Chapter Four: “AN UNHOLY ALLIANCE”…

Chapter Four: “AN UNHOLY ALLIANCE”

ROCKEFELLER AND HIS PARTY NOW PROPOSE AN OPEN INSTEAD OF A SECRET COMBINATION—“THE PITTSBURG PLAN”—THE SCHEME IS NOT APPROVED BY THE OIL REGIONS BECAUSE ITS CHIEF STRENGTH IS THE REBATE—ROCKEFELLER NOT DISCOURAGED—THREE MONTHS LATER BECOMES PRESIDENT OF NATIONAL REFINERS’ ASSOCIATION—FOUR-FIFTHS OF REFINING INTEREST OF UNITED STATES WITH HIM—OIL REGIONS AROUSED—PRODUCERS’ UNION ORDER DRILLING STOPPED AND A THIRTY DAY SHUT-DOWN TO COUNTERACT FALLING PRICE OF CRUDE—PETROLEUM PRODUCERS’ AGENCY FORMED TO ENABLE PRODUCERS TO CONTROL THEIR OWN OIL—ROCKEFELLER OUTGENERALS HIS OPPONENTS AND FORCES A COMBINATION OF REFINERS AND PRODUCERS—PRODUCERS’ ASSOCIATION AND PRODUCERS’ AGENCY SNUFFED OUT—NATIONAL REFINERS’ ASSOCIATION DISBANDS—ROCKEFELLER STEADILY GAINING GROUND.

The feeling of outrage and resentment against the Standard Oil Company, general in the Oil Regions at the close of the Oil War because of the belief that it intended to carry on the South Improvement Company in some new way, was intensified in the weeks immediately following the outbreak by the knowledge that Mr. Rockefeller had been so enormously benefited by the short-lived concern. Here he was shipping Eastward over one road between 4,000 and 5,000 barrels of refined oil a day—oil wrung from his neighbours by an outrageous conspiracy, men said bitterly. This feeling was still keen when Mr. Rockefeller and several of his colleagues in the South Improvement scheme suddenly, in May, 1873, appeared on the streets of Titusville. The men who had fought him so desperately now stared in amazement at the smiling, unruffled countenance with which he greeted them. Did not the man know when he was beaten? Did he not realise the opinion the Oil Regions held of him? His placid demeanour in the very teeth of their violence was disconcerting.

Not less of a shock was given the country by the knowledge that Mr. Rockefeller, Mr. Flagler, Mr. Waring and the other gentlemen in their party were pressing a new alliance, and that they claimed that their new scheme had none of the obnoxious features of the defunct South Improvement Company, though it was equally well adapted to work out the “good of the oil business.”

For several days the visiting gentlemen slipped around, bland and smiling, from street corner to street corner, from office to office, explaining, expostulating, mollifying. “You misunderstand our intention,” they told the refiners. “It is to save the business, not to destroy it, that we are come. You see the disorders competition has wrought in the oil industry. Let us see what combination will do. Let us make an experiment—that is all. If it does not work, then we can go back to the old method.”

Although Mr. Rockefeller was everywhere, and heard everything in these days, he rarely talked. “I remember well how little he said,” one of the most aggressively independent of the Titusville refiners told the writer. “One day several of us met at the office of one of the refiners, who, I felt pretty sure, was being persuaded to go into the scheme which they were talking up. Everybody talked except Mr. Rockefeller. He sat in a rocking-chair, softly swinging back and forth, his hands over his face. I got pretty excited when I saw how those South Improvement men were pulling the wool over our men’s eyes, and making them believe we were all going to the dogs if there wasn’t an immediate combination to put up the price of refined and prevent new people coming into the business, and I made a speech which, I guess, was pretty warlike. Well, right in the middle of it John Rockefeller stopped rocking and took down his hands and looked at me. You never saw such eyes. He took me all in, saw just how much fight he could expect from me, and I knew it, and then up went his hands and back and forth went his chair.”

For fully a week this quiet circulation among the oil men went on, and then, on May 15 and 16, public meetings were held in Titusville, at which the new scheme which they had been advocating was presented publicly. This new plan, called the “Pittsburg Plan”[27] from the place of its birth, had been worked out by the visiting gentlemen before they came to the Oil Regions. It was a most intelligent and comprehensive proposition.

As in the case of the South Improvement scheme, a company was to be formed to run the refining business of the whole country, but this company was to be an open instead of a secret organisation, and all refiners were to be allowed to become stockholders in it. The owners of the refineries who went into the combination were then to run them in certain particulars according to the direction of the board of the parent company; that is, they were to refine only such an amount of oil as the board allowed, and they were to keep up the price for their output as the board indicated. The buying of crude oil and the arrangements for transportation were also to remain with the directors. Each stockholder was to receive dividends whether his plant operated or not. The “Pittsburg Plan” was presented tentatively. If anything better could be suggested they would gladly accept it, its advocates said. “All we want is a practical combination. We are wed to no particular form.”

The first revelation of the public meetings at which the “Pittsburg Plan” was presented was that in the days Mr. Rockefeller and his friends had been so diligently shaking hands with the oil men from Titusville to Oil City they had made converts—that they had not entered these open meetings until they had secured the assurance of co-operation in any plan of consolidation which might be effected from some of the ablest refiners and business men of the creek, notably from J. J. Vandergrift of Oil City, and from certain firms of Titusville with which John D. Archbold was connected. All of these persons had fought the South Improvement Company, and they all now declared that if the proposed organisation copied that piratical scheme they would have nothing to do with it, that their allegiance to the plan was based on their conviction that it was fair to all—who went in!—and that it was made necessary by over-refining, underselling, and by the certainty that the railroads could not be trusted to keep their contracts. It was evident that the possible profits and power to be gained by a successful combination had wiped out their resentment against the leaders of the South Improvement Company, and that if they had the assurance, as they must have had, that rebates were a part of the game, they justified themselves by the reflection that somebody was sure to get them, and that it might as well be they as anybody.

The knowledge that a considerable body of the creek refiners had gone over to Mr. Rockefeller awakened a general bitterness among those who remained independent. “Deserters,” “ringsters,” “monopolists,” were the terms applied to them, and the temper of the public meetings, as is evident from the full reports the newspapers of the Oil Region published, became at once uncertain. There were long pauses in the proceedings, everybody fearing to speak. Mr. Rockefeller is not reported as having spoken at all, the brunt of defense and explanation having fallen on Mr. Flagler, Mr. Frew and Mr. Waring. Two or three times the convention wrangled to the point of explosion, and one important refiner, M. N. Allen, who was also the editor of the Titusville Courier, one of the best papers in the region, took his hat and left. Before the end of the convention the supporters of combination ought to have felt, if they did not, that they had been a little too eager in pressing an alliance on the Oil Regions so soon after outraging its moral sentiment.

The press and people were making it plain enough, indeed, that they did not trust the persuasive advocates of reform. On every street corner and on every railroad train men reckoned the percentage of interest the stockholders of the South Improvement Company would have in the new combination. It was too great. But what stirred the Oil Region most deeply was its conviction that the rebate system was regarded as the keystone of the new plan. “What are you going to do with the men who prefer to run their own business?” asked a representative of the Oil City Derrick of one of the advocates of the plan. “Go through them,” was reported to be his laconic reply. “But how?” “By the co-operation of transportation”—that is, by rebates. Now the Oil Region had been too recently convicted of the sin of the rebate, and had taken too firm a determination to uproot the iniquitous practice to be willing to ally itself with any combination which it suspected of accepting privileges which its neighbours could not get or would not take.

