ledgers forming a part of the Standard Oil Company’s remarkable system
of bookkeeping. This sheet gave the cost and selling price per gallon of
different grades of refined oil at over a dozen stations in the same
state in October, 1901. In the account of cost of oil were included net
cost, freight, inspection, cost of barrels and cost of marketing. The
selling price was given and the margin of profit computed. The selling
price of water-white from tank-wagons (it is customary for Standard
tank-wagons to deliver oil from their stations to local dealers) ranged
from 8½ to 11½ cents, and the profit on the oil sold from the wagons
varied from about one-half cent to over three cents.
Now, in considering these differences, liberal allowance for freight
rates must be made. Something of what these allowances should be can be
judged from the table of oil freights which the Industrial Commission
published with its schedule of prices. From this table many interesting
comparisons can be made. For instance, it cost the Standard Oil Company
(if they paid the open rate their rivals did) 1.5 cents to send a gallon
of oil from Whiting, Indiana, their supply station, to Mobile, Alabama.
They sold their oil in Alabama at wholesale from 11½ to 16 cents. The
net cost of this oil was under five cents in February, 1901. It cost
them the same 1.5 cents to send a gallon of oil to Des Moines, Iowa (if
they paid the open rate), but in Iowa they sold it from 7 to 11. The
freight from Whiting to New Orleans was the same 1.5 cents, but prices
in Louisiana ranged from 9 to 14 cents. According to the investigation
the average wholesale price of oil, including freight, ranged from 8.27
in Pennsylvania to 25.78 in Nevada.
Freights and handling considered, there is, it is evident, nothing like
a settled price or profit for illuminating oil in the United States.
Now, there is no one who will not admit that it is for the good of the
consumer that the normal market price of any commodity should be such as
will give a fair and even profit all over the country. That is, that
freights and expense of handling being considered, oil should sell at
the same profit in Texas as in Ohio. That such must be the case where
there is free and general competition is evident. But from the beginning
of its power over the market the Standard Oil Company has sold domestic
oil at prices varying from less than the cost of the crude oil it took
to make it up to a profit of 100 per cent. or more. Wherever there has
been a loss, or merely what is called a reasonable profit of, say, ten
per cent., an examination of the tables quoted above shows conclusively
it has been due to competition. The competition is not, and has not been
since 1879, very great. In that year the Standard Oil Company claimed
ninety-five per cent. of the refining interests of the country. In 1888
they claimed about eighty per cent.; in 1898, eighty-three per cent.
This five to seventeen per cent. of independent interest is too small to
come into active competition, of course, at all points. So long as one
interest handles eighty-three per cent. of a product it is clear that it
has the trade as a whole in its hands. The competition it encounters
will be local only. But it is this local competition, unquestionably,
that has brought down the price of oil at various points and caused the
striking variation in prices recorded in the charts of the Industrial
Commission and other investigations. The writer has before her a pile of
a hundred or more letters written in the eighties by dealers in twelve
different states. These letters tell the effect on the prices of the
introduction of an independent oil into a territory formerly occupied
exclusively by the Standard:
Calvert, Tenn.—The Waters-Pierce Oil Company (Standard) so reduced
the price of their oil here when mine arrived that I will have some
trouble to dispose of mine.
Chattanooga, Tenn.— ... Cut the price of oil that had been selling
at 21 cents to 17 cents.
Pine Bluff, Ark.—While the merchants here would like to buy from
some other than the Standard they cannot afford to take the risks of
loss. We have just had an example of one hundred barrels opposition
oil which was brought here, which had the effect of bringing
Waters-Pierce Oil Company’s oil down from 18 to 13 cents—one cent
less than cost of opposition, with refusal on their part to sell to
anyone that bought from other than their company.
Vicksburg, Miss.—The Chess Carley Company (Standard) is now offering
110° oil at nine cents to any and every one. Shall we meet their
prices? All they want is to get us out of the market, then they
would at once advance price of oil.
These are but illustrations of the entire set of letters; prices dropped
at once by Standard agents on the introduction of an independent oil. A
table offered to Congress in 1888, giving the extent of their cutting in
the Southwest, shows that it ranged from 14 to 220 per cent.
Every investigation made since shows that it is the touch of the
competitor which brings down the price. For instance, in the cost and
profit sheet from a Standard ledger referred to above, there was one
station on the list at which oil was selling at a loss. On investigation
the writer found it to be a point at which an independent jobber had
been trying to get a market. If one examines the tables of prices in the
recent report of the Industrial Commission, he finds that wherever there
is a low price there is competition. Thus, at Indianapolis, the only
town in the state of Indiana reporting competition, the wholesale price
of oil was 5½ cents, although forty out of the fifty-three Indiana towns
reporting gave from 8 cents to 10½ cents as the wholesale price per
gallon. (These prices included freight. Taking Indianapolis as a centre,
the local freight on oil to any point in Indiana is in no case over a
cent.) In April, 1904, inquiry showed the same striking difference
between prices in Indianapolis, where six independent companies are now
established, and neighbouring towns to which competition has not as yet
reached.
The advent of an independent concern in Morristown, New Jersey, brought
down the price to grocers to 7½ cents and to housewives to 10, but in
the neighbouring towns of Elizabeth and Plainfield, where only the
Standard is reported, the grocers pay 9 cents and the housewives 12 and
11, respectively. In Akron, Ohio, where an independent company was
operating at the time the investigation was made, oil was sold at
wholesale at 5¾ cents; at Painesville, nearer Cleveland, the shipping
point, at 9¼ cents. In Richmond, Virginia, one dealer reported to the
commission a wholesale price of 5 cents, and added: “A cut rate between
oil companies; has been selling at 9 and 10 cents.”
In the month of April of 1904 150° oil was selling from tank-wagons in
Baltimore, where there is competition, at 9 cents. In Washington, where
there is no competition, it sold at 10½ cents, and in Annapolis (no
competition) at 11 cents. In Seaford, Delaware, the same oil sold at 8
cents under competition. The freight rates are practically the same to
all these points. And so one might go on indefinitely, showing how the
introduction of an independent oil has always reduced the price. As a
rule, the appearance of the oil has led to a sharp contest or “Oil War,”
at which, not infrequently, both sides have sold at a loss. The
Standard, being able to stand a loss indefinitely, usually won out.
An interesting local “Oil War,” which occurred in 1896 and 1897 in New
York and Philadelphia, figured in the reports of the Industrial
Commission, and illustrates very well the usual influence on Standard
prices of the incoming of competition. On March 20, 1896, the Pure Oil
Company put three tank-wagons into New York City. The Standard’s price
of water-white oil from tank-wagons that day was 9½ cents, and the Pure
Oil Company followed it. In less than a week the Standard had cut to 8
cents[154] _along the route of the Pure Oil Company wagons_. In April
the price was cut to 7 cents. By December, 1896, it had fallen to 6
cents; by December, 1897, to 5.4. It is true that crude oil was falling
at this time, but the fall in water-white was out of all proportion.
For, while between the price of refined on March 20 and the average
price of refined in April along the Pure Oil Company route, there was a
fall of 2½ cents, in crude there was a fall of but four-tenths of a
cent. Refined fell from 7 cents in April to 6 cents in May, and crude
fell one-tenth of a cent. John D. Archbold, in answering the figures
given by the Pure Oil Company to the Industrial Commission, accused them
of “carelessness,” and gave the average monthly price of crude and
refined to show that no such glaring discrepancy had taken place. Mr.
Archbold gives the average price in March, for instance, as 7.98 and in
April as 7.31 cents. However, his price is the average to “all the trade
of Greater New York and its vicinity,” whereas the prices of the Pure
Oil Company are those they met in their limited competition. As
Professor Jenks remarked at the examination: “It might easily be,
therefore, that your” (Standard) “average price would be what you had
given, and that to a good many special customers with whom the Pure Oil
Company was trying to deal it could be five and a half cents.” That this
was the fact seems to be proved by the quotations for water-white oil
from tank-wagons, which were published from week to week in trade
journals like the Oil, Paint and Drug Reporter. These prices show 9⅞
cents for water-white on March 21, and an average of 9.4 cents in April.
Evidently only a part of the trade of “all Greater New York and
vicinity” got the benefit of averages quoted to the Industrial
Commission by Mr. Archbold.
If competition persists the result usually has been permanently lower
prices than in territory where competition has been run out or has never
entered. For instance, why should oil be sold to a dealer at nearly four
cents more on an average in Kansas than in Kentucky, when the freight
from Whiting to Kansas is only a cent more? For no reason except that in
Kentucky there has been persistent competition for twenty-five years,
and in Kansas none has ever secured a solid foothold. Why should
Colorado pay an average of 16.90 cents for oil per gallon and California
14.60 cents, when the freight from Whiting differs but one-tenth of one
cent? For no reason except that a few years ago competition was driven
from Colorado, and in California it still exists.
Indeed, any consecutive study of the Standard Oil Company’s use of its
power over the price of either export or domestic oil must lead to the
conclusion that it has always been used to the fullest extent possible
without jeopardising it; that we have always paid more for our refined
oil than we would have done if there had been free competition. But why
should we expect anything else? This is the chief object of
combinations. Certainly the candid members of the Standard Oil Company
would be the last men to argue that they give the public any more of the
profits they may get by combination than they can help. One of the
ablest and frankest of them, H. H. Rogers, when before the Industrial
Commission in 1899, was asked how it happened that in twenty years the
Standard Oil Company had never cheapened the cost of gathering and
transporting oil in pipe-lines by the least fraction of a cent; that it
cost the oil producer just as much now as it did twenty years ago to get
his oil taken away from the wells and to transport it to New York. And
Mr. Rogers answered, with delightful candour: “We are not in business
for our health, but are out for the dollars.”
John D. Archbold was asked at the same time if it were not true that, by
virtue of its great power, the Standard Oil Company was enabled to
secure prices that, on the whole, were above those under competition,
and Mr. Archbold said: “Well, I hope so.”[155]
But these are frank answers, perhaps surprised out of the gentlemen. The
able and wary president of the great concern, John D. Rockefeller, is
more cautious in his admissions. On the witness-stand in 1888 he was
forced to admit, after some skilful evasion, that the control the
Standard Oil Company had of prices was such that they could raise or
lower them at will. “But,” added Mr. Rockefeller, “we would not do it.”
The whole colloquy between the examiner and Mr. Rockefeller is
interesting:
_Q._ Isn’t it a fact that the nine trustees controlling the large
amount of capital which the Standard Oil Trust does could very
easily advance or depress the market price of oil if they saw
fit?...
_A._ I don’t think they would.
_Q._ I don’t ask whether they would; could they do it?
_A._ I suppose it would be possible for these gentlemen; if they
should buy enough oil, it would make the price go up.
There was considerable sparring, Mr. Rockefeller trying to explain away
his answer.
_Q._ I can’t get you down to my question ... that is a very great
power to wield.
_A._ Certainly; an individual or a combination of men can advance
the price or more or less depress the price of any commodity.
_Q._ But if you desire to increase—to put up the price of the
refined oil, or to put down the price of the crude oil, is it within
your power to do it, in the way I have indicated, by staying out of
the market or going into the market to purchase, controlling 75 per
cent. of the demand for the crude oil?
_A._ It would be a temporary effect, but that is all....
_Q._ By stopping the manufacture of refined oil your refineries
representing so large a proportion would tend to raise the price?
_A._ That is something we never do; our business is to increase all
the time, not to decrease.
* * * * *
_Q._ Really your notion is that the Standard Oil Trust is a
beneficial organisation to the public?
_A._ I beg with all respect to present the record which shows that
it is.[156]
For many of the world it is a matter of little moment, no doubt, whether
oil sells for eight or twelve cents a gallon. It becomes a tragic matter
sometimes, however, as in 1902–1903 when, in the coal famine, the poor,
deprived of coal, depended on oil for heat. In January, 1903, oil was
sold to dealers from tank-wagons in New York City at eleven cents a
gallon. That oil cost the independent refiner, who paid full
transportation charges and marketed at the cost of a cent a gallon, not
over 6.4 cents. It cost the Standard Oil Company probably a cent less.
That such a price could prevail under free competition is, of course,
impossible. Throughout the hard winter of 1902–1903 the price of refined
oil advanced. It was claimed that this was due to the advance in crude,
but in every case it was considerably more than that of crude. Indeed, a
careful comparative study of oil prices shows that the Standard almost
always advances the refined market a good many more points than it does
the crude market. The chart shows this. While this has been the rule,
there are exceptions, of course, as when a rate war is on. Thus, in the
spring of 1904, the severe competition in England of the Shell
Transportation Company and of Russian oil caused the Standard to drop
export refined considerably more than crude. But, as the chart shows,
domestic oil has been kept up.
As a result of the Standard’s power over prices, not only does the
consumer pay more for oil where competition has not reached or has been
killed, but this power is used steadily and with consummate skill to
make it hard for men to compete in any branch of the oil business. This
history has been but a rehearsal of the operations practised by the
Standard Oil Company to get rid of competition. It was to get rid of
competition that the South Improvement Company was formed. It was to get
rid of competition that the oil-carrying railroads were bullied or
persuaded or bribed into unjust discriminations. It was to get rid of
competition that the Empire Transportation Company, one of the finest
transportation companies ever built up in this country, was wrested from
the hands of the men who had developed it. It was to get rid of
competition that war was made on the Tidewater Pipe Line, the Crescent
Pipe Line, the United States Pipe Line, not to mention a number of
similar smaller enterprises. It was to get rid of competition that the
Standard’s spy system was built up, its oil wars instituted, all its
perfect methods for making it hard for rivals to do business developed.
The most curious feature perhaps of this question of the Standard Oil
Company and the price of oil is that there are still people who believe
that the Standard has made oil cheap! Men look at this chart and recall
that back in the late sixties and seventies they paid fifty and sixty
cents a gallon for oil, which now they pay twelve and fifteen cents for.
