
who to-day must pay the Standard rates for transportation cannot compete
in export oil with them. In January of 1904, when the chart shows the
margin to have been about four and three-quarter cents, an independent
refiner in the state of Ohio, dependent on the Standard for oil, gave
the writer a detailed statement of costs and selling prices of products
in his refinery. According to his statement he lost one and three-fifth
cents on his export oil. He was forced, of course, to pay Standard
transportation prices for crude and railroad charges for refined from
Ohio to New York harbour.[152]
That there would have been such a transportation situation to-day had it
not been for the discrimination by the railways, which threw the pipes
into the Standard’s hands in the first place, and the long story of
aggression by which the Standard has kept out rival pipes, and so been
able for twenty-five years to sustain the price for transportation, is
of course evident. To-day, as thirty years ago, it is transportation
advantages, unfairly won, which give the Standard Oil Company its hold.
It is not only on transportation that the Standard to-day has great
advantages over the independent refiner in the export market. As said at
the beginning of this chapter, the Standard Oil Company “makes the price
of refined oil”—within strict limits. Of course, making the market, it
has all the advantages of the “inside track.” Its transactions can be
carried on in anticipation of the rise or fall. For instance, in January
of 1904, when there were strong fluctuations in the water-white (150
degrees test) prices, the agent of an independent refiner, who was in
Wall Street trying to keep track of markets for out-of-town competitors,
reported the price as 9.20 cents a gallon. The refiners’ goods were
refused on the ground that this was above the market. The Standard Oil
export man and a broker who worked with the company were consulted. The
market was 9.20. Further investigation, however, showed that at
headquarters the figure given out privately was 8.70 cents. The
disadvantage of the outsider in disposing of his goods is obvious. The
Standard makes the official market, and undersells it. The situation
seems to be the same in practice as that described by Mr. Welch, in
1880, though now the fiction of a committee of brokers has been done
away with. Of course there is nothing else to be expected when one body
of men control a market.
Thus far the illustrations of Mr. Rockefeller’s use of his power over
the oil market have been drawn from export oil. It is the only market
for which “official” figures can be obtained for the entire period, and
it is the market usually quoted in studying the movement of prices. It
is of this grade of oil that the largest percentage of product is
obtained in distilling petroleum. For instance, in distilling
Pennsylvania crude, fifty-two per cent. is standard-white or export oil,
twenty-two per cent. water-white—the higher grade commonly used in this
country—thirteen per cent. naphtha, ten per cent. tar, three per cent.
loss. The runs vary with different oils, and different refiners turn out
different products. The water-white oils, while they cost the same to
produce, sell from two to three cents higher. The naphtha costs the same
to make as export oil, but sells at a higher price, and many refiners
have pet brands, for which, through some marketing trick, they get a
fancy price. The Standard Oil Company has a great number of fancy brands
of both illuminating and lubricating oils, for which they get large
prices—although often the oil itself comes from the same barrels as the
ordinary grade. Now it is from the extra price obtained from naphtha,
water-white, fancy brands, and by-products that the independent refiner
makes up for his loss on export oil, and the Standard Oil Trust raises
its dividends to forty-eight per cent. The independent refiner quoted
above, who in January of 1904 lost 1⅜ cents on export oil, made enough
on other products to clear 8.3 cents a barrel on his output—eighty-three
dollars a day clear on a refinery of 1,000 barrels capacity, which
represents an investment of $150,000.
[Illustration:
A TYPICAL OIL FARM OF THE EARLY DAYS
]
Turn now to the price of domestic oil, and examine the chart to see if
we have fared as well as the exporters. The line C on the chart
represents the price per gallon in New York City of 150° water-white oil
in barrels from the beginning of 1881 to June, 1904.[153] The figures
used are those of the Oil, Paint and Drug Reporter. A glance at the
chart is enough to show that the home market has suffered more violent,
if less frequent, fluctuations than the export market. A suggestive
observation for the consumer is the effect of a rise in crude on the
price of domestic oil. The refined line usually rises two or three
points to every one of the crude line. It is interesting to note, too,
how frequently high domestic prices are made to offset low export
prices; thus, in 1889, when the Standard was holding export oil low to
fight competition in Europe, it kept up domestic oil. The same thing is
happening to-day. We are helping pay for the Standard’s fight with
Russian, Roumanian and Asiatic oils. But this line, while it shows what
the New York trade has paid, is a poor guide for the country as a whole.