At the very time the association of refiners was under consideration an attempt was made to win over the producers by offering, through their union, to buy all their oil at five dollars a barrel for five years. Oil was four dollars at the time. The producers refused. Such an agreement could only be kept, they said, by an association which was an absolute monopoly, fixing prices of refined to satisfy its own greed. All they wanted of the producer was to be a party to their conspiracy. When they had destroyed his moral force and completed their monopoly they would pay him what they pleased for oil, and the price would not be five dollars! What could he do then? He would be their slave, there would be no other buyer—could be none, since they would control the entire transportation system.

The upshot of the negotiations was that again the advocates of combination had to retire from the Oil Regions defeated. “Sic semper tyrannis, sic transit gloria South Improvement Company,” sneered the Oil City Derrick, which was given to sprinkling Latin phrases into its forceful and picturesque English. But the Derrick underrated both the man and the principle at which it sneered. A great idea was at work in the commercial world. It had come to them saddled with crime. They now saw nothing in it but the crime. The man who had brought it to them was not only endowed with far vision, he was endowed with an indomitable purpose. He meant to control the oil business. By one manœuvre, and that a discredited one, he had obtained control of one-fifth of the entire refining output of the United States. He meant to secure the other four-fifths. He might retire now, but the Oil Region would hear of him again. It did. Three months later, in August, 1872, it was learned that the scheme of consolidation which had been presented in vain at Titusville in May had been quietly carried out, that four-fifths of the refining interest of the United States, including many of the creek refiners, had gone into a National Refiners’ Association, of which Mr. Rockefeller was president, and one of their own men, J. J. Vandergrift, was vice-president. The news aroused much resentment in the Oil Regions. The region was no longer solid in its free-trade sentiment, no longer undividedly true to its vow that the rebate system as applied to the oil trade must end. There was an enemy at home. The hard words which for months men had heaped on the distant heads of Cleveland and Pittsburg refiners, they began to pour out, more discreetly to be sure, on the heads of their neighbours. It boded ill for the interior peace of the Oil Regions.

The news that the refiners had actually consolidated aroused something more than resentment. The producers generally were alarmed. If the aggregation succeeded they would have one buyer only for their product, and there was not a man of them who believed that this buyer would ever pay them a cent more than necessary for their oil. Their alarm aroused them to energy. The association which had scattered the South Improvement Company was revived, and began at once to consider what it could do to prevent the consolidated refiners getting the upper hand in the business.

The association which now prepared to contest the mastery of the oil business with Mr. Rockefeller and those who had joined him was a curious and a remarkable body. Its membership, drawn from the length and breadth of the Oil Regions, included men whose production was thousands of barrels a day and men who were pumping scarcely ten barrels; it included college-bred men who had come from the East with comfortable sums to invest, and men who signed their names with an effort, had never read a book in their lives, and whose first wells they had themselves “kicked down.” There were producers in it who had made and lost a half-dozen fortunes, and who were, apparently, just as buoyant and hopeful as when they began. There were those who had never put down a dry well, and were still unsatisfied. However diverse their fortunes, their breeding, and their luck, there was no difference in the spirit which animated them now.

The president of the association was Captain William Hasson, a young man both by his knowledge of the Oil Regions and the oil business well fitted for the position. Captain Hasson was one of the few men in the association who had been in the country before the discovery of oil. His father had bought, in the fifties, part of the grant of land at the mouth of Oil Creek, made in 1796 to the Indian chief Cornplanter, and had moved on it with his family. Four years after the discovery of oil he and his partner disposed of 300 acres of the tract they owned for $750,000. Young Hasson had seen Cornplanter, as the site of his father’s farm was called, become Oil City; he had seen the mill, blacksmith shop and country tavern give way to a thriving town of several thousand inhabitants. All of his interests and his pride were wrapped up in the industry which had grown up about him. Independent in spirit, vigorous in speech, generous and just in character, William Hasson had been thoroughly aroused by the assault of the South Improvement Company, and under his presidency the producers had conducted their successful campaign. The knowledge that the same man who had been active in that scheme had now organised a national association had convinced Captain Hasson of the necessity of a counter move, and he threw himself energetically into an effort to persuade the oil producers to devise an intelligent and practical plan for controlling their end of the business, and then stand by what they decided on.

Captain Hasson and those who were working with him would have had a much more difficult task in arousing the producers to action if it had not been for the general dissatisfaction over the price of oil. The average price of crude in the month of August, 1872, was $3.47½. The year before it had been $4.42½, and that was considered a poverty price. It was pretty certain that prices would fall still lower, that “three-dollar oil” was near at hand. Everybody declared three dollars was not a “living price” for oil, that it cost more than that to produce it. The average yield of the wells in the Oil Region in 1872 was five barrels a day. Now a well cost at that time from $2,500 to $8,000, exclusive of the price of the lease. It cost eight to ten dollars a day to pump a well, exclusive of the royalty interest—that is, the proportion of the production turned over to the land-owner, usually one-fourth.[28] If a man had big wells, and many of them, he made big profits on “three-dollar oil,” but there were comparatively few “big producers.” The majority of those in the business had but few wells, and these yielded only small amounts.

If he had been contented to economise and to accept small gains, even the small producer could live on a much lower price than three dollars; but nobody in the Oil Regions in 1872 looked with favour on economy, and everybody despised small things. The oil men as a class had been brought up to enormous profits, and held an entirely false standard of values. As the Derrick told them once in a sensible editorial, “their business was born in a balloon going up, and spent all its early years in the sky.” They had seen nothing but the extreme of fortune. One hundred per cent. per annum on an investment was in their judgment only a fair profit. If their oil property had not paid for itself entirely in six months, and begun to yield a good percentage, they were inclined to think it a failure. Now nothing but five-dollar oil would do this, so great were the risks in business; and so it was for five-dollar oil, regardless of the laws of supply and demand, that they struggled. They were notoriously extravagant in the management of their business. Rarely did an oil man write a letter if he could help it. He used the telegraph instead. Whole sets of drilling tools were sometimes sent by express. It was no uncommon thing to see near a derrick broken tools which could easily have been mended, but which the owner had replaced by new ones. It was anything to save bother with him. Frequently wells were abandoned which might have been pumped on a small but sure profit. In those days there were men who looked on a ten-barrel (net) well as hardly worth taking care of. And yet even at fifty cents a barrel such a well would have paid the owner $1,800 a year. The simple fact was that the profits which men in trades all over the country were glad enough to get, the oil producer despised. The one great thing which the Oil Regions did not understand in 1872 was economy. As a matter of fact the oil-producing business was going through a stage in its natural development similar to oil refining. Both, under the stimulus of the enormous profits in the years immediately following the discovery of oil, had been pushed until they had outstripped consumption. The competition resulting from the inrush of producers and refiners and the economies which had been worked out were bringing down profits. The combinations attempted by both refiners and producers in these years were really efforts to keep up prices to the extravagant point of the early speculative years.

Now the drop in the price of oil everybody recognised to be due to a natural cause. Where a year before the production had been 12,000 barrels a day, it was now 16,000. The demand for refined had not increased in proportion to this production of crude, and oil stocks had accumulated until the tanks of the region were threatening to overflow. And there was no sign of falling off. Under these circumstances it needed little argument to convince the oil men that if they were to get a better price they must produce no more than the world would use. There was but one way to effect this—to put down no new wells until the stocks on hand were reduced and the daily production was brought down to a marketable amount.