This, then, they say, is the result of the combination. Mr. Rockefeller
himself pointed out this great difference in prices. “In 1861,” he told
the New York Senate Committee, “oil sold for sixty-four cents a gallon,
and now it is six and a quarter cents.” The comparison is as misleading
as it was meant to be. In 1861 there was not a railway into the Oil
Regions. It cost from three to ten dollars to get a barrel of oil to a
shipping point. None of the appliances of transportation or storage had
been devised. The process of refining was still crude, and there was
great waste in the oil. Besides, the markets were undeveloped. Mr.
Rockefeller should have noted that oil fell from 61½ in 1861 to 25⅝ in
the year he first took hold of it, and that by his first successful
manipulation it went up to 30! He should point out what the successive
declines in prices since that day are due to—to the seaboard pipe-lines,
to the development of by-products, to bulk instead of barrel
transportation, to innumerable small economies. People who point to the
differences in price, and call it combination, have never studied the
price-line history in hand. They do not know the meaning of the
variation of the line; that it was forced down from 1866 to 1876, when
Mr. Rockefeller’s first effective combination was secured by
competition, and driven up in 1876 and 1877 by the stopping of
competition; that it was driven down from 1877 to 1879 by the union of
all sorts of competitive forces—producers, independent refiners, the
developing of an independent seaboard pipe-line—to a point lower than it
had ever been before. They forget that when these opposing forces were
overcome, and the Standard Oil Company was at last supreme, for ten
years oil never fell a point below the margin reached by competition in
1879, though frequently it rose above that margin. They forget that in
1889, when for the first time in ten years the margin between crude and
refined oil began to fall, it was the competition coming from the rise
of American independent interests and the development of foreign oil
fields that did it.
To believe that the Standard Oil Combination, or any other similar
aggregation, would lower prices except under the pressure of the
competition they were trying to kill, argues an amazing gullibility.
Human experience long ago taught us that if we allowed a man or a group
of men autocratic powers in government or church, they used that power
to oppress and defraud the public. For centuries the struggle of the
nations has been to obtain stable government, with fair play to the
masses. To obtain this we have hedged our kings and emperors and
presidents about with a thousand constitutional restrictions. It has not
been possible for us to allow even the church, inspired by religious
ideals, to have the full power it has demanded in society. And yet we
have here in the United States allowed men practically autocratic powers
in commerce. We have allowed them special privileges in transportation,
bound in no great length of time to kill their competitors, though the
spirit of our laws and of the charters of the transportation lines
forbade these privileges. We have allowed them to combine in great
interstate aggregations, for which we have provided no form of charter
or of publicity, although human experience long ago decided that men
united in partnerships, companies, or corporations for business purposes
must have their powers defined and be subject to a reasonable inspection
and publicity. As a natural result of these extraordinary powers, we
see, as in the case of the Standard Oil Company, the price of a
necessity of life within the control of a group of nine men, as able, as
energetic, and as ruthless in business operations as any nine men the
world has ever seen combined. They have exercised their power over
prices with almost preternatural skill. It has been their most cruel
weapon in stifling competition, a sure means of reaping usurious
dividends, and, at the same time, a most persuasive argument in
hoodwinking the public.
CHAPTER SEVENTEEN
THE LEGITIMATE GREATNESS OF THE STANDARD OIL COMPANY
CENTRALISATION OF AUTHORITY—ROCKEFELLER AND EIGHT OTHER TRUSTEES
MANAGING THINGS LIKE PARTNERS IN A BUSINESS—NEWS-GATHERING
ORGANIZATION FOR COLLECTING ALL INFORMATION OF VALUE TO THE
TRUSTEES—ROCKEFELLER GETS PICKED MEN FOR EVERY POST AND CONTRIVES TO
MAKE THEM COMPETE WITH EACH OTHER—PLANTS WISELY LOCATED—THE SMALLEST
DETAILS IN EXPENSE LOOKED OUT FOR—QUICK ADAPTABILITY TO NEW
CONDITIONS AS THEY ARISE—ECONOMY INTRODUCED BY THE MANUFACTURE OF
SUPPLIES—A PROFIT PAID TO NOBODY—PROFITABLE EXTENSION OF PRODUCTS
AND BY-PRODUCTS—A GENERAL CAPACITY FOR SEEING BIG THINGS AND ENOUGH
DARING TO LAY HOLD OF THEM.
While there can be no doubt that the determining factor in the success
of the Standard Oil Company in securing a practical monopoly of the oil
industry has been the special privileges it has enjoyed since the
beginning of its career, it is equally true that those privileges alone
will not account for its success. Something besides illegal advantages
has gone into the making of the Standard Oil Trust. Had it possessed
only the qualities which the general public has always attributed to it,
its overthrow would have come before this. But this huge bulk, blackened
by commercial sin, has always been strong in all great business
qualities—in energy, in intelligence, in dauntlessness. It has always
been rich in youth as well as greed, in brains as well as
unscrupulousness. If it has played its great game with contemptuous
indifference to fair play, and to nice legal points of view, it has
played it with consummate ability, daring and address. The silent,
patient, all-seeing man who has led it in its transportation raids has
led it no less successfully in what may be called its legitimate work.
Nobody has appreciated more fully than he those qualities which alone
make for permanent stability and growth in commercial ventures. He has
insisted on these qualities, and it is because of this insistence that
the Standard Oil Trust has always been something besides a fine piece of
brigandage, with the fate of brigandage before it, that it has been a
thing with life and future.
If one attempts to analyse what may be called the legitimate greatness
of Mr. Rockefeller’s creation in distinction to its illegitimate
greatness, he will find at the foundation the fact that it is as
perfectly centralised as the Catholic church or the Napoleonic
government. As was pointed out in a former chapter, the entire business
was placed in 1882 in the hands of nine trustees, of whom Mr.
Rockefeller was president. These trustees have always acted exactly as
if they were nine partners in a business, and the only persons concerned
in it. They met daily, giving their whole time to the management and
development of the concern, as the partners in a dry-goods house would.
Anything in the oil world might come under their ken, from a smoking
wick in Oshkosh to the competition of Russian oil in China. Everything;
but nothing came unless it was necessary; for below them, and sifting
things for their eyes, were committees which dealt with the various
departments of the business. There was a Crude Committee which
considered the subject of crude oil, the world over; a Manufacturing
Committee which studied the making of refined, the utilisation of waste,
the development of new products; a Marketing Committee which considered
the markets. Before each of these committees was laid daily all the
information to be found on earth concerning its particular field; not
only were there reports made to it of what was doing in its line in the
Standard Oil Trust, but information came of everything connected with
such work everywhere by everybody. These committees not only knew all
about their own business, they knew all about everybody else’s. The
Manufacturing Committee knew just what each of the feeble independent
refiners still existing was doing—what its resources and advantages
were; the Transportation Committee knew what rates it got; the Marketing
Committee knew its market. Thus the fullest information about new
developments of crude, new openings for refined, new processes of
manufacture, was always at the command of the nine trustees of the
trust.
[Illustration:
S. C. T. DODD
Chief counsel of the Standard Oil Company. Framer of the Trust
agreement of 1882.
]
[Illustration:
JABEZ A. BOSTWICK
From 1872 to 1892 the chief oil buyer of the Standard Oil Company.
]
[Illustration:
JOSEPH SEEP
Head of the “Seep Agency,” through which all oil transported by the
Standard Oil Company goes.
]
[Illustration:
DANIEL O’DAY IN 1872
Vice-president of the National Transit Company, the pipe-line company
owned by the Standard Oil Company.
]
How did they get this information? As the press does—by a wide-spreading
system of reporters. In 1882 the Standard had correspondents in every
town in the oil fields, and to-day it has them not only there but in
every capital of the globe. It is a common enough thing, indeed, in
European capitals to run across high-class newspaper correspondents,
consuls, or business men who add to their incomes by private reporting
to the Standard Oil Company. The people in their employ naturally report
all they learn. There are also outsiders who report what they pick
up—“occasional contributions.” There is more than one man in the Oil
Regions who has made his livelihood for years by picking up information
for the Standard. “Spies,” they are called there. They may deserve the
name sometimes, but the service may be perfectly legitimate.
These trustees then “know everything” about the oil business and they
have used their information. Nobody ever used information more
profitably. What was learned was applied, and affected the whole great
structure, for by a marvellous genius in organisation Mr. Rockefeller
had devised a machine with a head whose thinking was felt from the seat
of power in New York City to the humblest pipe-line patrol on Oil Creek.
This head controlled each one of the scattered plants with absolute
precision. Take the refineries; they were individual plants, having a
manager and a board of directors like any outside plant, but these
plants were not free agents. According to J. J. Vandergrift’s testimony
in 1879, the Imperial Refinery, of which he was president, had no
control of its oil after it was made. The Standard Oil Company of
Cleveland took charge of it at Oil City, and arranged for transportation
and for marketing. The managers of the Central Association, into which
the allied refiners went in 1875 under Mr. Rockefeller’s presidency, had
“irrevocable authority to make all purchases of crude oil and sales of
refined oil,” as well as to “negotiate for all railroad and pipe-line
freights and transportation expenses” for each of the refineries. Each
plant, of course, was limited as to the amount of oil it could make.
Thus, in 1876, when the Cleveland firm of Scofield, Shurmer and Teagle
went into a running arrangement with Mr. Rockefeller on condition that
he get for them the same rebates he enjoyed, it was agreed that the firm
should manufacture only 85,000 barrels a year, though they had a
capacity of 180,000 barrels.
One of Mr. Rockefeller’s greatest achievements has been to bring men who
had built up their own factories and managed them to suit themselves to
work harmoniously under such limitations. As this history has shown, the
first attempt to harness the refiners failed because they would not obey
the rules. No doubt the chief reason why they finally consented to them
was that only by so doing could they get transportation rates equally
advantageous to those of the Standard Oil Company; but, having consented
and finding it profitable, they were kept in line by an ingenious system
of competition which must have done much to satisfy their need of
individual effort and their pride in independent work. In the
investigation of 1879, when the producers were trying to find out the
real nature of the Standard alliance, they were much puzzled by the
sworn testimony of certain Standard men that the factories they
controlled were competing, and competing hard, with the Standard Oil
Company of Cleveland. How could this be? Being bitter in heart and
reckless in tongue, the oil men denounced the statements as perjury, but
they were the literal truth. Each refinery in the alliance was required
to make to Mr. Rockefeller each month a detailed statement of its
operations. These statements were compared and the results made known.
If the Acme at Titusville had refined cheaper that month than any other
member of the alliance, the fact was made known. If this cheapness
continued to show, the others were sent to study the Acme methods.
Whenever an improvement showed, that improvement received credit, and
the others were sent to find the secret. The keenest rivalry
resulted—every factory was on its mettle.
This supervision took account of the least detail. There is a story
often told in the Oil Regions to illustrate the minuteness of the
supervision. In commenting as usual on the monthly “competitive
statements,” as they are called, Mr. Rockefeller called the attention of
a certain refiner to a discrepancy in his reports. It referred to
_bungs_—articles worth about as much in a refinery as pins are in a
household. “Last month,” the comment ran, “you reported on hand 1,119
bungs. Ten thousand were sent you at the beginning of this month. You
have used 9,527 this month. You report 1,012 on hand. What has become of
the other five hundred and eighty?” The writer has it on high authority
that the current version of this story is not true, but it reflects very
well the impression the Oil Regions have of the thoroughness of Mr.
Rockefeller’s supervision. The Oil Regions, which were notoriously
extravagant in their business methods, resented this care and called it
meanness, but the Oil Regions were wrong and Mr. Rockefeller was right.
Take care of the bungs and the barrels will take care of themselves, is
as good a policy in a refinery as the old saw it paraphrases is in
financiering.
There were other features of this revolutionary management which caused
deep resentment in the oil world. Chief among them was the dismantling
or abandoning of plants which the Standard had “acquired,” and which it
claimed were so badly placed or so equipped that it did not pay to run
them. There was reason enough in many cases for dissatisfaction with the
process of acquisition, but having acquired the refineries, the Standard
showed its wisdom in abandoning many of them. Take Pittsburg, for
instance. When Mr. Lockhart began to absorb his neighbours, in 1874,
there were some twenty-five plants in and around the town. They were of
varying capacity, from little ten-barrel stills of antiquated design and
out-of-the-way location, to complete plants like the Citizens’, which
Mr. Tack described in Chapter V. But how could Mr. Lockhart manage these
as they stood to good advantage? It might pay the owner of the little
refinery to run it, for he was his own stillman, his own pipe-fitter,
his own foreman, and did not expect large returns; but it would have
been absurd for Mr. Lockhart to try to run it. He simply carted away any
available machinery, sold what he could for junk, and left the _débris_.
Now, one of the most melancholy sights on earth is an abandoned oil
refinery; and it was the desolation of the picture, combined, as it
always was in the Oil Regions, with the history of the former owners,
that caused much of the outcry. It was a thing that the oil men could
not get over, largely because it was a sight always before their eyes.
Bitter as this policy was for those who had suffered by the Standard’s
campaigns, it was, of course, the only thing for the trust to do—indeed,
that was what it had been waging war on the independents for: that it
might shut them down and dismantle them, that there might be less oil
made and higher prices for what it made. This wisdom in locating
factories has continued to characterise the Standard operations. It
works only plants which pay, and it places its plants where they can be
operated to the best advantage. Many fine examples of the relation of
location in manufacturing to crude supply and to markets are to be seen
in the Standard Oil Company plants to-day. For example, refined for
foreign shipments is made at the seaboard, and the vessels which carry
it are loaded at docks, as at the works at Bayonne, New Jersey. The cost
of transportation from factory to ship, a large item in the old days, is
eliminated entirely. The Middle West market is now supplied almost
entirely from the Standard factories at Whiting, Indiana, a town built
by the Standard Oil Company for refining Ohio oil. Here 25,000 barrels
of oil are refined daily, and from this central point distributed to the
Mississippi Valley.