Domestic oil, indeed, has no regular price. Go back as far as anything
like trustworthy documents exist, and we find the most astonishing
vagaries, even in the same state. For instance, in a table presented to
a Congressional Committee in 1888, and compiled from answers to letters
sent out by George Rice, the price of 110° oil in barrels in Texas
ranged from 10 to 20 cents; in Arkansas, of 150° oil in barrels, from 8
to 18; in Tennessee, the same oil, from 8 to 16; in Mississippi, the
same, from 11 to 17. In the eighties, prime white oil sold in barrels,
wholesale, in Arkansas, all the way from 8 to 14 cents; in Illinois,
from 7½ to 10; in Mississippi, from 7¼ to 13½; in Nebraska, 7½ to 18; in
South Carolina, 8 to 12½; and in Utah, 13 to 23. Freight and handling
might, of course, account for one to two cents of the difference, but
not more.
A table of the wide variation in the price of oil, compiled in 1892,
showed the range of price of prime white oil in the United States to be
as follows:
In barrels 6 to 25 cents
In cases 14 to 34½ cents
In bulk 3½ to 25 cents
The same wide range was found in water-white oil:
In barrels 6½ to 30 cents per gallon
In cases 16 to 35 cents per gallon
In bulk 3½ to 29 cents per gallon
In 1896 an investigation of prices of oil sold from tank-wagons in the
different towns of Ohio, in the same week, was made, and was afterward
offered as sworn testimony in a trust investigation in that state. The
price per gallon ranged from 4¾ cents to 8¾ cents.
The most elaborate investigation of oil prices ever made was that
instigated by the recent Industrial Commission. In February, 1901, the
commission sent out inquiries to 5,000 retail dealers, scattered from
the Atlantic to the Pacific and from the Lakes to the Gulf, asking the
prices of certain commodities, among them illuminating oils; 1,578
replies were received. The tables prepared offered striking examples of
the variability of prices—thus:
In Colorado the wholesale price of illuminating oil (150° test) varied
from 13 to 20 cents; in Delaware, 8 to 10; in Illinois, 6 to 10; in
Alabama, 10.50 to 16; in Michigan, 5.50 to 12.25; in Missouri, 7.50 to
12.50; in Kentucky, 7 to 11.50; in Ohio, 5.50 to 9.75; in California,
12.50 to 20; in Utah, 20 to 22; in Maine, 8.25 to 12.75 (freight
included in all these prices).
The difference between the highest and the lowest wholesale prices in
the same states varies from 8 cents in Oregon (12.50 to 20.50) to 1.50
in Rhode Island (8.50 to 10). Of course, in the former case, two or even
three cents of the difference may be due to freight, but hardly more.
Take adjoining states, for instance. In Vermont there is a difference of
4.50 cents between the highest and lowest price of oil; in New
Hampshire, only 1.75. In Delaware there is a difference of 2 cents; in
Virginia, of 6.
Compare, now, the lowest price in different states. In Ohio and
Pennsylvania oil was sold as low as 5.50; 6.50 is the lowest in New York
State, 8.50 the lowest in Rhode Island, and 7 the lowest in New Jersey.
In Indiana oil sells as low as 5.50, but in Kansas nothing below 8.50 is
reported (the freight rate to Atchison, Kansas, from Whiting, Indiana,
which supplies both of these states, is 1.7 per gallon. The freight rate
from Whiting to Indianapolis is .5 per gallon).