Under the direction of the Producers’ Association an agitation at once began in favour of stopping the drill for six months. It was a drastic measure. There was hardly an oil operator in the entire region who had not on hand some piece of territory on which he was planning to drill, or on which he had not wells under way. Stopping the drill meant that all of the aggressive work of his business should cease for six months. It meant that his production, unreplenished, would gradually fall off, until at the end of the period he would have probably not over half of what he had now; that then he must begin over again to build up. It meant, too, that he was at the mercy of neighbours who might refuse to join the movement, and who by continuing to drill would drain his territory. It seemed to him the only way of obtaining a manageable output of crude, however, and accordingly, when late in the month of August the following pledge to stop the drill was circulated, the great majority of the producers signed it:

Whereas, The extreme low price of oil requires of producers that operations therefor shall cease for the present: Now we, the producers, land-owners and others, residents of the Pennsylvania Oil Region, do hereby bind ourselves to each other not to commence the drilling of any more wells for the period of six months from the first day of September next, not to lease any lands owned or controlled by us for the purpose of operations during the same period, and we also agree to use all honourable means to prevent others from boring. This we agree to, and bind ourselves to each other under a forfeiture of $2,000 for each well commenced by either of us within the period above limited—the same to be collected as any other debt. It is, however, understood by the undersigned that this forfeiture is not to apply to any wells where the erection of rigs is completed or under way, or that may be commenced before the first day of September aforesaid.

The chief objection to this pledge came from land-owners in Clarion County. They were the “original settlers,” plodding Dutch farmers, whose lives had always been poor and hard and shut-in. The finding of oil had made them rich and greedy. They were so ignorant that it was difficult to transact business of any nature with them. It was not unusual for a Clarion County farmer, if offered an eighth royalty, to refuse it on the ground that it was too little, and to ask a tenth. A story used to be current in the Oil Regions of a producer who, returning from an unsuccessful land hunt in Clarion County was asked why he had not secured a certain lease. “Well,” he said, “farmers wanted seven-eighths of the oil as a royalty, wanted me to furnish barrels and to paint both heads. I agreed to everything but the last. I could afford to paint but one head, and so he wouldn’t sign the lease.” When the proposition to stop the drill for six months was brought to these men, who at the time owned the richest territory in the oil field, no amount of explanation could make them understand it. They regarded it simply as a scheme to rob them, and would not sign. Outside of this district, however, the drill stopped over nearly all the field on the first of September.

There was nothing but public opinion to hold the producers to their pledge. But public opinion in those days in the Oil Regions was fearless and active and asserted itself in the daily newspapers and in every meeting of the association. The whole body of oil men became a vigilance committee intent on keeping one another loyal to the pledge. Men who appeared at church on Sunday in silk hats, carrying gold-headed canes—there were such in the Oil Region in 1872—now stole out at night to remote localities to hunt down rumours of drilling wells. If they found them true, their dignity did not prevent their cutting the tools loose or carrying off a band wheel.

Stopping the drill afforded no immediate relief to the producers. It was for the future. And as soon as the Petroleum Producers’ Association had the movement well under way, it proposed another drastic measure—a thirty days’ shut-down—by which it was meant that all wells should cease pumping for a month. Nothing shows better the compact organisation and the determination of the oil producers at this time than the immediate response they gave to this suggestion. In ten days scarcely a barrel of oil was being pumped from end to end of the Oil Regions. “That a business producing three million dollars a month, employing 10,000 labouring men and fifty million dollars of capital, should be entirely suspended, dried up, stopped still as death by a mutual voluntary agreement, made and perfected by all parties interested, within a space of ten days—this is a statement that staggers belief—a spectacle that takes one’s breath away,” cried the Derrick, which was using all its wits to persuade the producers to limit their production. It was certainly a spectacle which saddened the heart, however much one might applaud the grim resolution of the men who were carrying it out. The crowded oil farms where creaking walking-beams sawed the air from morning until night, where engines puffed, whistles screamed, great gas jets flared, teams came and went, and men hurried to and fro, became suddenly silent and desolate, and this desolation had an ugliness all its own—something unparalleled in any other industry of this country. The awkward derricks, staring cheap shanties, big tanks with miles and miles of pipe running hither and thither, the oil-soaked ground, blackened and ruined trees, terrible roads—all of the common features of the oil farm to which activity gave meaning and dignity—now became hideous in inactivity. Oil seemed a curse to many a man in those days as he stood by his silent wells and wondered what was to become of his business, of his family, in this clash of interests.

While the producers were inaugurating these movements, Captain Hasson and a committee were busy making out the plan of the permanent association which was to control the business of oil-producing and prevent its becoming the slave of the refining interest. The knowledge that such an organisation was being worked out kept the oil country in a ferment. In every district suggestions, practical and impractical, wise and foolish, occupied every producers’ meeting and kept the idle oil men discussing from morning until night. At one mass-meeting the following resolution was actually passed by a body of revengeful producers:

Resolved, that to give a wider market throughout the world to petroleum, to enhance its price and to protect producers from unjust combinations of home refiners, a committee be appointed to ask the representatives of foreign governments at Washington to request their respective governments to put a proper tariff on refined oil and to admit crude oil free into the ports of their respective governments.

Toward the end of October Captain Hasson presented the scheme which he and the committee had prepared. It proposed that there should be established what was called a Petroleum Producers’ Agency.[29] This agency was really an incorporated company with a capital of one million dollars, the stock of which was to be subscribed to only by the producers or their friends. This agency was to purchase all the oil of the members of the association at at least five dollars a barrel. If stocks could be kept down so that the market took all of the oil at once, the full price was to be paid at once in cash; if not, the agency was to store the oil in tanks it was to build, and a portion of the price was to be paid in tank certificates. By thus controlling all the oil, the agency expected to protect the weakest as well as the strongest producer, to equalise the interest of different localities, to prevent refiners and exporters from accumulating stocks, and to prevent gambling in oil. The agency was to take active means to collect reliable information about the oil business—the number of wells drilling, the actual production, the stocks on hand—things which had never been done to anybody’s satisfaction. Indeed, one of the standing causes for quarrels between the various newspapers of the region was their conflicting statistics about production and stocks. It was to make a study of the market and see what could be done to increase consumption. It was to oppose monopolies and encourage competition, and, if necessary, it was to provide co-operative refineries which the producers should own and control.

The spirit of the agency, as explained by Captain Hasson, was most liberal, considering the interests of even the drillers and pumpers. “Advise every employee to take at least one share of stock for himself,” he said in his address, “and one for his wife and each of his children, and encourage him to pay for it out of his saved earnings or out of his monthly pay. If he is not able to keep up his instalments, assure him that you will help him, and then take care to do it. You will thus do him a double kindness, and benefit his family by encouraging habits of thrift and economy. You owe this much to him who so nobly seconded your efforts to gain control of the market by stopping work. You had all to gain, and he had nothing to hope for but your benefit. Now show your appreciation of his acts by this evidence of your regard for his welfare.”

The plan was received with general enthusiasm, and when it came up for adoption it went through with a veritable whoop. Indeed, within a few moments after its official acceptance, which took place in Oil City on October 24, $200,000 worth of stock was taken, and less than two weeks later it was announced that more than the desired million dollars had been subscribed, that the trustees and officers had been elected, and that the agency was ready for work. For the first time in the history of the oil business the producers were united in an organisation, which, if carried out, would regulate the production of oil to something like the demand for it, would prevent stocks from falling into the hands of speculators, and would provide a strong front to any combination with monopolistic tendencies. Only one thing was necessary now to make the producer a fitting opponent to his natural enemy, the refiner. That thing was loyalty to the agency he had established. The future of the producer at that moment was in his own hand. Would he stick? By every sign he would. He thought so himself. He had acted so resolutely and intelligently up to this point that even Mr. Rockefeller seems to have thought so.