All of the industries which have been grafted on to the refineries have
always been run with the same exact regard to minute economies. These
industries were numerous because of Mr. Rockefeller’s great principle,
“pay a profit to nobody.” From his earliest ventures in combination he
had applied this principle. Mr. Blanchard’s explanation to the Hepburn
Commission in 1879 of why the Standard had controlled the Erie’s yards
at Weehawken since 1874, shows exactly Mr. Rockefeller’s point of
view.[157] This policy of paying nobody a profit took Mr. Rockefeller
into the barrel business. In 1872, when Mr. Rockefeller became master of
the Cleveland oil business, the purchase of barrels was one of a
refiner’s heaviest expenses. In an estimate of the cost of producing a
gallon of refined oil in 1873, made in the Oil City Derrick and accepted
as correct by that paper, the cost of the barrel is put at four cents a
gallon, which was more than the crude oil cost at that date. Even at
four cents a gallon barrels were hard to get, so great was the demand.
If a refiner could get his barrels back, of course there was a saving (a
returned barrel was estimated to be worth 2¾ cents), but the return
could not be counted on; empty barrels coming from Europe particularly,
and consigned to Western shippers, were frequently seized in New York by
Eastern refiners. The need was held to justify the deed, like thieving
in famine time. Fortunes were made in barrels, and dealers hearing of a
big supply in Europe have been known to charter a vessel and go for
them, and reap rich profits. In fact, a whole volume of commercial
tragedy and comedy hangs around the oil barrel. Now it was to the
barrel—the “holy blue barrel”—that Mr. Rockefeller gave early attention.
He determined to make it himself. One of the earliest outside ventures
of the Standard Oil Company in Cleveland was barrel works, and Mr.
Rockefeller was soon getting for two and a half cents what his rivals
paid four for, though he was by no means the only refiner who
manufactured barrels in the early days—each factory aimed to add barrel
works as soon as able. The amount the Standard Oil Company saved on this
one item is evident when the extent of its business is considered. The
year before the trust was formed (1881) they manufactured 4,500,000
barrels, an average of about 15,000 a day. Since that time the barrel
has been gradually going out of the oil business, bulk transportation
taking its place very largely. Nevertheless, in 1901 the Standard Oil
Company manufactured about 3,000,000 new barrels. In the period since
they began the manufacture of barrels their factories have introduced
some small savings which in the aggregate amount to large sums. For
instance, they have improved the lap of the hoop—a small thing, but one
which amounted in 1901 to something like $15,000. Some $50,000 a year
was saved by a slight increase in the size of the tankage. The Standard
claims that these economies are so small in themselves that it only pays
to practise them where there is a large aggregate business.
More important than the barrel to-day, however, is the tin can—for it is
in tin cans that all the enormous quantities of refined sent to tropical
and Oriental countries must go to prevent deterioration—and nowhere does
the policy of economy which Mr. Rockefeller has worked out show better
than in one of the Standard canning works. In 1902 the writer visited
the largest of the Standard can factories, the Devoe, on the East River,
Long Island City. It has a capacity of 70,000 five-gallon cans a day,
and is probably the largest can factory in the world. At the entrance of
the place a man was sweeping up carefully the dirt on the floor and
wheeling it away—not to be dumped in the river, however. The dirt was to
be sifted for tin filings and solder dust. At every step something was
saved. The Standard buys the tin for its cans in Wales, because it is
cheaper. It would not be cheaper if it were not for a vagary in
administering the tariff by which the duty on tin plate is refunded if
the tin is made into receptacles to be exported. This clause was
probably made for the benefit of the Standard, it being the largest
single consumer of tin plate in the United States. In 1901 the Standard
Oil Company imported over 60,000 tons of tin with a value of over
$1,000,000. This tin comes in sheets packed in flat boxes, which are
opened by throwing—it is quicker than opening by a hammer, and time is
considered as valuable as tin filings. The empty boxes are sold by the
hundred to the Long Island gardens for growing plants in, and the broken
covers are sold for kindling. The trimmings which result from shaping
the tin sheets for a can are gathered into bundles and sold to chemical
works or foundries. There is the same care taken with solder as with
tin, the amount each workman uses being carefully gauged. The canning
plants, like the refineries, compare their results monthly, and the
laurels go to the manager who has saved the most ounces of solder, the
most hours, the most footsteps.
The five-gallon can turned out at the Devoe is a marvel of evolution.
The present methods of manufacture are almost entirely the work of
Herman Miller, known in Standard circles as the “father of the
five-gallon can”; and a fine type of the German inventor he is. The
machinery for making the can has been so developed that while, in 1865,
when Mr. Miller began his work under Charles Pratt, one man and a boy
soldered 850 cans in a day, in 1880 three men made 8,000, and since 1893
three men have made 24,000. It is an actual fact that a tin can is made
by Miller in just about the time it takes to walk from the point in the
factory where the sheets of tin are unloaded to the point where the
finished article is filled with oil.
And here is a nice point in combination. Not far away from the canning
works, on Newtown Creek, is an oil refinery. This oil runs to the
canning works, and, as the new-made cans come down by a chute from the
works above, where they have just been finished, they are filled, twelve
at a time, with the oil made a few miles away. The filling apparatus is
admirable. As the new-made cans come down the chute they are
distributed, twelve in a row, along one side of a turn-table. The
turn-table is revolved, and the cans come directly under twelve
measures, each holding five gallons of oil—a turn of a valve, and the
cans are full. The table is turned a quarter, and while twelve more cans
are filled and twelve fresh ones are distributed, four men with
soldering coppers put the caps on the first set. Another quarter turn,
and men stand ready to take the cans from the filler, and while they do
this, twelve more are having caps put on, twelve are filling, and twelve
are coming to their place from the chute. The cans are placed at once in
wooden boxes standing ready, and, after a twenty-four-hour wait for
discovering leaks, are nailed up and carted to a near-by door. This door
opens on the river, and there at anchor by the side of the factory is a
vessel chartered for South America or China or where not—waiting to
receive the cans which a little more than twenty-four hours before were
tin sheets lying in flat boxes. It is a marvellous example of economy
not only in materials, but in time and in footsteps.
With Mr. Rockefeller’s genius for detail, there went a sense of the big
and vital factors in the oil business, and a daring in laying hold of
them which was very like military genius. He saw strategic points like a
Napoleon, and he swooped on them with the suddenness of a Napoleon. This
master ability has been fully illustrated already in this work. Mr.
Rockefeller’s capture of the Cleveland refineries in 1872 was as
dazzling an achievement as it was a hateful one. The campaign by which
the Empire Transportation Company was wrested from the Pennsylvania
Railroad, viewed simply as a piece of brigandage, was admirable. The man
saw what was necessary to his purpose, and he never hesitated before it.
His courage was steady—and his faith in his ideas unwavering. He simply
knew that was the thing to do, and he went ahead with the serenity of
the man who knows.
After the formation of the trust the demand for these qualities was
constant. For instance, the contract which the Standard signed with the
producers in February, 1880, pledged them to take care of a production
of 65,000 barrels a day. When they signed this agreement there was above
ground nearly nine and one-half million barrels of oil. The production
increased at a frightful rate for four years. At the end of 1880 there
were stocks of over 17,000,000 above ground; in 1881, over 25,000,000;
1882, over 34,000,000; 1883, over 35,000,000; and 1884, over 36,000,000,
and the United Pipe Lines took care of this production—with the aid of
the producers, who built tanks neck and neck with them. In 1880 the
Standard people averaged over one iron tank a day, the tanks holding
from 25,000 to 35,000 barrels. There were not tank-builders enough in
the United States to do the work, and crews were brought from Canada and
England. This, of course, called for an enormous expenditure of money,
for tanks cost from $7,000 to $10,000 apiece. Rich as the United Pipe
Lines were they were forced to borrow money in these years of excessive
production, for they had to lay lines as well as build tanks. There were
nearly 4,000 miles of pipe-line laid in the Bradford region alone from
1878 to 1884, and these lines connected with upward of 20,000 wells.
From the time it completed its pipe-line monopoly the Standard has
followed oil wherever found. It has had to do it to keep its hold on the
business, and its courage never yet has faltered, though it has demanded
some extraordinary efforts. In 1891 a great deposit of oil was tapped in
the McDonald field of Southwestern Pennsylvania. The monthly production
increased from 50,000 barrels in June to 1,600,000 in December. It is an
actual fact that in the McDonald field the United Pipe Lines increased
the daily capacity of 3,500 barrels, which they had at the beginning of
July, to one of 26,000 barrels by the first of September, and by the
first of December they could handle 90,000 barrels a day. If one
considers what this means one sees that it compares favourably with the
great ordnance and mobilising feats of the Civil War. To accomplish it,
rolling mills and boiler shops in various cities worked night and day to
turn out the pipe, the pumps, the engines, the boilers which were
needed. Transportation had to be arranged, crews of men obtained, a wild
country prepared, sawmills to cut the quantities of timber needed built,
and this vast amount of material placed and set to work.
The same audacity and effectiveness are shown by the Standard in
attacking situations created by new developments in handling business.
The seaboard pipe-line is a notable example. When the Standard completed
its pipe-line monopoly at the end of 1877, the pipe-line was still
regarded as the feeder of the railroad. Naturally the railroads were
seriously opposed to its becoming anything more. In Pennsylvania
particularly the laws had been so manipulated by the Pennsylvania
Railroad as to prevent the pipe-line carrying oil even for short
distances in competition with them. Now, for many years it had been
believed that the pipe-line could carry oil long distances—many claimed
to the seaboard—and as soon as the independents found that the
oil-bearing roads were acting solely in the interest of the Standard
they began an agitation for a seaboard line which finally terminated in
the Tidewater Line, one hundred and four miles long, carrying oil from
the Bradford field to Williamsport on the Reading Railroad, and it was
certain that the Tidewater eventually would get to the seaboard. That
the day of the railroad as a carrier of crude oil was over when the
Tidewater began to pump oil was obvious both to Mr. Rockefeller and to
the railroad presidents, and without hesitation he seized the idea. By
1883 the Standard was pumping oil to New York, and the railroads that
had served so effectively in building up the trust were practically out
of the crude business. It was this audacious and splendid stroke,
practically freeing him from the railroads which had made him, which
made the passage of the Interstate Commerce Bill a matter of
comparatively small importance to Mr. Rockefeller. To be sure, he still
needed the railroads for refined, but he could so place his refineries
that this service would be greatly minimised. The legislation which the
Oil Regions of Pennsylvania demanded for fifteen years in hope of
securing an equal chance in transportation came too late. By the time
the bill was passed the pipe had replaced the rail as the great oil
carrier, and the pipes were not merely under Mr. Rockefeller’s control,
as the rails had been; they belonged to him. It was little wonder, then,
that the passage of the great bill did not ruffle his serenity. Little
wonder that the Oil Regions, realising the situation, so tragic in its
irony, as fully as Mr. Rockefeller did, felt an exasperation almost
uncontrolled over it. Yet the seaboard pipe-line was no development of
the Standard Oil Company. The idea had been conceived and the
practicability demonstrated by others, but it was seized by the Standard
as soon as it proved possible. This quick sense of the real value of new
developments, and this alertness in seizing them, have been among the
strongest elements in the Standard’s success.
And every new line of action was developed to its utmost. Take the work
the Standard began in 1879 on the foreign market. Before the Standard
Oil Company was known, save as one of several prosperous Cleveland
refineries, the foreign trade had been developed until petroleum was
_fourth_ in our list of exports, and it went literally to every
civilised country on the globe. In 1874 Colonel Forney made a trip
through the Orient, and he wrote in one of his letters that he found
both Babylon and Nineveh to be lighted with American petroleum, and that
while he was in Damascus a census was taken to ascertain how much
petroleum was needed for each house in the place, and a proposition was
made for its entire use. “At present,” said the Derrick, in commenting
on this letter, “petroleum is the chief commercial representative of the
United States in the Levant and the Orient.”
The same dithyrambic paragraphs were written by oil men then, as by the
Standard now, concerning foreign trade. For instance, compare the two
paragraphs below—the one found in 1874 in the Derrick, the second in a
defence of the Oil Trust published in 1900:
1874—“It lights the dwellings, the temples, and the mosques amid the
ruins of ancient Babylon and Nineveh; it is the light of Bagdad, the
city of the Thousand and One Nights; of Orfa, birthplace of Abraham;
of Mardeen, the ancient _Macius_ of the Romans, and of Damascus, gem
of the Orient. It burns in the grotto of the Nativity at Bethlehem;
in the Church of the Holy Sepulchre in Jerusalem; amidst the
Pyramids of Egypt; on the Acropolis of Athens; on the plains of
Troy; and in cottage and palace on the banks of the Bosporus and the
Golden Horn.”
1900—“Petroleum to-day is the light of the world. It is carried
wherever a wheel can roll or a camel’s hoof be planted. The caravans
on the desert of Sahara go laden with Pratt’s Astral, and elephants
in India carry cases of ‘Standard-white,’ while ships are constantly
loading at our wharves for Japan, Java and the most distant isles of
the sea.”
Exports grew rapidly through the same machinery which had created the
foreign market. In 1870 there were something over one hundred and forty
million gallons of petroleum products going abroad, in 1873 nearly two
and one-half hundred million, in 1878 three and one-half hundred
million. In 1870 the Standard began its work on the foreign trade by
sending a representative abroad. Country after country seems to have
been taken up, the idea being that the daily Standard Oil meeting should
have the same full information before it concerning every place of
foreign trade as it had of the American trade, and that gradually the
company should control the foreign trade as it did the American
industry, doing away with middlemen, “paying nobody a profit.” This
work, begun in 1879, has been carried on steadily ever since. Through it
the Standard soon became largely its own exporter. It established
stations of its own in one port after another of Europe, Asia, South
America, and has built up a large oil fleet. It carried on an aggressive
campaign for developing markets; it looked after hostile legislation; it
studied the possible competition of native oils; it met every
difficulty—prejudice, ignorance, poverty. Little by little it has done
in foreign countries what it has done in the United States. To-day it
even carts oil from door to door in Germany and Portugal and other
countries, as it does in America, thus realising Mr. Rockefeller’s
vision of controlling the petroleum of America from the time it leaves
the ground until it is put into the lamp of the consumer.