During the entire three months that the producers had been organising, the refiners had been making divers overtures to them. In August several of the refiners sought certain of the big producers and privately proposed a two-headed combination which should handle the whole business, from drilling to exportation. The proposition they made was most alluring to men suffering from low prices. “Carry out your plans to limit your production and guarantee to sell only to us,” said Mr. Rockefeller’s representative, “and we will give you four dollars a barrel for your oil. We will also establish a sliding scale, and for every cent a gallon that refined oil advances we will give you twenty-five cents more on your barrel of crude.” The market price of crude oil, when this offer was made, was hovering around three dollars. “How,” asked the producer, “can you do this?” “We expect, by means of our combination, to get a rebate of seventy-five cents a barrel,” was the answer. “But the railroads have signed an agreement to give no rebates,” objected the producers.

“As if the railroads ever kept an agreement,” answered the worldly-wise refiners. “Somebody will get the rebates. It is the way the railroads do business. If it is to be anybody, we propose it shall be our combination.” Now it was clear enough to the men approached that the great body of their association would never go into any scheme based on rebates, and they said so. The refiners saw no disadvantage in that fact. “We don’t want all the producers. We only want the big ones. The small producer under our arrangement must die, as the small refiner must.” The proposition never got beyond the conference chamber. It was too cynical. Several conferences of the same nature took place later between representatives of the two interests, but nothing came of them. The two associations were kept apart by the natural antagonism of their ideals and their policy. Captain Hasson and his followers were working on an organisation which aimed to protect the weakest as well as the strongest; which welcomed everybody who cared to come into the business; which encouraged competition and discountenanced any sort of special privilege. Mr. Rockefeller and his associates proposed to save the strong and eliminate the weak, to limit the membership to those who came in now, to prevent competition by securing exclusive privileges. Their program was cold-blooded, but it must be confessed that it showed a much firmer grasp on the commercial practices of the day, and a much deeper knowledge of human nature as it operates in business, than that of the producers.

The formation of the Producers’ Agency brought the refiners back to the Oil Regions in greater earnest than ever. The success of that organisation gave them an active antagonist, one which, as it held the raw material, could at any time actually shut up their refineries by withholding oil. The vigour, the ability, the determination the new organisation had displayed made it a serious threat to the domination Mr. Rockefeller and his associates had dreamed. It must be placated. On November 8, immediately after it was announced that the entire million dollars’ worth of stock was taken, an agent of the Standard Oil Company in Oil City was ordered to buy oil from the agency—6,000 barrels of oil at $4.75 a barrel—and the order was followed by this telegram from Mr. Rockefeller:

“It has been represented to us that if we would buy of the producers’ agent at Oil City and pay $4.75 per barrel, they would maintain the price. We are willing to go farther and buy only of the producers’ agent, hence the order we have given you. See Hasson and others and let there be a fair understanding on this point. We will do all in our power to maintain prices, and continue to buy, provided our position is fully understood. We do this to convince producers of our sincerity, and to assist in establishing the market.”

A more adroit move could not have been made at this moment. This purchase was a demonstration that the Refiners’ Association could and would pay the price the producers asked; that they asked nothing better, in fact, than to ally themselves with the agency. The events of the next three weeks, on the contrary, showed the agency that it would be some time before anybody else would pay them any such price as that Mr. Rockefeller promised. The reason was evident enough. In spite of the stopping of the drill, in spite of the thirty days’ shut-down, production was increasing. Indeed, the runs[30] for November were greater than they had ever been in any single month since the beginning of the oil business. A large number of wells under way when the drill was stopped had “come in big.” New territory had been opened up by unexpected wildcats. The shut-down had done less than was expected to decrease stocks. It was evident that the Producers’ Association had a long and severe task before it to bring the crude output down to anything like the demand. Could the great body of producers be depended upon to take still further measures to lessen their production, and at the same time would they hold their oil until the agency had the mastery of the situation? Their tanks were overflowing. Many of them were in debt and depending on their sales to meet their obligations—even to meet their daily personal expenses. It was little wonder that they grew restive as they began to realise that the agency in which they had seen immediate salvation from all their ills could only be made effective by months more of self-sacrifice, of agitation, of persistent effort from every man of them. With every day they became more impatient of the bonds the agency had set for them, and the leaders soon realised that some immediate tangible results must be given the mass of oil men, or there was danger of a stampede.

A strong feature of the genius of John D. Rockefeller has always been his recognition of the critical moment for action in complicated situations. He saw it now, and his representatives again came to the creek seeking an alliance. Their arguments, as they found their way from the private meetings into the press and the street, ran something like this: “Our combination is the only big buyer. We are in the thing to stay, and shall remain the only big buyer. You might erect refineries and oppose us, but it would take months, and while you are waiting how are you going to hold the producers? You cannot do it. We can easily get all the oil we want to-day at our own price from the men who sell from necessity, and yet your agency is in the first flush of enthusiasm. Sell only to us and we will buy 15,000 barrels a day from you. Refuse an alliance with us and you will fail.”

Overwhelmed by the length and severity of the struggle before them if they insisted on independence, fearful lest the scattered and restless producers could not be held much longer, convinced by their confident arguments that the refiners could keep their promise, the council finally agreed to a plan of union which the Derrick dubbed the “Treaty of Titusville.” A terrible hubbub followed the announcement that a treaty was proposed and would probably be adopted by the association. The same old arguments which had greeted each overture from the refiners were gone over again. It would be a monopoly. The price they offered for crude depended upon their getting an unnaturally high price for refined. The markets of the world would refuse to pay this price when it was discovered that it was kept up by an agreement which was contrary to the laws of supply and demand. And, besides, the parties could not trust each other. “Timeo Danaos et dona ferentes.” Liberal translation—“Mind your eye when the Cleveland refiners get generous,” cautioned the Derrick. As always, the ghost of the South Improvement Company was between them. On the other hand, it was argued that it was Hobson’s choice, “combine or bust,” there is no other market. We cannot wait for one. We have a million barrels of oil on hand—the refiners will take 15,000 barrels a day for “spot cash.” And after all, concluded the “philosophical,” if you can’t do as well as you want to, do the best you can.

On December 12 the proposed treaty was laid before the producers at Oil City. It aroused a debate so acrimonious that even the Derrick suppressed it. Captain Hasson led the opposition. In his judgment there was but one course for the producers—to keep themselves free from all entanglements and give themselves time to build up solidly the structure they had planned. If they had followed his advice the whole history of the Oil Regions would have been different. But they did not follow it. The treaty was ratified by a vote of twenty-seven to seven. The excitement and the personalities the association indulged in at their meeting augured ill for its future, but when a week later a committee sent to see the refiners came back from New York with a contract signed by Mr. Rockefeller,[31] the president, and bearing with them an order for 200,000 barrels of oil at $3.25, there was a general feeling that, after all, an alliance might not be so bad a thing. 200,000 barrels was a big order and would do much to relieve their distress. Their formal sense was quieted, too, by the assurance that the producers before signing the contract had insisted that the Refiners’ Combination enter into an agreement to take no rebates as long as the alliance lasted. The main points of the agreement decided upon were that the Refiners’ Association should admit all existing refiners to its society, and the Producers’ Association all producers present and to come—that the former company should buy only of the latter, the latter sell only to the former, and that the agency should bind all producers enjoying its privileges to handle their oil through it. The refiners were to buy such daily quantities as the markets of the world would take and at a price governed by the price of refined, five dollars per barrel when refined was selling at twenty-six cents a gallon. Either association could discontinue the agreement on ten days’ notice. The producers, before signing the contract, insisted that the Refiners’ Combination sign an agreement to take no rebates as long as the alliance lasted. This agreement in regard to rebates read as follows:

“Whereas, it is deemed desirable to execute a contract of even date herewith between the Petroleum Producers’ Association and the Petroleum Refiners’ Association for the purpose of securing a co-operation for mutual protection, it is agreed by the Refiners’ Association that sections one and three of a contract made the 25th of March, 1872, between certain trunk lines of railroads and a committee of producers and refiners shall be and remain in full force.