The same economy and alertness were applied to the matter of making
oils. In laying hands on the refineries of the country, Rockefeller had
acquired by 1882 about all the processes of manufacturing known, both
patented and free. These processes, including all the essential ones of
to-day, had been developed entirely outside of the Standard Oil Company.
As early as 1865, the year Mr. Rockefeller went into the business,
William Wright wrote an exhaustive book on the Oil Regions of
Pennsylvania. Among other things, he reported quite fully what was being
done in the refining of petroleum. He found that in several factories
they were making naphtha, gasoline and benzine; that three grades of
illuminating oils—“prime white,” “standard white” and “straw
colour”—were made everywhere; that paraffine, refined to a pure white
article like that of to-day, was manufactured in quantities by the
Downer works; and that lubricating oils were beginning to be made.
[Illustration:
PRODUCTS OBTAINED FROM THE DISTILLATION OF CRUDE OIL IN A REFINERY.
]
In 1872, the year that Mr. Rockefeller took things in hand, all of these
original products had been greatly extended, as we have seen. Joshua
Merrill had succeeded in deodorising lubricating oil, making it possible
to put the petroleum lubricants on the foreign market, and in 1871 Mr.
Merrill’s factory sold 50,000 gallons in England alone. By 1872
paraffine wax was being made in many factories, and one maker of chewing
gum in Maine used 70,000 pounds that year. The foreign trade in all the
products of petroleum outside of illuminating oil was already
considerable.[158] Many of the factories in making their oils gave them
names; thus, Pratt’s Astral was a name for a water-white oil made by the
Pratt works of Brooklyn. It was a high-grade oil, made exactly as the
oil made by many other refineries, but it had a name—a valuable one.
[Illustration:
PRODUCTS OBTAINED FROM THE DISTILLATION OF CRUDE OIL IN LUBRICATING
WORKS.
]
The tables (pages 246–247) analysing the products of crude oil obtained
to-day at the Standard factories show the results tabulated. Now all of
the products in these groups could be made in 1872, but certainly there
were not forty-six distinct products under the naphthas as the table
shows—nor were there 174 refined distillates. In fact, these are not
really products; they are rather brands. Thus, though the table shows
twenty-nine different kinds of odorised or deodorised naphthas, the main
difference between them is their name. The 174 refined distillates are
really the different grades of illuminating oil which any factory can
get, given the proper crude base, with a multitude of different names
applied to catch the trade. Thus among these 174 “products” are
thirty-three kinds of “Standard-white”[159] oil and forty-one kinds of
“water-white”[160]—the principal difference between them being the
different fire tests at which they are put out. The real service of the
Standard has been not this multiplication of so-called products, but in
finding processes by which a poor oil like the famous Lima oil could be
refined. In the case of the Lima oil the Standard claims it spent
millions of dollars before it solved the problem of its usefulness. The
amount of sulphur in the Lima or Ohio oil prevented its use as an
illuminating oil, for the odour was intolerable, there was a
disagreeable smoke, and the wick charred rapidly. The problem of
deodorising it was attacked by many experimenters, and was finally
practically solved by the Frasch process, which the Standard acquired
after spending a large amount of money in testing its efficacy. Probably
sixty per cent. of the illuminating oil used in the United States now is
manufactured from an Ohio oil base.
This multiplication of varieties is, of course, a perfectly legitimate
merchandising device, but it is not a development of products, properly
speaking. Nor indeed was it for discoveries and inventions that the
Standard Oil Trust was great in 1882, or that it is now—it is in the way
it adapts and handles the discoveries and inventions it acquires. Take
the matter of lubricating oils. After a long struggle it gathered to
itself the factories and the patents of lubricating oils, and it has
developed the trade amazingly; for, while in 1872 less than a half
million gallons of petroleum lubricants were going abroad, in 1897 over
50,000,000 gallons went. The extension of the lubricating trade was made
possible largely by the discovery of Mr. Merrill referred to above. In
1869 Mr. Merrill discovered a process by which a deodorised lubricating
oil could be made. He had both the apparatus for producing the oil and
for the oil itself patented. The oil was so favourably received that the
market sale was several hundred per cent. greater in a single year than
the firm had ever sold before. Naturally, an attempt was made by other
lubricating works to imitate Mr. Merrill’s new product. The most
successful imitation was made by Dr. S. D. Tweedle of Pittsburg. The oil
he put upon the market was considered an infringement by Mr. Merrill,
who commenced suit against the agents handling it. The case was before
the courts for some six years, and Mr. Merrill spent over $100,000 in
maintaining the patent. The case was finally decided in his favour by
the Supreme Court in Washington. During this suit the Standard Oil
Company stood behind Dr. Tweedle, furnishing the money to defend the
suit. When finally they were defeated they took a license under the new
patent which Mr. Merrill was obliged to get out, and paid him a royalty
on the oil until within about a year and a half before the end of the
life of the patent, when they bought it outright for a large sum, Mr.
Merrill reserving the right to manufacture and sell the oil without a
royalty. Most lubricating oils from petroleum are now made after Mr.
Merrill’s process.
Having obtained control of the lubricating oils, the Standard showed the
greatest intelligence in studying the markets and in developing the
products. It makes lubricants for every machine that works. It offers
scores of cylinder oils, scores of spindle lubricants, of valve
lubricants, of gas-engine lubricants, special brands for sewing
machines, for looms, for sole leather, for dynamos, for marine engines,
for everything that runs and works by steam power, by air, by
electricity, by gas, by man, or by beast power. Now any lubricating
factory can produce the six or eight primary lubricants. Given these,
the varieties to be produced by skilful compounding are infinite. They
can be made more or less viscous, flowing, heavy, light, according to
the needs of the machines and the idiosyncrasies of individuals who run
them. The man who runs a machine soon knows what oil suits him, and if
his trade is big enough an oil is put up especially for him with a name
to tickle his vanity. It may be exactly like a dozen other oils on the
market, but having its own name it is reckoned a new product. Skilful
compounders insist that they can duplicate any of the 833 lubricating
oils of the Standard if they can have samples. Of course this close
study of the needs of a market, and this adaptation of one’s goods to
the requirements, are the highest sort of merchandising.
Unquestionably the great strength of the Standard Trust in 1882, when it
was founded as it is to-day, was the men who formed it. However sweeping
Mr. Rockefeller’s commercial vision, however steady his purpose, however
remarkable his insight into what was essential to the realisation of his
ambition, he would have never gone far had he not drawn men into his
concern who understood what he was after and knew how to work for it.
His principle concerning men was laid down early. “We want only the big
ones, those who have already proved they can do a big business. As for
the others, unfortunately they will have to die.” The scheme had no
provision for mediocrity—nor for those who could not stomach his
methods. The men who in 1882 formed the Standard alliance were all from
the foremost rank in the petroleum trade, men who without question would
be among those at the top to-day if there had never been a Standard Oil
Company. In Pittsburg it was Charles Lockhart, a man interested in
petroleum before the Drake well was struck, who had begun oil operations
on Oil Creek in March, 1860, who had carried samples of crude and
refined to Europe as early as May, 1860, who had built one of the first
refineries in Pittsburg, and who was easily the largest refiner there in
1874 when Mr. Rockefeller bought him up. In Philadelphia, the largest
refiner in 1874 was W. G. Warden of the Atlantic Refining Company, and
it was he whom Mr. Rockefeller wanted. In New York it was the concern of
Charles Pratt and Company, one of the three largest concerns around
Manhattan—the concern to which H. H. Rogers belonged. Charles Pratt had
been in the oil and paint business since 1850, and he had become a
refiner of petroleum at Greenpoint, Long Island, in 1867. Before
Standard Oil was known outside of New York the fame of Pratt’s Astral
Oil had gone around the world. Mr. Pratt’s concern was rated at the same
daily capacity as Mr. Rockefeller’s (1,500 barrels) in the spring of
1872, when the latter wiped up the Cleveland refineries and grew in a
night to 10,000 barrels. Mr. Vandergrift, who united his interests with
Mr. Rockefeller’s in 1874 and 1875, had been a far better known man in
the oil business and controlled much greater and more varied interests
up to South Improvement times. When he went into the Standard he
controlled the largest refinery on Oil Creek, the Imperial, of about
1,400 barrels. He was president of a large system of pipe-lines, and he
was a member of one of the largest oil-producing concerns of the
time—the H. L. Taylor Company.
There is no doubt but that Mr. Rockefeller had plenty of brains in his
great trust. It was those who had done business with him who were the
first to point this out when critics declared that the concern could
not—or must not—live. “There is no question about it,” W. H. Vanderbilt
told the Hepburn Commission in 1879, “but these men are smarter than I
am a great deal. They are very enterprising and smart men. I never came
in contact with any class of men as smart and able as they are in their
business. They would never have got into the position they now are
without a great deal of ability—and one man would hardly have been able
to do it; it is a combination of men.”
It was not only that first-rate ability was demanded at the top; it was
required throughout the organisation. The very day-labourers were picked
men. It was the custom to offer a little better day wages for labourers
than was current and then to choose from these the most promising
specimens; those men were advanced as they showed ability. To-day the
very errand boys at 26 Broadway are chosen for the promise of
development they show, and if they do not develop they are discharged.
No dead wood is taken into the concern unless it is through the supposed
necessities of family or business relations, as probably occurs to a
degree in every human organisation.
The efficiency of the working force of the Standard was greatly
increased when the trust was formed by the opportunity given to the
employees of taking stock. They were urged to do it, and where they had
no savings money was lent them on easy terms by the company. The result
is that a great number of the employees of the Standard Oil Company are
owners of stock which they bought at eighty, and on which for several
years they have received from thirty to forty-eight per cent. dividends.
It is only natural that under such circumstances the company has always
a remarkably loyal and interested working force.
Mr. Rockefeller’s great creation has really been strong, then, in many
admirable qualities. The force of the combination has been greater
because of the business habits of the independent body which has opposed
it. To the Standard’s caution the Oil Regions opposed recklessness; to
its economy, extravagance; to its secretiveness, almost blatant
frankness; to its far-sightedness, little thought of the morrow; to its
close-fistedness, a spendthrift generosity; to its selfish
unscrupulousness, an almost quixotic love of fair play. The Oil Regions
had, besides, one fatal weakness—its passion for speculation. Now, Mr.
Rockefeller never speculates. He deals only in those things which other
people have proved sure!
It is when one examines the inside of the Standard Oil Trust that one
sees how much reason there is for the opinion of those people who
declare that Mr. Rockefeller can always sustain the monopoly of the oil
business he has achieved. One begins to see what Mr. Vanderbilt meant in
1879 when he said: “I don’t believe that by any legislative enactment or
anything else, through any of the states or all of the states, you can
keep such men down. You can’t do it! They will be on top all the time,
you see if they are not.”[161] It is not surprising that those who
realise the compactness and harmony of the Standard organisation, the
ability of its members, the solidity of the qualities governing its
operations, are willing to forget its history. Such is the blinding
quality of success! “It has achieved this,” they say; “no matter what
helped to rear this structure, it is here, it is admirably managed. We
might as well accept it. We must do business.” They are weary of
contention, too—who so unwelcome as an agitator?—and they began to
accept the Standard’s explanation that the critics are indeed “people
with a private grievance,” “mossbacks left behind in the march of
progress.” Again and again in the history of the oil business it has
looked to the outsider as if henceforth Mr. Rockefeller would have to
have things his own way, for who was there to interfere with him, to
dispute his position? No one, save that back in Northwestern
Pennsylvania, in scrubby little oil towns, around greasy derricks, in
dingy shanties, by rusty, deserted oil stills, men have always talked of
the iniquity of the railroad rebate, the injustice of restraint of
trade, the dangers of monopoly, the right to do an independent business;
have always rehearsed with tiresome persistency the evidence by which it
has been proved that the Standard Oil Company is a revival of the South
Improvement Company. It has all seemed futile enough with the public
listening in wonder and awe to the splendid rehearsal of figures, and
the unctuous logic of the Mother of Trusts, and yet one can never tell.
It was the squawking of geese that saved the Capitol.
Certain it is that many and great as are his business qualities, John D.
Rockefeller has never been allowed to enjoy the fruits of his victory in
that atmosphere of leisure and adulation which the victor naturally
craves. Certain it is that the incessant agitation of men with a
“private grievance” has ruined some of his fairest schemes, has hauled
him again and again before investigating committees, and has contributed
greatly to securing a federal law authorising so fundamental and obvious
a right as equal rates on common carriers. Certain it is that the
incessant efforts of those who believed they had a right to do an
independent business have resulted in the most important advances made
in the oil business since the beginning of Mr. Rockefeller’s
combination, namely, the seaboard pipe-line, for transporting crude oil,
due to the Tidewater Pipe Line, and later the use of the seaboard
pipe-line for transporting refined oil, due to the United States Pipe
Line. Certain it is, too, that all of competition which we have, with
its consequent lowering of prices, is due to independent efforts.
CHAPTER EIGHTEEN
CONCLUSION
CONTEMPT PROCEEDINGS BEGUN AGAINST THE STANDARD IN OHIO IN 1897 FOR
NOT OBEYING THE COURT’S ORDER OF 1892 TO DISSOLVE THE TRUST—SUITS
BEGUN TO OUST FOUR OF THE STANDARD’S CONSTITUENT COMPANIES FOR
VIOLATION OF OHIO ANTI-TRUST LAWS—ALL SUITS DROPPED BECAUSE OF
EXPIRATION OF ATTORNEY-GENERAL MONNETT’S TERM—STANDARD PERSUADED
THAT ITS ONLY CORPORATE REFUGE IS NEW JERSEY—CAPITAL OF THE STANDARD
OIL COMPANY OF NEW JERSEY INCREASED, AND ALL STANDARD OIL BUSINESS
TAKEN INTO NEW ORGANISATION—RESTRICTION OF NEW JERSEY LAW
SMALL—PROFITS ARE GREAT AND STANDARD’S CONTROL OF OIL BUSINESS IS
ALMOST ABSOLUTE—STANDARD OIL COMPANY ESSENTIALLY A REALISATION OF
THE SOUTH IMPROVEMENT COMPANY’S PLANS—THE CRUCIAL QUESTION NOW, AS
ALWAYS, IS A TRANSPORTATION QUESTION—THE TRUST QUESTION WILL GO
UNSOLVED SO LONG AS THE TRANSPORTATION QUESTION GOES UNSOLVED—THE
ETHICAL QUESTIONS INVOLVED.