“Petroleum Refiners’ Association, “JOHN D. ROCKEFELLER, President.”

The sections of the contract of the 25th of March referred to agreed that no rebates or contracts or other arrangements should be made which would give any party the slightest difference in rates, and that the rates should not be changed either for increase or decrease without first giving Mr. Hasson, the president of the Producers’ Union, at least ninety days’ notice in writing. As we now know, Mr. Rockefeller himself was receiving rebates when he signed this agreement.

And now, at last, after five months of incessant work, the agency was ready to begin disposing of oil. They set to work diligently at once to apportion the 200,000 barrels the refiners had bought among the different districts. It was a slow and irritating task, for a method of apportionment and of gathering had to be devised, and, as was to be expected, it aroused more or less dissatisfaction and many charges of favouritism. The agency had the work well under way, however, and had shipped about 50,000 barrels when, on January 14, it was suddenly announced that the refiners had refused to take any more of the contract oil!

There was a hurried call of the Producers’ Council and a demand for an explanation. A plausible one was ready from Mr. Rockefeller. “You have not kept your part of the contract—you have not limited the supply of oil[32]—there is more being pumped to-day than ever before in the history of the region. We can buy all we want at $2.50, and oil has sold within the week at two dollars. If you will not, or cannot, stop over-production, can you expect us to pay your price? We keep down the output of refined, and so keep up the price. If you will not do the same, you must not expect high prices.”

What could the producers reply? In spite of their heroic measures, they had not been able to curtail their output. It seemed as if Nature, outraged that her generosity should be so manipulated as to benefit only the few, had opened her veins to flood the earth with oil, so that all men might know that here was a light cheap enough for the poorest of them. Her lavish outpouring now swept away all of the artificial restraints the producers and refiners had been trying to build. The Producers’ Association seemed suddenly to comprehend their folly in supposing that when 5,000 barrels more of oil was produced each day than the market demanded any combination could long keep the contract the refiners had made with them; and their unhappy session, made more unhappy by the reading of bitter and accusing letters from all over the discontented region, ended in a complete stampede from the refiners, the vote for dissolving the alliance having but one dissenting voice.

There were few tears shed in the Oil Regions over the rupture of the contract. The greater part of the oil men had called it from the beginning an “unholy alliance,” and rejoiced that it was a fiasco. If the alliance had been all that came to an end, the case would not have been so serious, but it was not. The breaking of the alliance proved the death of the agency and the association. The leaders who had disapproved of the treaty withdrew from active work; the supporters of the alliance, demoralised by its failure, were glad to keep quiet. A few spasmodic efforts to stop the drill, to inaugurate another shut-down, were made, but failed. Most of the producers felt that, as oil was so low, their only safety was in getting as large a production as they could, and a perfect fever of development followed. The Producers’ Association, after ten months of as exciting and strenuous effort as an organisation has ever put in, was snuffed out almost in a day. It was to be five years before the oil men recovered sufficiently from the shock of this collapse to make another united effort. If Mr. Rockefeller felt in the fall of 1872 that the “good of the oil business” required the dissolution of the Producers’ Agency, he could not have acted with more acumen than he did in leading them into an alliance, and at the psychological moment throwing up his contract.

Humiliated as the producers were by their failure, they soon found consolation in the knowledge that the Refiners’ Association was in trouble. A serious thing, in fact, had happened. When the official report of the year’s exports and imports came out, it was shown that the exports of refined oil had fallen off for the first time in the history of the business. In 1871, 132,178,843 gallons had been exported. In 1872, only 118,259,832 were exported. Just as alarming was the proof that the shale and coal-oil refineries of Europe had taken a fresh start—that they were selling their products more cheaply than kerosene could be imported and sold. There was a general outcry from all over the country that Mr. Rockefeller and his associates were running the oil business by keeping up the price of refined oil beyond what the price of crude justified. The producers, eager for a scapegoat, argued that the low price of crude was due to decreased consumption as well as over-production, and their ill-will against Mr. Rockefeller flared up anew. In the meantime the Refiners’ Association was having troubles of its own. The members were not limiting their output as they had agreed—that is, it was discovered every now and then that a refinery was making more oil than Mr. Rockefeller had directed. Again, what was more fatal to the success of the association, members sometimes sold at a lower price than that set by Mr. Rockefeller. These restrictions were fundamental to the success of the combination, and the members were called together at Saratoga in June, 1873, and after a long session the association was dissolved.

There was loud exultation in the unthinking part of the Oil Regions over the dissolution of the refiners. The “Junior Anaconda” was dead. The wiser part of the region did not exult. They knew that though the combination might dissolve, the Standard Oil Company of Cleveland still controlled its one-fifth of the capacity of the country; that not only had Mr. Rockefeller been able to hold the twenty refineries he had bolted so summarily at the opening of 1872, but he had assimilated them so thoroughly that he was making enormous profits. Mr. Rockefeller’s contracts with the Central Railroad alone in 1873 and 1874 obliged him for seven months of the year to ship at least 100,000 barrels of refined oil a month to the seaboard. As a matter of fact he never shipped less than 108,000 barrels, and in one month of the period it rose to 180,000.[33] Now in 1873 he made, at the very lowest figure, three cents a gallon on his oil. Estimating his shipments simply at 700,000 barrels a year—and they were much more—his profits for that year were $1,050,000, and this accounts for no profits on about thirty-five per cent. of the Standard output, which was sold locally or shipped Westward. Little wonder that the Cleveland refiners who had been snuffed out the year before, and who saw their plants run at such advantage, grew bitter, or that gossip said the daily mail of the president of the Standard Oil Company was enlivened by so many threats of revenge that he took extraordinary precautions about appearing unguarded in public.

It is worth noticing that these great profits were not being used for private purposes. In 1872 the Standard Oil Company paid a dividend of thirty-seven per cent., but in 1873 they cut it to fifteen per cent. The profits were going almost solidly into the extension and solidification of the business. Mr. Rockefeller was building great barrel factories, thus cutting down to the minimum one of a refiner’s heaviest expenses. He was buying tank cars that he might be independent of the vagaries of the railroads in allotting cars. He was gaining control of terminal facilities in New York. He was putting his plants into the most perfect condition, introducing every improved process which would cheapen his manufacturing by the smallest fraction of a cent. He was diligently hunting methods to get a larger percentage of profit from crude oil. There was, perhaps, ten per cent. of waste at that period in crude oil. It hurt him to see it unused, and no man had a heartier welcome from the president of the Standard Oil Company than he who would show him how to utilise any proportion of his residuum. In short, Mr. Rockefeller was strengthening his line at every point, and to no part of it was he giving closer attention than to transportation.

Chapter Five: LAYING THE FOUNDATIONS OF A TRUST

EVIDENCE OF REAPPEARANCE OF REBATES SOON AFTER AGREEMENT OF MARCH 25 IS SIGNED—PRINCIPLE THOROUGHLY ESTABLISHED THAT LARGE SHIPPERS SHALL HAVE ADVANTAGES OVER SMALL SHIPPERS IN SPITE OF RAILROADS’ DUTY AS COMMON CARRIERS—AGREEMENT WORKED OUT BY WHICH THREE ROADS ARE TO HAVE FIXED PERCENTAGE OF EASTERN SHIPMENTS—OIL REGIONS ROBBED OF THEIR GEOGRAPHICAL ADVANTAGE—THE RUTTER CIRCULAR—ROCKEFELLER NOW SECRETLY PLANS REALISATION OF HIS DREAM OF PERSONAL CONTROL OF THE REFINING OF OIL—ORGANISATION OF THE CENTRAL ASSOCIATION—H. H. ROGERS’ DEFENCE OF THE PLAN—ROCKEFELLER’S QUIET AND SUCCESSFUL CANVASS FOR ALLIANCES WITH REFINERS—THE REBATE HIS WEAPON—CONSOLIDATION BY PERSUASION OR FORCE—MORE TALK OF A UNITED EFFORT TO COUNTERACT THE MOVEMENT.