Few men in either the political or industrial life of this country can
point to an achievement carried out in more exact accord with its first
conception than John D. Rockefeller, for both in purpose and methods the
Standard Oil Company is and always has been a form of the South
Improvement Company, by which Mr. Rockefeller first attracted general
attention in the oil industry. The original scheme has suffered many
modifications. Its most offensive feature, the drawback on other
people’s shipments, has been cut off. Nevertheless, to-day, as at the
start, the purpose of the Standard Oil Company is the purpose of the
South Improvement Company—the regulation of the price of crude and
refined oil by the control of the output; and the chief means for
sustaining this purpose is still that of the original scheme—a control
of oil transportation giving special privileges in rates.
[Illustration:
JOHN D. ROCKEFELLER
From a photograph by Allen Ayrault Green, taken about 1892.
]
It is now thirty-two years since Mr. Rockefeller applied the fruitful
idea of the South Improvement Company to the Standard Oil Company of
Ohio, a prosperous oil refinery of Cleveland, with a capital of
$1,000,000 and a daily capacity for handling 1,500 barrels of crude oil.
And what have we as a result? What is the Standard Oil Company to-day?
First, what is its organisation? It is no longer a trust. As we have
seen, the trust was obliged to liquidate in 1892. It became a “trust in
liquidation,” and there it remained for some five years. It seemed to
have come into a state of stationary liquidation, for at the end of 1892
477,881 shares were uncancelled; at the end of 1896 the same number were
out. The situation of the great corporation was indeed curious. There
began to be comments on it, for complications arose—one over taxes. In
1893 an auditor in Ohio tried to collect taxes on 225 shares of the
Standard Oil Trust. The owner refused to pay and took the case into
court. He won it. The Standard Oil Trust is an unlawful organisation,
said the court. Its certificates have no validity. It would seem strange
that a certificate which was void to all purpose would still be valid as
to taxable purposes.[162] Here was an anomaly indeed. The certificates
were drawing big quarterly dividends, had a big market value, but were
illegal. Owners of small certificates naturally refused to exchange. In
1897 it took 194½ shares in the Standard Oil Trust to bring back one
share in each of the twenty companies. Thus one share in the Standard
Oil Company of Ohio was worth twenty-seven shares in the Standard Oil
Trust. If a man owned twenty-five shares he got only fractional parts of
a share in each company. On these fractional parts he received no
dividends, it not being considered practical to consider such small
sums. To raise his twenty-five shares to 194, and so secure dividends,
took a good sum of money, since Standard Oil Trust shares were worth at
least 340 then. But why should he trouble? He received his quarterly
dividends promptly, and they were large! He paid no taxes, for his stock
was illegal! The trustees were not pushing him to liquidate. Besides, it
was doubtful if they could do anything. Joseph Choate said they could
not. On May 3, 1894, before the attorney-general of New York, in an
application for the forfeiture of the charter of the Standard Oil
Company of New York, Mr. Choate said:
“I happen to own 100 shares in the Standard Oil Trust, and I have never
gone forward and claimed my aliquot share. Why not? Because I would get
ten in one company, and ten in another company, and two and three-fifths
in another company.
“There is no power that this company can exercise to compel me and other
indifferent certificate holders, if you please, to come forward and
convert our trust certificates.”
If there was a way, the trustees were indifferent to it. They evidently
were contented to let things alone. It is quite possible that they would
have been holding to-day 477,881 uncancelled shares of Standard Oil
Trust if it had not been for the irrepressible George Rice. Since
October, 1892, Mr. Rice had held a Standard Oil Trust certificate for
six shares. He had never cancelled it. He had received no invitation to
do so. He received his dividends regularly on it. Later, he purchased
one share, called “assignment of legal title”—the new form given the
trust certificate—and on this he received dividends, exactly as on the
original trust certificate. Finally Mr. Rice made up his mind, without
knowing any of the facts of the liquidation outlined above, that there
was no intention to carry out the dissolution, that some means of
evasion had been devised, and he proposed to find out what it was.
To do this he transferred his assignment of legal title to an agent with
the order to liquidate it. A long correspondence followed between Mr.
Kemper, Mr. Rice’s agent, and Mr. Dodd, who objected to making the
transfer on the ground that it cut the share into a “multitude of almost
infinitesimal fractions of corporate shares.” They were obviating this
difficulty, Mr. Dodd said, by purchasing certificates calling for one or
a few shares and uniting them until sufficient were had by one party to
call for the issue of full corporate shares. Mr. Kemper insisted,
however, and finally received scrip for his share. “Infinitesimal” it
was, indeed, 5,000/972,500 of one share in one company, 10,000/972,500
of one share in another, and so on through nineteen constituent
companies.[163]
Arguing from these experiences and what else he could gather, Mr. Rice
decided that the trust was not dissolved and had no intention of doing
so. Furthermore, he argued that the scheme was one to entice the small
shareholders to sell their shares and thus enable the trustees to
increase their holdings! And he sought legal counsel in Ohio as to the
possibility of bringing suit against the Standard Oil Company of Ohio
for failing to obey the court’s orders in March, 1892. The attorneys,
one of whom was Mr. Watson, advised Mr. Rice to lay his facts before the
attorney-general of the state, Frank S. Monnett. Like Mr. Watson, when
he brought his suit, Mr. Monnett was young and held firmly to the belief
that the business of an attorney-general is to enforce the laws. The
facts Mr. Rice and his counsel laid before him seemed to him to indicate
that the Standard Oil Company of Ohio had taken advantage of the
leniency of the court in allowing it time to disentangle itself from the
trust, and had devised a skilful plan to evade the judgment pronounced
against it five years before. He asked Mr. Rice and his attorneys to go
with him and lay the case before the judges of the Supreme Court in
chambers, and ask if it did not justify proceedings against the company.
The judges agreed with the attorney-general and ordered him to bring the
company before the court for contempt. Information was filed in
November, 1897. The suit which followed proved one of the most
sensational ever instituted against the Standard Oil Combination.
The first substantial point gained by the attorney-general in the
proceedings was securing answers to a long series of questions
concerning the history of the operations of the Standard Oil Company of
Ohio, both within and without the trust. These answers were made by the
president of that company, who was at the same time the president of the
trust, John D. Rockefeller. They furnish a mass of facts of value and
interest, and they include the minutes of the meeting at which the trust
was dissolved on March 11, 1892, as well as the minutes of all the
quarterly meetings the liquidating trustees held from 1892 to October,
1897. It was from the information obtained from this set of questions
that Mr. Monnett secured proof that the liquidation scheme had been held
up, as Mr. Rice claimed. The minutes showed, as related in Chapter XIV,
that from November, 1892, to March, 1896, 477,881 shares were reported
every three months to the trustees as uncancelled. In July, 1896, the
number fell suddenly to 477,880. George Rice had succeeded in having his
assignment of legal title liquidated! Mr. Monnett learned from the
result of this inquiry another suggestive fact, that while only one
share was cancelled in the five years _before_ the contempt proceedings
were brought, in the first three months _after_, 100,583 shares were
cancelled![164]
It took Mr. Monnett some six months to secure the answers from Mr.
Rockefeller, but his information was still incomplete, and he asked the
court to appoint a master commissioner, with power to examine the
officers, affairs and books of the Standard, to take testimony within or
without the state, and to report. This was done, the commissioner
holding his first court at the New Amsterdam Hotel, in New York, on
October 11 and 12, 1898. Mr. Rockefeller was the only witness examined
at the sessions, and his deliberation and self-control, his almost
detached attitude as a witness, were the subject of remark by more than
one observer. He answered no question promptly. He had the air of
reflecting always before he spoke. He consulted frequently with his
counsel. His counsel, his colleagues who were present, the counsel of
the prosecution, were sometimes irate, never Mr. Rockefeller. From
beginning to end he was the soul of self-possession. His only sign of
impatience—if it was impatience—was an incessant slight tapping of the
arm of his chair with his white fingers.
The outcome of this examination of Mr. Rockefeller was that Mr. Monnett
and his colleagues called for those books of the trust which would show
exactly how the original trust certificates had been liquidated. It was
then that the copies of the transfers of Mr. Rockefeller’s trust
certificates and of his assignments of legal title printed in the
Appendix, Number 54, were obtained. Although Mr. Monnett had added to
his knowledge of the Standard’s operations between 1892 and 1898, he was
not yet convinced that the Standard Oil Company of Ohio was conducting
its own business. He had found that, in spite of the order of the court
in 1892, 13,593 shares of that company’s stock were still outstanding in
trust certificates. He knew these certificates drew dividends. Was the
company paying money directly or indirectly to the liquidating trustees?
They said no, that they had been paying no dividends since 1892, that
the money paid the holders of trust certificates came from the other
nineteen companies, that all their earnings had been used in improving
their plant, or were invested in government bonds. Besides, said they,
we are not the thrifty concern we used to be. Mr. Monnett demanded proof
from their books. The secretary of the company, on advice of his
counsel, Virgil P. Kline, refused to produce the books asked for, on the
ground that they would incriminate the company. The court supported Mr.
Monnett, and ordered the company to produce those of their records
showing the gross earnings since 1892, and what had been done with them.
The order met with a second refusal.
Such was the status of the proceedings when Mr. Monnett received an
anonymous communication stating that, about the time the company was
ordered by the court to produce its records, a great quantity of books
had been taken from the Standard’s office in Cleveland and burned. An
investigation was at once made by the attorney-general, and a number of
witnesses examined. The fact of the burning of sixteen boxes of books
from the Standard offices in Cleveland was established, but these books,
the officers of the company contended, were not the ones wanted by Mr.
Monnett. “Then produce the ones we want,” ordered the court. But, on the
ground that such records might incriminate them, the officers still
refused.
The fact was, the Standard Oil Company of Ohio was in a very tight
place, and it is difficult to see how an examination of their books
could have failed to incriminate not only it, but three other of the
constituent companies of the trust which held charters from the same
state. These three companies were the Ohio Oil Company, which produced
oil; the Buckeye Pipe Line, which transported it; and the Solar Refining
Company, which refined it. Mr. Monnett had learned enough about these
organisations in the course of his investigations since November, 1897,
to convince him that these companies—all of them enormously
profitable—were, for all practical purposes, one and the same
combination, and that they were all working with the Standard Oil
Company of Ohio, and that their operations were in direct violation of a
state anti-trust law recently passed. As soon as he had sufficient
evidence he had filed petitions against all four of them. Now, these
petitions were filed about the time he demanded the books showing the
earnings of the Standard Oil Company of Ohio, for use in his contempt
case. It was the old story of one suit being used as a shield in
another. A witness cannot be made to incriminate himself.
The reasons F. B. Squire, the secretary of the Standard Oil Company of
Ohio, gave for refusing to produce the books as ordered by the court
were as follows:
1st. Because they are demanded in an action instituted against the
Standard Oil Company for contempt of court, and for the purpose of
proving said company guilty of contempt in order that the penalties
for contempt may be inflicted upon it and its officers; and I am
informed that, to enforce their production in such a case and for
such a purpose, is an unreasonable search and seizure.
2nd. Because the books disclose facts and circumstances which may be
used against the Standard Oil Company, tending to prove it guilty of
offences made criminal by an act of the Legislature of Ohio, passed
April 19, 1898, entitled “An Act to define trusts and to provide for
criminal penalties, civil damages, and the punishment of
corporations,” etc.
3rd. Because they disclose facts and circumstances which may be used
against myself personally as an officer of said company, tending to
prove me guilty of offences made criminal by the act aforesaid.[165]
All through the winter of 1898 and 1899, up to the end of March, when
the commission declared the taking of testimony closed, the wrangle over
the production of the books went on. Depositions had begun to be taken
at the same time in the cases against the constituent companies for
violation of the anti-trust laws, and by the time the contempt case was
closed in March, 1899, the exasperation of both sides had reached fever
pitch. Nor did the judgment of the court quiet it, for three judges
voted for finding the company guilty of contempt, and three for clearing
it.
Unsatisfactory as this was, Mr. Monnett still had his anti-trust suits,
through which he expected and through which he did secure much further
evidence that the four Standard companies in Ohio were practically one
concern so shrewdly and secretly handled that they were evading not only
the laws of the state, but that policy of all states which decrees that
it is unsafe to allow men to work together in industrial combinations
without charters defining their privileges, and subjecting them to
reasonable examinations and publicity. Mr. Monnett’s work on these suits
came to an end with the expiration of his term in January, 1900, and the
suits were suppressed by his successor, John M. Sheets! Unfinished as
they were, they were of the greatest value in dragging into the light
information concerning the methods and operations of the Standard Oil
Combination to which the public has the right, and which it must digest
if it is to succeed in working out a legal harness for combinations
which, like the Standard, demand freedom to do what they like and do it
secretly.
The only refuge offered in the United States for the Standard Oil Trust
in 1898, when the possibility arose by these suits of the state of Ohio
taking away the charters of four of its important constituent companies
for contempt of court and violation of the anti-trust laws of the state,
lay in the corporation law of the state of New Jersey, which had just
been amended, and here it settled. Among the twenty companies which
formed the trust was the Standard Oil Company of New Jersey, a
corporation for manufacturing and marketing petroleum products. Its
capital was $10,000,000. In June, 1899, this capital of $10,000,000 was
increased to one of $110,000,000, and into this new organisation was
dumped the entire Standard aggregation. The old trust certificates
outstanding and the assignments of legal title which had succeeded them
were called in, and for them were given common stock of the new Standard
Oil Company. The amount of this stock which had been issued, in January,
1904, when the last report was made, was $97,448,800. Its market value
at that date was $643,162,080. How it is divided is of course a matter
of private concern. The number of stockholders in 1899 was about 3,500,
according to Mr. Archbold’s testimony to the Interstate Commerce
Commission, but over one-half of the stock was owned by the directors,
and probably nearly one-third was owned by Mr. Rockefeller himself.
The companies which this new Standard Oil Company has bought up with its
stock are numerous and scattered. They consist of oil-producing
companies like the South Penn Oil Company, the Ohio Oil Company, and the
Forest Oil Company; of transporting companies like the National Transit
Company, the Buckeye Pipe Line Company, the Indiana Pipe Line Company,
and the Eureka Pipe Line Company; of manufacturing and marketing
companies like the Atlantic Refining Company of Pennsylvania, and the
Standard Oil Companies of many states—New York, Indiana, Kentucky, Ohio,
Iowa; of foreign marketing concerns like the Anglo-American Company. In
1892 there were twenty of these constituent companies. There have been
many added since, in whole or part, like gas companies; new producing
concerns, made necessary by developments in California, Kansas and
Texas; new marketing concerns for handling oil directly in Germany,
Italy, Scandinavia and Portugal. What the total value of the companies
owned by the present Standard Oil Company is it is impossible to say. In
1892, when the trust was on trial in Ohio, it reported the aggregate
capital of its twenty companies as $102,233,700, and the appraised value
was given as $121,631,312.63; that is, there was an excess of about
$19,000,000.
In 1898, when Attorney-General Monnett of Ohio had the Standard Oil
Company of the state on trial for contempt of court, he tried to find
out from Mr. Rockefeller what the surplus of each of the various
companies in the trust was at that date. Mr. Rockefeller answered: “I
have not in my possession or power data showing ... the amount of such
surplus money in their hands after the payment of the last dividends.”
Then Mr. Rockefeller proceeded to repeat as the last he knew of the
value of the holdings of the trust the list of values given six years
before.[166] This list has continued to be cited ever since as
authoritative. There is a later one, whether Mr. Rockefeller had it in
his “possession or power,” or not, in 1898. It is the last trustworthy
valuation of which the writer knows, and is found in testimony taken in
1899, in a private suit to which Mr. Rockefeller was party. It is for
the year 1896. This shows the “total capital and surplus” of the twenty
companies to have been, on December 31 of that year, something over one
hundred and forty-seven million dollars, nearly forty-nine millions of
which was scheduled as “undivided profits.”[167] Of course there has
been a constant increase in value since 1896.
The new Standard Oil Company is managed by a board of fourteen
directors.[168] They probably collect the dividends of the constituent
companies and divide them among stockholders in exactly the same way the
trustees of 1882 and the liquidating trustees of 1892 did. As for the
charter under which they are operating, never since the days of the
South Improvement Company has Mr. Rockefeller held privileges so in
harmony with his ambition. By it he can do all kinds of mining,
manufacturing, and trading business; transport goods and merchandise by
land and water in any manner; buy, sell, lease, and improve lands; build
houses, structures, vessels, cars, wharves, docks, and piers; lay and
operate pipe-lines; erect and operate telegraph and telephone lines, and
lines for conducting electricity; enter into and carry out contracts of
every kind pertaining to his business; acquire, use, sell, and grant
licenses under patent rights; purchase, or otherwise acquire, hold,
sell, assign, and transfer shares of capital stock and bonds or other
evidences of indebtedness of corporations, and exercise all the
privileges of ownership, including voting upon the stocks so held; carry
on its business and have offices and agencies therefor in all parts of
the world, and hold, purchase, mortgage, and convey real estate and
personal property outside the state of New Jersey. These privileges are,
of course, subject to the laws of the state or country in which the
company operates. If it is contrary to the laws of a state for a foreign
corporation to hold real estate in its boundaries, a company must be
chartered in the state. Its stock, of course, is sold to the New Jersey
corporation, so that it amounts to the same thing as far as the ability
to do business is concerned. It will be seen that this really amounts to
a special charter allowing the holder not only to do all that is
specified, but to create whatever other power it desires, except
banking.[169] A comparison of this summary of powers with those granted
by the South Improvement Company shows that in sweep of charter, at
least, the Standard Oil Company of to-day has as great power as its
famous progenitor.[170]
The profits of the present Standard Oil Company are enormous. For five
years the dividends have been averaging about forty-five million dollars
a year, or nearly fifty per cent. on its capitalisation, a sum which
capitalised at five per cent. would give $900,000,000. Of course this is
not all that the combination makes in a year. It allows an annual
average of 5.77 per cent. for deficit, and it carries always an ample
reserve fund. When we remember that probably one-third of this immense
annual revenue goes into the hands of John D. Rockefeller, that probably
ninety per cent. of it goes to the few men who make up the “Standard Oil
family,” and that it must every year be invested, the Standard Oil
Company becomes a much more serious public matter than it was in 1872,
when it stamped itself as willing to enter into a conspiracy to raid the
oil business—as a much more serious concern than in the years when it
openly made warfare of business, and drove from the oil industry by any
means it could invent all who had the hardihood to enter it. For,
consider what must be done with the greater part of this $45,000,000. It
must be invested. The oil business does not demand it. There is plenty
of reserve for all of its ventures. It must go into other industries.
Naturally, the interests sought will be allied to oil. They will be gas,
and we have the Standard Oil crowd steadily acquiring the gas interests
of the country. They will be railroads, for on transportation all
industries depend, and, besides, railroads are one of the great
consumers of oil products and must be kept in line as buyers. And we
have the directors of the Standard Oil Company acting as directors on
nearly all of the great railways of the country, the New York Central,
New York, New Haven and Hartford, Chicago, Milwaukee and St. Paul, Union
Pacific, Northern Pacific, Delaware, Lackawanna and Western, Missouri
Pacific, Missouri, Kansas and Texas, Boston and Maine, and other lesser
roads. They will go into copper, and we have the Amalgamated scheme.
They will go into steel, and we have Mr. Rockefeller’s enormous holdings
in the Steel Trust. They will go into banking, and we have the National
City Bank and its allied institutions in New York City and Boston, as
well as a long chain running over the country. No one who has followed
this history can expect these holdings will be acquired on a rising
market. Buy cheap and sell high is a rule of business, and when you
control enough money and enough banks you can always manage that a stock
you want shall be temporarily cheap. No value is destroyed for you—only
for the original owner. This has been one of Mr. Rockefeller’s most
successful manœuvres in doing business from the day he scared his twenty
Cleveland competitors until they sold to him at half price. You can also
sell high, if you have a reputation of a great financier, and control of
money and banks. Amalgamated Copper is an excellent example. The names
of certain Standard Oil officials would float the most worthless
property on earth a few years ago. It might be a little difficult for
them to do so to-day with Amalgamated so fresh in mind. Indeed,
Amalgamated seems to-day to be the worst “break,” as it certainly was
one of the most outrageous performances of the Standard Oil crowd. But
that will soon be forgotten! The result is that the Standard Oil Company
is probably in the strongest financial position of any aggregation in
the world. And every year its position grows stronger, for every year
there is pouring in another $45,000,000 to be used in wiping up the
property most essential to preserving and broadening its power.
And now what does the law of New Jersey require the concern which it has
chartered, and which is so rapidly adding to its control of oil the
control of iron, steel, copper, banks, and railroads, to make known of
itself? It must each year report its name, the location of its
registration office, with name of agent, the character of its business,
the amount of capital stock issued, and the names and addresses of its
officers and directors!
So much for present organisation, and now as to how far through this
organisation the Standard Oil Company is able to realise the purpose for
which it was organised—the control of the output, and, through that, the
price, of refined oil. That is, what per cent. of the whole oil business
does Mr. Rockefeller’s concern control. First as to oil production. In
1898 the Standard Oil Company reported to the Industrial Commission that
it produced 35.58 per cent. of Eastern crude—the production that year
was about 52,000,000 barrels.[171] (It should be remembered that it is
always to the Eastern oil fields—Pennsylvania, Ohio, Indiana, West
Virginia—that this narrative refers. Texas, Kansas, Colorado and
California are newer developments. These fields have not as yet been
determining factors in the business, though Texas particularly has been
a distributing factor.) But while Mr. Rockefeller produces only about a
third of the entire production, he controls all but about ten per cent.
of it; that is, all but about ten per cent. goes immediately into his
custody on coming from the wells. It passes entirely out of the hands of
the producers when the Standard pipe-line takes it. The oil is in Mr.
Rockefeller’s hands, and he, not the producer, can decide who is to have
it. The greater portion of it he takes himself, of course, for he is the
chief refiner of the country. In 1898 there were about twenty-four
million barrels of petroleum products made in this country.[172] Of this
amount about twenty million were made by the Standard Oil Company; fully
a third of the balance was produced by the Tidewater Company, of which
the Standard holds a large minority stock, and which for twenty years
has had a running arrangement with the Standard. Reckoning out the
Tidewater’s probable output, and we have an independent output of about
2,500,000 in twenty-four million. It is obvious that this great
percentage of the business gives the Standard the control of prices.
This control can be kept in the domestic markets so long as the Standard
can keep under competition as successfully as it has in the past. It can
be kept in the foreign market as long as American oils can be made and
sold in quantity cheaper than foreign oils. Until a decade ago the
foreign market of American oils was not seriously threatened. Since
1895, however, Russia, whose annual output of petroleum had been for a
number of years about equal in volume to the American output, learned to
make a fairly decent product; more dangerous, she had learned to market.
She first appeared in Europe in 1885. It took ten years to make her a
formidable rival, but she is so to-day, and, in spite of temporary
alliances and combinations, it is very doubtful whether the Standard
will ever permanently control Russian oil.
In 1899 Mr. Archbold presented to the Industrial Commission a most
interesting list of foreign corporations and individuals doing an oil
business in various countries. According to this there were more than a
score of large concerns in Russia, and many small ones. The aggregate
capitalisation shown by Mr. Archbold’s list was over forty-six and a
half millions, and the capitalisation of a number of the concerns named
was not given. In Galicia, four companies, with an aggregate capital of
$3,775,100, and in Roumania six large companies, with an aggregate
capital of $12,500,000, were reported. Borneo was shown to have nearly
three millions invested in the oil fields; Sumatra and Java each over
twelve millions. Since this report was made these companies have grown,
particularly in marketing ability. In the East the oil market belonged
practically to the Standard Oil Company until recently. Last year
(1903), however, Sumatra imported more oil into China than America, and
Russia imported nearly half as much.[173] About 91,500,000 gallons of
kerosene went into Calcutta last year, and of this only about six
million gallons came from America. In Singapore representatives of
Sumatra oil claim that they have two-thirds of the trade.
Combinations for offensive and defensive trade campaigns have also gone
on energetically among these various companies in the last few years.
One of the largest and most powerful of these aggregations now at work
is in connection with an English shipping concern, the Shell Transport
and Trading Company, the head of which is Sir Marcus Samuel, formerly
Lord Mayor of London. This company, which formerly traded almost
entirely in Russian oil, undertook a few years ago to develop the oil
fields in Borneo, and they built up a large Oriental trade. They soon
came into hot competition with the Royal Dutch Company, handling Sumatra
oil, and a war of prices ensued which lasted nearly two years. In 1903,
however, the two competitors, in connection with four other strong
Sumatra and European companies, drew up an agreement in regard to
markets which has put an end to their war. The “Shell” people have not
only these allies, but they have a contract with the Guffey Petroleum
Company, the largest Texas producing concern, to handle its output, and
they have gone into a German oil company, the Petroleum Produkten Aktien
Gesellschaft. Having thus provided themselves with a supply they have
begun developing a European trade on the same lines as their Oriental
trade, and they are making serious inroads on the Standard’s market.
The naphthas made from the Borneo oil have largely taken the place of
American naphtha in many parts of Europe. One load of Borneo benzine
even made its appearance in the American market in 1904. It is a sign of
what well may happen in the future with an intelligent development of
these Russian and Oriental oils—the Standard’s domestic market invaded.
It will be interesting to see to what further extent the American
government will protect the Standard Oil Company by tariff on foreign
oils if such a time does come. It has done very well already. The
aggressive marketing of the “Shell” and its allies in Europe has led to
a recent Oil War of great magnitude. For several months in 1904 American
export oil was sold at a lower price in New York than the crude oil it
takes to make it costs there. For instance, on August 13, 1904, the New
York export price was 4.80 cents per gallon for Standard-white in bulk.
Crude sold at the well for $1.50 a barrel of forty-two gallons, and it
costs sixty cents to get it to seaboard by pipe-line; that is, forty-two
gallons of crude oil costs $2.10, or five cents a gallon in New
York—twenty points loss on a gallon of the raw material! But this low
price for export affects the local market little or none. The tank-wagon
price keeps up to ten and eleven cents in New York. Of course crude is
depressed as much as possible to help carry this competition. For many
months now there has been the abnormal situation of a declining crude
price in face of declining stocks. The truth is the Standard Oil Company
is trying to meet the competition of the low-grade Oriental and Russian
oils with high-grade American oil—the crude being kept as low as
possible, and the domestic market being made to pay for the foreign
cutting. It seems a lack of foresight surprising in the Standard to have
allowed itself to be found in such a dilemma. Certainly, for over two
years the company has been making every effort to escape by getting hold
of a supply of low-grade oil which would enable it to meet the
competition of the foreigner. There have been more or less short-lived
arrangements in Russia. An oil territory in Galicia was secured not long
ago by them, and an expert refiner with a full refining plant was sent
over. Various hindrances have been met in the undertaking, and the works
are not yet in operation. Two years ago the Standard attempted to get
hold of the rich Burma oil fields. The press of India fought them out of
the country, and their weapon was the Standard Oil Company’s own record
for hard dealings! The Burma fields are in the hands of a monopoly of
the closest sort which has never properly developed the territory, but
the people and government prefer their own monopoly to one of the
American type!
Altogether the most important question concerning the Standard Oil
Company to-day is how far it is sustaining its power by the employment
of the peculiar methods of the South Improvement Company. It should
never be forgotten that Mr. Rockefeller never depended on these methods
alone for securing power in the oil trade. From the beginning the
Standard Oil Company has studied thoroughly everything connected with
the oil business. It has known, not guessed at conditions. It has had a
keen authoritative sight. It has applied itself to its tasks with
indefatigable zeal. It has been as courageous as it has been cautious.