Throughout 1872, while the producers and refiners were working out associations and alliances to regulate the output of crude and refined oil, the freight rates over the three great oil-carrying roads were publicly supposed to be those settled by the agreement of March 25. Except by the sophisticated it was believed that the railroads were keeping their contracts. The Lake Shore and Michigan Southern and the New York Central had never kept them, as we have seen. Mr. Flagler’s statement that the Standard received a rebate of twenty-five cents a barrel from April 1 to November 15, 1872, would seem to show that while with one hand Mr. Clark and Mr. Vanderbilt signed the agreement with the oil men that henceforth freights should be “on a basis of perfect equality to all shippers, producers and refiners, and that no rebates, drawbacks, or other arrangements of any character should be made or allowed that would give any party the slightest difference in rates or discriminations of any character whatever,” with the other they had signed an arrangement to give a twenty-five-cent rebate to Mr. Rockefeller! They certainly had a strong incentive for ignoring their pledge. Consider what Mr. Rockefeller could offer the road—sixty car-loads of oil a day, over 4,000 barrels. General Devereux points out in the affidavit already mentioned[34] what this meant. It permitted them to make up a solid oil train and run it out every day. By running nothing else they reduced the average time of a freight car from Cleveland to New York and return from thirty days to ten days. The investment for cars to handle their freight was reduced by this arrangement to about one-third what it would have been if several different persons were shipping the same amount every day. Promptness was insured in forwarding and returning (a drawback of from fifty dollars to $150 a day accrued if it was late, so that the Standard was bound to ship promptly), and all the inconvenience of dealing with many shippers each with his peculiar whim or demand was avoided. It was certainly worth a rebate to the Central, and the Central not having any prejudices in favour of keeping agreements because they were agreements naturally conceded what Mr. Rockefeller wanted. There was another point. If the Central did not concede to Mr. Rockefeller’s terms it undoubtedly would lose the freight. There was the lake and the canal and there was the Erie!

Now it is not supposable that such an arrangement would go on long without leaking out in the upper oil circles. We have evidence that it did not. Indeed, there was among certain intelligent oil men a conviction when the agreement was signed that the New York roads would not regard it—that if they did it would ruin the refining business of Cleveland. W. T. Scheide, a member of the oil men’s committee making this contract, the agent of one of the largest oil shippers in the country, Adnah Neyhart, in some frank and suggestive testimony given to the Hepburn Committee in 1879, said that at the time the arrangement was made he did not think anybody connected with the business expected it would last. “My reason for that was that it was an impossible agreement,” said Mr. Scheide. “The immediate effect of it would have been to have utterly destroyed fifty-five per cent. of the refining interest of the country; that is to say, Cleveland and Pittsburg, which during the previous four years had shipped fifty-five per cent. of all the oil out of the Oil Regions—they, in addition to paying the rates of freights which all other refiners would have had to pay, were required to pay fifty cents a barrel on their crude oil to their works.” The refiners in Cleveland and Pittsburg had of course always paid to get crude oil to their works, even the South Improvement Company tariffs provided for that, and under that arrangement Cleveland had come to be in 1871 the chief refining centre of the country. The chairman of the committee examining Mr. Scheide suggested it was a “temporary impossibility which would have adjusted itself,” which Mr. Scheide admitted. “Yes, sir, naturally, it would have adjusted itself I suppose, but the effect was very marked at the time.”

So strong was Mr. Scheide’s conviction that the New York roads would not stand the new rates that on the 10th of April he went to the Pennsylvania railroad and asked for a rebate on Mr. Neyhart’s crude shipments—and got it. What the rebate was he does not state, but Mr. Flagler tells us in his testimony[35] that in December he discovered that the Pennsylvania was shipping for as low as $1.05 a barrel. And for one month he got from Mr. Vanderbilt a rate of $1.05 on his 4,000 barrels a day.

Mr. Scheide was also shipping refined oil over the Erie. George R. Blanchard, who in October, 1872, became the general freight agent of the Erie, told the Hepburn Committee in 1879 that he found on entering his position that $7,000 in rebates had been paid Mr. Scheide for Mr. Neyhart in the month of September, 1872, on this refined. He does not say how long this had been going on. Mr. Blanchard found at the same time the March 25 agreement. He asked why it was not observed, and the reply convinced him that it had not been kept more than two weeks by the Pennsylvania and Central systems. “The representations made to me,” says Mr. Blanchard, “also convinced the Atlantic and Great Western as to what our rivals were doing, and that railway company and our own decided to continue to pay the twenty-four cents per barrel drawback then being paid on the rate of $1.35, provided by their producers’ agreement of March 25, 1872.”

But Mr. Blanchard was shipping only Mr. Neyhart’s refined, and naturally he looked for more business and was willing to give a rebate to get it. He soon had some from another of the oil men who had signed the agreement of March 25. This was Mr. Bennett, of Titusville, who with J. D. Archbold and his other partners entered into a contract with Mr. Blanchard to ship their entire product for a year at a rate considerably below the one agreed upon on March 25.[36] The contract was a short-lived one, for in November Mr. Bennett and his partners turned their shipments over to the Pennsylvania. The Erie had some compensation, however, in the fact that in July, 1873, Mr. Neyhart’s crude shipments had all come to them. Mr. Scheide, Mr. Neyhart’s agent, explained to the Hepburn Commission that he left the Pennsylvania because of what he considered “very bad treatment—a discrimination against us in furnishing us cars.” The Pennsylvania had indeed undertaken to carry out the clause in the agreement of March 25 which stipulated that there should be no discrimination in furnishing cars. Mr. Scheide, considering himself “their shipper,” that is, shipping larger quantities more regularly than anybody else, and as a consequence having better rates, thought it unfair that the cars should be pro rated,[37] and left the road, giving his business to the Erie, where presumably he got assurances that cars would be furnished to shippers according to the quantity and regularity of shipments. Mr. Scheide’s excellent testimony is good evidence of how deep a hold the principle that the large shippers are to have all the advantages had taken hold of some of the best men in the oil country, although the oil country as a whole utterly repudiated the “rebate business.” These details, all drawn from sworn testimony, show how, before a year had passed after the end of the Oil War, all the roads were practising discrimination, how a few shippers were again engaged in a scramble for advantages, and how the big shippers were bent on re-establishing the principle supposed to have been overthrown by the Oil War that one shipper is more convenient and profitable for a road than many, and this being so, the matter of a road’s duty as a common carrier has nothing to do with the question.[38]

This was the situation when in June, 1873, General Devereux, whom we have met on the Lake Shore road, became president of the Atlantic and Great Western. Now at this time Peter H. Watson, the president of the South Improvement Company, was president of the Erie. The two at once looked into the condition of their joint oil traffic. They found the rebate system abolished a year before again well intrenched. Nevertheless the Erie was not doing much business. The entire shipments of oil over the Erie for 1873 were but 762,000 barrels out of a total of 4,963,000. Naturally they went to work to build up a trade, and their relations being what they had been with the Standard, the company controlling a third of the country’s refining capacity, they went to them to see if they could not get a percentage of their seaboard shipments from Cleveland. Mr. Rockefeller was willing to give them shipments if they would make the rates as low as were given to any of his competitors on any of the roads, and if they would deliver his oil at Hunter’s Point, Brooklyn, where he had oil yards, and where the Central delivered, or if they would not do that if they would lease their own oil yards to him. There was an excellent business reason for making that latter demand, which Mr. Blanchard explained to the Hepburn Commission:

“The Standard,” said Mr. Blanchard, “had a force of men, real estate, houses, tanks and other facilities at Hunter’s Point for receiving and coopering the oil; and they had their cooperage materials delivered over there. The arrangement prior to that time was that the Erie Company performed this service for its outside refiners at Weehawken, for which the Erie Company made specific charges and added them to their rates for freight. The Standard Company said to us: ‘We do the business at low cost at Hunter’s Point because we are expert oil men and know how to handle it; we pay nobody a profit, and cannot and ought not to pay you a profit for a service that is not transportation any more than inspecting flour or cotton; and the New York Central delivers our oil at that point. Now if you will deliver our oil at Hunter’s Point and permit us to do this business, you may do so; we want to do that business, and we cannot pay to the Erie Railway Company at Weehawken a profit on all of those staves, heads, cooperage, filling, refilling and inspection, for we have our own forces of men and our own yards necessary for this work in another part of the harbour of New York; and it is not a part of your business as a carrier, anyway.’

“In lieu thereof and for the profits that we could have made from the aggregate of these charges, we said to them: ‘If you will pay us a fixed profit upon each one of these barrels of oil arriving here, you may take the yards and run them subject to certain limitations as to what you shall do for other people who continue to ship oil to the same yards.’ They were only able to make this arrangement with us because of their controlling such a large percentage of shipment, and because of permanent facilities in Brooklyn; if the larger percentage of shipments had belonged to outside parties, and they had had no yards of their own, we would probably have retained the yards ourselves.”

A contract was signed on April 17, 1874. By it the Standard agreed to ship fifty per cent. of the products of its refineries by the Erie at rates “no higher than is paid by the competitors of the Standard Oil Company from competing Western refineries to New York by all rail lines,” and to give all oil patrons of the Erie system a uniform price and fair and equal facilities at the Weehawken yards.[39] It was a very wise business deal for both parties. It made Mr. Rockefeller the favoured shipper of a second trunk line (the Central system was already his) and it gave him the control of that road’s oil terminal so that he could know exactly what other oil patrons of the road were doing—one of the advantages the South Improvement contract looked out for, it will be remembered. As for the Erie, it tied up to them an important trade and again put them into a position to have something to say about the division of the oil traffic, the bulk of which outside of the Standard Oil Company the Pennsylvania was handling. In connection with the Central the Erie now said to the Pennsylvania that henceforth they proposed to maintain their position as oil shippers.

The natural result of the determination of the Central and Erie to get from the Pennsylvania a percentage of its freight was, of course, increased cutting, and it looked as if a rate war was inevitable. At this juncture Colonel Potts of the Empire Transportation Company, handling all of the Pennsylvania freight, suggested to his rivals that it would be a favourable time for the three trunk lines to pool their seaboard oil freight. In the discussions of this proposition, which, of course, involved a new schedule of rates, there being now practically none, it was suggested that henceforth freights be so adjusted that they would be equal to all refiners, on crude and refined from all points. Such an equalisation seems at first glance an unsolvable puzzle. The agents found it intricate enough. Throughout the summer of 1874 they worked on it, holding meetings at Long Branch and Saratoga and calling into their counsels a few of the leading refiners, pipe-line men and producers whom they could trust to keep quiet about the project.

By the first of September they had an agreement worked out by which each of the three roads was to have a fixed percentage of Eastern shipments. The rates to the seaboard were to amount to the same for all refiners wherever located. That is, to use one of the illustrations employed by Mr. Blanchard in explaining the scheme to the Hepburn Commission: “Suppose 100 barrels of refined oil to have been sent from Cleveland to New York by rail; the consignee was required to first pay freight therefor at New York upon delivery $1.90; to make this quantity of refined oil at that time, he had already paid freight on say 133½ barrels of crude oil from the pipes to Cleveland at thirty-five cents per barrel or say $46.67; he had therefore paid out from the pipes to the refinery and thence to New York by transportation only, on 100 barrels refined and the quantity of crude oil required to make it, $236.67 or $2.37 per barrel; therefore, at the end of the month we refunded the $46.67 already paid on the crude oil. So that the rate paid net was $1.90 to him and all other refiners.”

In case of the refineries situated at the seaboard the cost of carrying from the Oil Regions the 133½ barrels of crude oil required to make 100 barrels of refined was made exactly the same as carrying the 100 barrels of refined made in the West and transported East. This really amounted to charging nothing for getting the crude oil to a refinery wherever it was situated, as the following clause in the agreement shows: “The roads transporting the refined oil shall refund to the refiners as a drawback the charges paid by them upon the crude oil reaching their refineries by rail.” This paragraph provided for this crude rebate contained a second clause, which read: “And the roads transporting through crude oil to the Eastern seaboard shall refund to the shippers twenty-two cents per barrel; both of said drawbacks to be paid only on oil reaching the initial points of rail shipment, through pipes, the owners of which maintain agreed rates of pipage.” The paragraph announced two new and startling intentions on the part of the oil-carrying roads: first, that they intended to strip the Oil Regions of the advantage of geographical position at the wells by sending oil free to Cleveland and Pittsburg, New York and Philadelphia, at the same time leaving these cities the advantages accruing from their position as manufacturing centres and close to domestic markets; second, that they had entered into a combination with certain pipe-lines to drive certain others out of existence.

Mr. Blanchard gave the reasons of these two revolutionary moves to the Hepburn Committee. It was “urgently represented to the trunk lines,” he said, “by some refiners at the West as well as by others at the seaboard, and also by crude shippers and receivers and by owners of pipe-lines, that it was in every way desirable that the refiners of Cleveland and Pittsburg, and those at the seaboard be put upon a basis of equalisation in the gross rates of transportation to and from the refineries.” Now to do this the element of distance had to be disregarded. Cleveland was 150 miles west of the Oil Regions, but she must be treated as if she were at the same distance from the seaboard. As soon as the proposition was made, certain of the refiners and producers objected unless the railroads went further and equalised rates on coal, acids, cooperage, etc. This, however, the roads declined to do.

As for the second clause—the rebate on all oil coming from pipes which kept up a fixed pipage—it came about in this way. While the railroad men were in conference at Long Branch, Henry Harley, the president of the Pennsylvania Transportation Company, came to them and said that he believed the scheme of equalisation could not be carried out unless some kind of an alliance was made with the pipe-lines. There had been a large increase in the number of pipes in the four or five years preceding, and a situation had arisen not unlike that in every other branch of the oil business. There was perhaps twice the pipe capacity needed for gathering all the oil produced, and as the pipes were under at least a dozen different managements, each fighting for business, the result was, of course, just what it had been on the railroads and in the markets—severe cutting of prices, rebates, special secret arrangements, confusion and loss. It had been only nine years since the first pipe-line had been a success, and considering the phenomenal growth of the business and the important part the pipe played in it, it was of course a situation natural enough. Like the overgrowth of refining and of production, it was something only time and solidification of business could remedy.