Nothing has been too big to undertake, as nothing has been too small to
neglect. These facts have been repeatedly pointed out in this narrative.
But these are the American industrial qualities. They are common enough
in all sorts of business. They have made our railroads, built up our
great department stores, opened our mines. The Standard Oil Company has
no monopoly in business ability. It is the thing for which American men
are distinguished to-day in the world.
These qualities alone would have made a great business, and
unquestionably it would have been along the line of combination, for
when Mr. Rockefeller undertook to work out the good of the oil business
the tendency to combination was marked throughout the industry, but it
would not have been the combination whose history we have traced. To the
help of these qualities Mr. Rockefeller proposed to bring the peculiar
aids of the South Improvement Company. He secured an alliance with the
railroads to drive out rivals. For fifteen years he received rebates of
varying amounts on at least the greater part of his shipments, and for
at least a portion of that time he collected drawbacks of the oil other
people shipped; at the same time he worked with the railroads to prevent
other people getting oil to manufacture, or if they got it he worked
with the railroads to prevent the shipment of the product. If it reached
a dealer, he did his utmost to bully or wheedle him to countermand his
order. If he failed in that, he undersold until the dealer, losing on
his purchase, was glad enough to buy thereafter of Mr. Rockefeller. How
much of this system remains in force to-day? The spying on independent
shipments, the effort to have orders countermanded, the predatory
competition prevailing, are well enough known. Contemporaneous
documents, showing how these practices have been worked into a very
perfect and practically universal system, have already been printed in
this work.[174] As for the rebates and drawbacks, if they do not exist
in the forms practised up to 1887, as the Standard officials have
repeatedly declared, it is not saying that the Standard enjoys no
special transportation privileges. As has been pointed out, it controls
the great pipe-line handling all but perhaps ten per cent. of the oil
produced in the Eastern fields. This system is fully 35,000 miles long.
It goes to the wells of every producer, gathers his oil into its storage
tanks, and from there transports it to Philadelphia, Baltimore, New
York, Chicago, Buffalo, Cleveland, or any other refining point where it
is needed. This pipe-line is a common carrier by virtue of its use of
the right of eminent domain, and, as a common carrier, is theoretically
obliged to carry and deliver the oil of all comers, but in practice this
does not always work. It has happened more than once in the history of
the Standard pipes that they have refused to gather or deliver oil.
Pipes have been taken up from wells belonging to individuals running or
working with independent refiners. Oil has been refused delivery at
points practical for independent refiners. For many years the supply of
oil has been so great that the Standard could not refuse oil to the
independent refiner on the ground of scarcity. However, a shortage in
Pennsylvania oil occurred in 1903. A very interesting situation arose as
a result. There are in Ohio and Pennsylvania several independent
refiners who, for a number of years, have depended on the Standard lines
(the National Transit Company) for their supply of crude. In the fall of
1903 these refiners were informed that thereafter the Standard could
furnish them with only fifty per cent. of their refining capacity. It
was a serious matter to the independents, who had their own markets, and
some of whom were increasing their plants. Supposing we buy oil directly
from the producers, they asked one another, must not the Standard as a
common carrier gather and deliver it? The experienced in the business
said: “Yes. But what will happen? The producer rash enough to sell you
oil may be cut off by the National Transit Company. Of course, if he
wants to fight in the courts he may eventually force the Standard to
reconnect, but they could delay the suit until he was ruined. Also, if
you go over Mr. Seep’s head”—Mr. Seep is the Standard Oil buyer, and all
oil going into the National Transit system goes through his hands—“you
will antagonise him.” Now, “antagonize” in Standard circles may mean a
variety of things. The independent refiners decided to compromise, and
an agreement terminable by either party at short notice was made between
them and the Standard, by which the members of the former were each to
have eighty per cent. of their capacity of crude oil, and were to give
to the Standard all of their export oil to market. As a matter of fact,
the Standard’s ability to cut off crude supplies from the outside
refiners is much greater than in the days before the Interstate Commerce
Bill, when it depended on its alliance with the railroads to prevent its
rival getting oil. It goes without saying that this is an absurd power
to allow in the hands of any manufacturer of a great necessity of life.
It is exactly as if one corporation aiming at manufacturing all the
flour of the country owned all but ten per cent. of the entire railroad
system collecting and transporting wheat. They could, of course, in time
of shortage, prevent any would-be competitor from getting grain to
grind, and they could and would make it difficult and expensive at all
times for him to get it.
It is not only in the power of the Standard to cut off outsiders from
it, it is able to keep up transportation prices. Mr. Rockefeller owns
the pipe system—a common carrier—and the refineries of the Standard Oil
Company pay in the final accounting cost for transporting their oil,
while outsiders pay just what they paid twenty-five years ago. There are
lawyers who believe that if this condition were tested in the courts,
the National Transit Company would be obliged to give the same rates to
others as the Standard refineries ultimately pay. It would be
interesting to see the attempt made.
Not only are outside refiners at just as great disadvantage in securing
crude supply to-day as before the Interstate Commerce Commission was
formed; they still suffer severe discrimination on the railroads in
marketing their product. There are many ways of doing things. What but
discrimination is the situation which exists in the comparative rates
for oil freight between Chicago and New Orleans, and Cleveland and New
Orleans? All, or nearly all, of the refined oil sold by the Standard Oil
Company through the Mississippi Valley and the West is manufactured at
Whiting, Indiana, close to Chicago, and is shipped on Chicago rates.
There are no important independent oil works at Chicago. Now at
Cleveland, Ohio, there are independent refiners and jobbers contending
for the market of the Mississippi Valley. See how prettily it is
managed. The rates between the two Northern cities and New Orleans in
the case of nearly all commodities is about two cents per hundred pounds
in favour of Chicago. For example, the rate on flour from Chicago is 23
cents per 100 pounds; from Cleveland, 25 cents per 100 pounds; on canned
goods the rates are 33 and 35; on lumber, 31 and 33; on meats, 51 and
54; on all sorts of iron and steel, 26 and 29; but on petroleum and its
products they are 23 and 33!
In the case of Atlanta, Georgia, a similar vagary of rates exists. Thus
Cleveland has, as a rule, about two cents advantage per 100 pounds over
Chicago. Flour is shipped from Chicago to Atlanta at 34 cents, and from
Cleveland at 32½; lumber at 32 and 28½; but Cleveland refiners actually
pay 48 cents to Atlanta, while the Standard only pays 45 from Whiting.
There is a curious rule in the Boston and Maine Railroad in regard to
petroleum shipments. On all commodities except petroleum, what is known
as the Boston rate applies, but oil does not get this. For instance, the
Boston rate applies to Salem, Massachusetts, on all traffic except
petroleum, and that pays four cents more per 100 pounds to Salem than to
Boston.
The New York, New Haven and Hartford Railroad gives no through rates on
petroleum from Western points, although it gives them on every other
commodity. It does not refuse to take oil, but it charges the Boston
rate plus the local rates. Thus, to use an illustration given by Mr.
Prouty, of the Interstate Commerce Commission, in a recent article, if a
Cleveland refiner sends into the New Haven territory, say to New Haven,
a car-load of oil, he pays 24 cents per 100 pounds to Boston and the
local rate of 12 cents from Boston to New Haven. On any other commodity
he would pay the Boston rate. Besides, the rates on petroleum have been
materially advanced over what they were when the Interstate Commerce
Bill was passed in 1887, although on other commodities they have fallen.
In 1887 grain was shipped from Cleveland to Boston for 22 cents, iron
for 22, petroleum for 22. In 1889 the rate on grain was 15 cents, on
iron 20 cents, and on petroleum 24. Of course it may be merely a
coincidence that the New Haven territory can be supplied by the Standard
Oil Company from its New York refineries by barge, and that William
Rockefeller is a director of the New York, New Haven and Hartford
Railroad.
An independent refiner of Titusville, Pennsylvania, T. B. Westgate, told
the Industrial Commission in 1898 that his concern was barred from
shipping their products to nearly all New England and Canadian points by
the refusal of the roads to give the same advantages in tariff which
other freight was allowed. Mr. Westgate made the suggestive comment that
very few railroads ever solicited oil trade. He pointed out that when
the United States Pipe Line was building, agents of various roads were
after the oil men soliciting shipments of the pipe, etc., to be used.
“We could ship iron, but the oil—we must not handle. That is probably
the password that goes over.”
Examples of this manipulation might be multiplied. There is no
independent refiner or jobber who tries to ship oil freight that does
not meet incessant discouragement and discrimination. Not only are rates
made to favour the Standard refining points and to protect their
markets, but switching charges and dock charges are multiplied. Loading
and unloading facilities are refused, payment of freights on small
quantities are demanded in advance, a score of different ways are found
to make hard the way of the outsider. “If I get a barrel of oil out of
Buffalo,” an independent dealer told the writer not long ago, “I have to
_sneak_ it out. There are no public docks; the railroads control most of
them, and they won’t let me out if they can help it. If I want to ship a
car-load they won’t take it if they can help it. They are all afraid of
offending the Standard Oil Company.”
This may be a rather sweeping statement, but there is too much truth in
it. There is no doubt that to-day, as before the Interstate Commerce
Commission, a community of interests exists between railroads and the
Standard Oil Company sufficiently strong for the latter to get any help
it wants in making it hard for rivals to do business. The Standard owns
stock in most of the great systems. It is represented on the board of
directors of nearly all the great systems, and it has an immense freight
not only in oil products, but in timber, iron, acids, and all of the
necessities of its factories. It is allied with many other industries,
iron, steel, and copper, and can swing freight away from a road which
does not oblige it. It has great influence in the money market and can
help or hinder a road in securing money. It has great influence in the
stock market and can depress or inflate a stock if it sets about it.
Little wonder that the railroads, being what they are, are afraid to
“disturb their relations with the Standard Oil Company,” or that they
keep alive a system of discriminations the same in effect as those which
existed before 1887.
Of course such cases as those cited above are fit for the Interstate
Commerce Commission, but the oil men as a body have no faith in the
effectiveness of an appeal to the Commission, and in this feeling they
do not reflect on the Commission, but rather on the ignorance and
timidity of the Congress which, after creating a body which the people
demanded, made it helpless. The case on which the Oil Regions rests its
reason for its opinion has already been referred to in the chapter on
the co-operative independent movement which finally resulted in the Pure
Oil Company. The case first came before the Commission in 1888. At that
time there was a small group of independent refiners in Oil City and
Titusville, who were the direct outgrowth of the compromise of 1880
between the Producers’ Protective Association and the Pennsylvania
Railroad. The railroad, having promised open rates to all, urged the men
to go into business. Soon after came the great fight between the
railroads and the seaboard pipe-line, with the consequent low rates.
This warfare finally ended in 1884, after the Standard had brought the
Tidewater into line, in a pooling arrangement between the Standard, now
controlling all seaboard pipe-lines, and the Pennsylvania Railroad, by
which the latter was guaranteed twenty-six per cent. of all Eastern oil
shipments on condition that they keep up the rate to the seaboard to
fifty-two cents a barrel.
[Illustration:
A 25,000–BARREL TANK OF OIL IN FLAMES
]
Now, most of the independents shipped by barrels loaded on rack cars.
The Standard shipped almost entirely by tank-cars. The custom had always
been in the Oil Regions to charge the same for shipments whether by tank
or barrel. Suddenly, in 1888, the rate of fifty-two cents on oil in
barrels was raised to one of sixty-six cents. The independents believed
that the raise was a manipulation of the Standard intended to kill their
export trade, and they appealed to the Commission. They pointed out that
the railroads and the pipe-lines had been keeping up rates for a long
time by a pooling arrangement, and that now the roads made an
unreasonable tariff on oil in barrels, at the same time refusing them
tank cars. The hearing took place in Titusville in May, 1889. The
railroads argued that they had advanced the rate on barrelled oil
because of a decision of the Commission itself—a case of very evident
discrimination in favour of barrels. The Commission, however, argued
that each case brought before it must stand on its own merits, so
different were conditions and practices, and in December, 1892, it gave
its decision. The pooling arrangement it did not touch, on the ground
that the Commission had authority only over railroads in competition,
not over railroads and pipe-lines in competition. The chief complaint,
that the new rate of sixty-six cents on oil in barrels and not on oil in
tanks was an injurious discrimination, the Commission found justified.
It ordered that the railroads make the rates the same on oil in both
tanks and barrels, and that they furnish shippers tanks whenever
reasonable notice was given. As the amounts wrongfully collected by the
railroads from the refiners could not be ascertained from the evidence
already taken, the Commission decided to hold another hearing and fix
the amounts. This was not done until May, 1894, five years after the
first hearing. Reparation was ordered to at least eleven different
firms, some of the sums amounting to several thousand dollars; the
entire award ordered amounted to nearly $100,000.
In case the railroads failed to adjust the claims the refiners were
ordered to proceed to enforce them in the courts. The Commission found
at this hearing that none of their orders of 1892 had been followed by
the roads and they were all repeated. As was to be expected, the roads
refused to recognise the claims allowed by the Commission, and the case
was taken by the refiners into court. It has been heard three times.
Twice they have won, but each time an appeal of the roads has forced
them to appear again. The case was last heard at Philadelphia in
February, 1904, in the United States Circuit Court of Appeals. No
decision had been rendered at this writing.
It would be impossible to offer direct and conclusive proof that the
Standard Oil Company persuaded or forced the roads to the change of
policy complained of in this case, but the presence of their leading
officials and counsel at the hearings, the number of witnesses furnished
from their employ, the statement of President Roberts of the
Pennsylvania Railroad that the raise on barrelled oil was insisted on by
the seaboard refiners (the Standard was then practically the only
seaboard refiner), as well as the perfectly well-known relations of the
railroad and the Standard, left no doubt in the minds of those who knew
the situation that the order originated with them, and that its sole
purpose was harassing their competitors. The Commission seems to have
had no doubt of this. But see the helplessness of the Commission. It
takes full testimony in 1889, digests it carefully, gives its orders in
1892, and they are not obeyed. More hearings follow, and in 1895 the
orders are repeated and reparation is allowed to the injured refiners.
From that time to this the case passes from court to court, the railroad
seeking to escape the Commission’s orders. The Interstate Commerce
Commission was instituted to facilitate justice in this matter of
transportation, and yet here we have still unsettled a case on which
they gave their judgment twelve years ago. The lawyer who took the first
appeal to the Commission, that of Rice, Robinson and Winthrop, of
Titusville, M. J. Heywang, of Titusville, has been continually engaged
in the case for sixteen years!
In spite of the Interstate Commerce Commission, the crucial question is
still a transportation question. Until the people of the United States
have solved the question of free and equal transportation it is idle to
suppose that they will not have a trust question. So long as it is
possible for a company to own the exclusive carrier on which a great
natural product depends for transportation, and to use this carrier to
limit a competitor’s supply or to cut off that supply entirely if the
rival is offensive, and always to make him pay a higher rate than it
costs the owner, it is ignorance and folly to talk about constitutional
amendments limiting trusts. So long as the great manufacturing centres
of a monopolistic trust can get better rates than the centres of
independent effort, it is idle to talk about laws making it a crime to
undersell for the purpose of driving a competitor from a market. You
must get into markets before you can compete. So long as railroads can
be persuaded to interfere with independent pipe-lines, to refuse oil
freight, to refuse loading facilities, lest they disturb their relations
with the Standard Oil Company, it is idle to talk about investigations
or anti-trust legislation or application of the Sherman law. So long as
the Standard Oil Company can control transportation as it does to-day,
it will remain master of the oil industry, and the people of the United
States will pay for their indifference and folly in regard to
transportation a good sound tax on oil, and they will yearly see an
increasing concentration of natural resources and transportation systems
in the Standard Oil crowd.
If all the country had suffered from these raids on competition, had
been the limiting of the business opportunity of a few hundred men and a
constant higher price for refined oil, the case would be serious enough,
but there is a more serious side to it. The ethical cost of all this is
the deep concern. We are a commercial people. We cannot boast of our
arts, our crafts, our cultivation; our boast is in the wealth we
produce. As a consequence business success is sanctified, and,
practically, any methods which achieve it are justified by a larger and
larger class. All sorts of subterfuges and sophistries and slurring over
of facts are employed to explain aggregations of capital whose
determining factor has been like that of the Standard Oil Company,
special privileges obtained by persistent secret effort in opposition to
the spirit of the law, the efforts of legislators, and the most
outspoken public opinion. How often does one hear it argued, the
Standard Oil Company is simply an inevitable result of economic
conditions; that is, given the practices of the oil-bearing railroads in
1872 and the elements of speculation and the over-refining in the oil
business, there was nothing for Mr. Rockefeller to do but secure special
privileges if he wished to save his business.
Now in 1872 Mr. Rockefeller owned a successful refinery in Cleveland. He
had the advantage of water transportation a part of the year, access to
two great trunk lines the year around. Under such able management as he
could give it his concern was bound to go on, given the demand for
refined oil. It was bound to draw other firms to it. When he went into
the South Improvement Company it was not to save his own business, but
to destroy others. When he worked so persistently to secure rebates
after the breaking up of the South Improvement Company, it was in the
face of an industry united against them. It was not to save his business
that he compelled the Empire Transportation Company to go out of the oil
business in 1877. Nothing but grave mismanagement could have destroyed
his business at that moment; it was to get every refinery in the country
but his own out of the way. It was not the necessity to save his
business which compelled Mr. Rockefeller to make war on the Tidewater.
He and the Tidewater could both have lived. It was to prevent prices of
transportation and of refined oil going down under competition. What
necessity was there for Mr. Rockefeller trying to prevent the United
States Pipe Line doing business?—only the greed of power and money.
Every great campaign against rival interests which the Standard Oil
Company has carried on has been inaugurated, not to save its life, but
to build up and sustain a monopoly in the oil industry. These are not
mere affirmations of a hostile critic; they are facts proved by
documents and figures.
Certain defenders go further and say that if some such combination had
not been formed the oil industry would have failed for lack of brains
and capital. Such a statement is puerile. Here was an industry for whose
output the whole world was crying. Petroleum came at the moment when the
value and necessity of a new, cheap light was recognised everywhere.
Before Mr. Rockefeller had ventured outside of Cleveland kerosene was
going in quantities to every civilised country. Nothing could stop it,
nothing check it, but the discovery of some cheaper light or the putting
up of its price. The real “good of the oil business” in 1872 lay in
making oil cheaper. It would flow all over the world on its own merit if
cheap enough.
The claim that only by some such aggregation as Mr. Rockefeller formed
could enough capital have been obtained to develop the business falls
utterly in face of fact. Look at the enormous amounts of capital, a
large amount of it speculative, to be sure, which the oil men claim went
into their business in the first ten years. It was estimated that
Philadelphia alone put over $168,000,000 into the development of the Oil
Regions, and New York $134,000,000, in their first decade of the
business. How this estimate was reached the authority for it does not
say.[175] It may have been the total capitalisation of the various oil
companies launched in the two cities in that period. It shows very well,
however, in what sort of figures the oil men were dealing. When the
South Improvement Company trouble came in 1872, the producers launched a
statement in regard to the condition of their business in which they
claimed that they were using a capital of $200,000,000. Figures based on
the number of oil wells in operation or drilling at that time of course
represent only a portion of the capital in use. Wild-catting and
speculation have always demanded a large amount of the money that the
oil men handled. The almost conservative figures in regard to the
capital invested in the Oil Regions in the early years were those of H.
E. Wrigley, of the Geological Survey of Pennsylvania. Mr. Wrigley
estimates that in the first twelve years of the business $235,000,000
was received from wells. This includes the cost of the land, of putting
down and operating the well, also the profit on the product. This
estimate, however, makes no allowance for the sums used in
speculation—an estimate, indeed, which it was impossible for one to make
with any accuracy. The figures, unsatisfactory as they are, are ample
proof, however, that there was plenty of money in the early days to
carry on the oil business. Indeed, there has always been plenty of money
for oil investment. It did not require Mr. Rockefeller’s capital to
develop the Bradford oil fields, build the first seaboard pipe-line,
open West Virginia, Texas, or Kansas. The oil business would no more
have suffered for lack of capital without the Standard combination than
the iron or wheat or railroad or cotton business. The claim is idle,
given the wealth and energy of the country in the forty-five years since
the discovery of oil.
Equally well does both the history and the present condition of the oil
business show that it has not needed any such aggregation to give us
cheap oil. The margin between crude and refined was made low by
competition. It has rarely been as low as it would have been had there
been free competition. For five years even the small independent
refineries outside of the Pure Oil Company have been able to make a
profit on the prices set by the Standard, and this in spite of the
higher transportation they have paid on both crude and refined, and the
wall of seclusion the railroads build around domestic markets.
Very often people who admit the facts, who are willing to see that Mr.
Rockefeller has employed force and fraud to secure his ends, justify him
by declaring, “It’s business.” That is, “it’s business” has to come to
be a legitimate excuse for hard dealing, sly tricks, special privileges.
It is a common enough thing to hear men arguing that the ordinary laws
of morality do not apply in business. Now, if the Standard Oil Company
were the only concern in the country guilty of the practices which have
given it monopolistic power, this story never would have been written.
Were it alone in these methods, public scorn would long ago have made
short work of the Standard Oil Company. But it is simply the most
conspicuous type of what can be done by these practices. The methods it
employs with such acumen, persistency, and secrecy are employed by all
sorts of business men, from corner grocers up to bankers. If exposed,
they are excused on the ground that this is business. If the point is
pushed, frequently the defender of the practice falls back on the
Christian doctrine of charity, and points that we are erring mortals and
must allow for each other’s weaknesses!—an excuse which, if carried to
its legitimate conclusion, would leave our business men weeping on one
another’s shoulders over human frailty, while they picked one another’s
pockets.
One of the most depressing features of the ethical side of the matter is
that instead of such methods arousing contempt they are more or less
openly admired. And this is logical. Canonise “business success,” and
men who make a success like that of the Standard Oil Trust become
national heroes! The history of its organisation is studied as a
practical lesson in money-making. It is the most startling feature of
the case to one who would like to feel that it is possible to be a
commercial people and yet a race of gentlemen. Of course such practices
exclude men by all the codes from the rank of gentlemen, just as such
practices would exclude men from the sporting world or athletic field.
There is no gaming table in the world where loaded dice are tolerated,
no athletic field where men must not start fair. Yet Mr. Rockefeller has
systematically played with loaded dice, and it is doubtful if there has
ever been a time since 1872 when he has run a race with a competitor and
started fair. Business played in this way loses all its sportsmanlike
qualities. It is fit only for tricksters.
The effects on the very men who fight these methods on the ground that
they are ethically wrong are deplorable. Brought into competition with
the trust, badgered, foiled, spied upon, they come to feel as if
anything is fair when the Standard is the opponent. The bitterness
against the Standard Oil Company in many parts of Pennsylvania and Ohio
is such that a verdict from a jury on the merits of the evidence is
almost impossible! A case in point occurred a few years ago in the
Bradford field. An oil producer was discovered stealing oil from the
National Transit Company. He had tapped the main line and for at least
two years had run a small but steady stream of Standard oil into his
private tank. Finally the thieving pipe was discovered, and the owner of
it, after acknowledging his guilt, was brought to trial. The jury gave a
verdict of Not guilty! They seemed to feel that though the guilt was
acknowledged, there probably was a Standard trick concealed somewhere.
Anyway it was the Standard Oil Company and it deserved to be stolen
from! The writer has frequently heard men, whose own business was
conducted with scrupulous fairness, say in cases of similar stealing
that they would never condemn a man who stole from the Standard! Of
course such a state of feeling undermines the whole moral nature of a
community.
The blackmailing cases of which the Standard Oil Company complain are a
natural result of its own practices. Men going into an independent
refining business have for years been accustomed to say: “Well, if they
won’t let us alone, we’ll make them pay a good price.” The Standard
complains that such men build simply to sell out. There may be cases of
this. Probably there are, though the writer has no absolute proof of any
such. Certainly there is no satisfactory proof that the refinery in the
famous Buffalo case was built to sell, though that it was offered for
sale when the opposition of the Everests, the managers of the Standard
concern, had become so serious as later to be stamped as criminal by
judge and jury, there is no doubt. Certainly nothing was shown to have
been done or said by Mr. Matthews, the owner of the concern which the
Standard was fighting, which might not have been expected from a man who
had met the kind of opposition he had from the time he went into
business.
The truth is, blackmail and every other business vice is the natural
result of the peculiar business practices of the Standard. If business
is to be treated as warfare and not as a peaceful pursuit, as they have
persisted in treating it, they cannot expect the men they are fighting
to lie down and die without a struggle. If they get special privileges
they must expect their competitors to struggle to get them. If they will
find it more profitable to buy out a refinery than to let it live, they
must expect the owner to get an extortionate price if he can. And when
they complain of these practices and call them blackmail, they show thin
sporting blood. They must not expect to monopolise hard dealings, if
they do oil.
These are considerations of the ethical effect of such business
practices on those outside and in competition. As for those within the
organisation there is one obvious effect worth noting. The Standard men
as a body have nothing to do with public affairs, except as it is
necessary to manipulate them for the “good of the oil business.” The
notion that the business man must not appear in politics and religion
save as a “stand-patter”—not even as a thinking, aggressive force—is
demoralising, intellectually and morally. Ever since 1872 the
organisation has appeared in politics only to oppose legislation
obviously for the public good. At that time the oil industry was young,
only twelve years old, and it was suffering from too rapid growth, from
speculation, from rapacity of railroads, but it was struggling manfully
with all these questions. The question of railroad discriminations and
extortions was one of the “live questions” of the country. The oil men
as a mass were allied against it. The theory that the railroad was a
public servant bound by the spirit of its charter to treat all shippers
alike, that fair play demanded open equal rates to all, was generally
held in the oil country at the time Mr. Rockefeller and his friends
sprung the South Improvement Company. One has only to read the oil
journals at the time of the Oil War of 1872 to see how seriously all
phases of the transportation question were considered. The country was a
unit against the rebate system. Agreements were signed with the
railroads that all rates henceforth should be equal. The signatures were
not on before Mr. Rockefeller had a rebate, and gradually others got
them until the Standard had won the advantages it expected the South
Improvement Company to give it. From that time to this Mr. Rockefeller
has had to fight the best sentiment of the oil country and of the
country at large as to what is for the public good. He and his
colleagues kept a strong alliance in Washington fighting the Interstate
Commerce Bill from the time the first one was introduced in 1876 until
the final passage in 1887. Every measure looking to the freedom and
equalisation of transportation has met his opposition, as have bills for
giving greater publicity to the operations of corporations. In many of
the great state Legislatures one of the first persons to be pointed out
to a visitor is the Standard Oil lobbyist. Now, no one can dispute the
right of the Standard Oil Company to express its opinions on proposed
legislation. It has the same right to do this as all the rest of the
world. It is only the character of its opposition which is open to
criticism, the fact that it is always fighting measures which equalise
privileges and which make it more necessary for men to start fair and
play fair in doing business.
Of course the effect of directly practising many of their methods is
obvious. For example, take the whole system of keeping track of
independent business. There are practices required which corrupt every
man who has a hand in them. One of the most deplorable things about it
is that most of the work is done by youngsters. The freight clerk who
reports the independent oil shipments for a fee of five or ten dollars a
month is probably a young man, learning his first lessons in corporate
morality. If he happens to sit in Mr. Rockefeller’s church on Sundays,
through what sort of a haze will he receive the teachings? There is
something alarming to those who believe that commerce should be a
peaceful pursuit, and who believe that the moral law holds good
throughout the entire range of human relations, in knowing that so large
a body of young men in this country are consciously or unconsciously
growing up with the idea that business is war and that morals have
nothing to do with its practice.