Mr. Harley laid the situation before the railroad men and said to them: “We want you to help us keep up an even and equal pipage rate. Here we are representatives of the nine most important lines in the Oil Regions. We want to put a stop to cutting and keep up a rate of thirty cents. Can’t you help us?” Now up to this time the railroad had had nothing to do with pipe-line charges. It was, and still is, the custom for the buyer of the oil to pay the pipage, that is, the oil producer on running the oil into the pipe-line received a credit certificate for the oil. If he held it in the line long he paid a storage charge. When he sold the oil, the line ran it, and the buyer paid the charge for running. Now the United Pipe Lines proposed to the railroads a through rate from the wells to the seaboard as low as they currently made from the receiving points on the railway, the pipes to get twenty per cent. of this through rate. The railroads were to agree not to receive oil from buyers except at as high a rate as the pipes charged; and to allow no pipe-line outside of the alliance a through rate from the wells. The memorandum said squarely that the intent and purpose of this was to make the United Pipes the sole feeders of the railroads. It was a plan not unlike the South Improvement Company in design—to put everybody but yourself out of business, and it had the merit of stating its intent and purpose with perfect candour.[40]

The railroad men seem not to have objected to the purpose, only to the terms of the proposed arrangement. Mr. Blanchard told the pipe committee that he regarded it as the most violent attempt on the part of the tail to wag the dog that he had ever seen, and the representatives of the other roads agreed. They saw at once, however, how much more solid their own position would be if they could be sure that no pipe-line delivering to them would cut its rate, if there could be in effect a through rate from the wells, and after some discussion they proposed to the pipe-lines to add twenty-two cents a barrel to the rail charges; that is, if the rate to the seaboard was $1.25, to collect from the shipper $1.47, and in case he could show that he had taken his oil from one of the United Pipes to give him a rebate of twenty-two cents. Mr. Blanchard said that they proposed to do this until proof was had that the associated pipe-lines were acting in good faith. Of course this arrangement did not change the pipe-lines’ methods of collecting in the least. It simply forced a uniform charge, and this charge was to be, it should be noticed, regardless of distance. The charge for collecting and delivering oil was to be thirty cents a barrel whether it was carried one or ten miles—a practice which prevails to-day.

While these negotiations were going on, the Oil Regions as a whole was troubled by a vague rumour that freight rates were to be advanced. In the two years since the Oil War the region, as a whole, had adjusted itself to the tariff schedule of March 25, 1872, and was doing very well though working on a very much smaller margin of profits than ever before. The margin was sufficient, however, to keep the refineries in the valley running most of the time, and several of the large ones were increasing their plants. Detailed accounts of the condition of the works are to be had in the newspapers of the day. Thus, in the summer of 1874 an editor of the Oil City Derrick made a tour of the creek refineries and reported all of the larger ones in Titusville and Oil City as prosperous and growing, and the small ones in the little towns between these two points as “jogging along pleasantly.” The keen competition between the different refining points made it necessary to do business with economy, and a rumour of a raise of freight rates naturally was looked on with dread. It was not until September 12, however, that the new arrangements were made known, and this was some time earlier than was intended. The slip came about in this way. The general freight agent of the New York Central road, James H. Rutter, sent out on September 9 a private circular announcing the new arrangement,[41] an advance of fifty cents a barrel on refined oil shipped to the seaboard, no corresponding advance for Cleveland and Pittsburg, a rebate of the cost of getting oil to the refineries and a rebate of twenty-two cents to those who patronised certain pipe-lines. And to this new schedule was appended this consoling paragraph: “You will observe that under this system the rate is even and fair to all parties, preventing one locality taking advantage of its neighbour by reason of some alleged or real facility it may possess. Oil refiners and shippers have asked the roads from time to time to make all rates even and they would be satisfied. This scheme does it and we trust will work satisfactorily to all.”

Among the refiners to whom the circular went was M. N. Allen of Titusville. Now Mr. Allen was the editor of an aggressive and lively newspaper—the Courier. He had fought rings and deals from the beginning of his career as a refiner and as an editor. He had been one of the strong opponents of the South Improvement Company and of the Refiners’ Association which followed, and he saw at once the cloven foot in the Rutter circular and hastened to denounce it in a strong editorial:

If by an agreement of the New York Central, the Erie, and the Pennsylvania Railway Companies, crude oil—delivered from the Titusville pipe—should be hauled from Titusville to Chicago, and there refined, and the refined product then hauled to New York, all at two dollars a barrel, for the refined thus carried, it would be placing, by the railway companies, Chicago refiners upon the same level with the Titusville refiners who, on and after October 1, shall ship to New York refined made from crude oil taken from the Titusville pipe. The new freight arrangement does not make such provision for refiners at Chicago. But a Cleveland refiner may come to Titusville and buy oil for delivery from the Titusville, the Pennsylvania, the Church Run, or the Octave pipes, at this point, take it to Cleveland, and, after refining, carry the product to the seaboard at the same expense of freight, all told, that a refiner here, taking his crude oil directly from the above pipes, would have in placing his refined oil at the seaboard. This is stating the matter exactly, and we see no necessity for comment hereupon.

Again, 1,000 barrels of crude oil are to be carried to the seaboard for the same amount of money that will be required for carrying there 715 barrels of refined, notwithstanding that crude oil is a much more hazardous article of freight, from fire, than refined. If this is not a very large discrimination in favour of seaboard refiners, for which there is no compensation given to refiners in the Oil Region, our perceptions are utterly weak.

Now, before putting into effect this new freight arrangement, it may be well for the railway officials having the matter in charge to take into consideration a certain little article of agreement, which the people of Pennsylvania, on the 16th day of December last, entered into among themselves, respecting railroads in this state. In Article 17, Section 7, of our new constitution is the following decree of the sovereign people of this commonwealth: “No discrimination in charges or facilities for transportation shall be made between transportation companies and individuals, or in favour of either, by abatement, drawback or otherwise.”

Petroleum is a product of this state, and transportation companies in taking it away must respect the fundamental law of the state. And, while we ask for no favours, always supporting free trade from principle, speaking in behalf of the refining interests of the Oil Region, we do not propose quietly to submit to any discrimination by transportation companies, doing business in the state, against our interests. If by reason of our position we possess advantages for refining oil here, over refiners outside, we have strong objections against the action of the railway companies in taking from us such advantages, by requiring us to pay for hauling a given quantity of oil as much as they require of Cleveland refiners for hauling the same amount of oil 300 miles greater distance; or for requiring us to pay as much for hauling 715 barrels of refined oil as they require for hauling 1,000 barrels of crude oil the same distance. If the railroad companies will make all expenses of refining oil equal to all points, we shall be satisfied. If they will make the price of sulphuric acid 1½ cents a pound, the same as it is in New York, instead of 2½ cents; if they will deliver caustic soda here free of freight from New York; if they will put paints and glues here at the same prices as those articles sell for in New York; if they will put staves and heading and hoops for barrels here at the same figures those articles cost in Cleveland, whether they do all these by giving us rebates sufficient to cover all differences now against us, or in any other way that will bring the same results, we will accept the new arrangement without complaint. Until this shall be done we shall ask the railway companies in hauling oil to confine themselves to legitimate business, and to obey the new constitution, in letter and spirit. It will behoove our citizens to see that their new constitution is carefully respected.

We are opposed to the new arrangement for the large advance in the price of freight upon oil. If the railroad companies have lost money in carrying oil for the Cleveland refineries during several years past, let not the whole petroleum interest, in its depressed condition, be required to sustain the penalty. We submit to the railway managers whether it is not right to charge for hauling goods in proportion to the distance hauled, allowing a small discount, perhaps, upon the rate per mile for the greater distance.

Our remarks upon this subject may have the colour of assurance, but, from the large majority given last winter in favour of the new constitution of this state, we have great confidence that the people will not part with their sovereign rights, nor allow themselves to be ruled by King Pool.

At first the Oil Region was puzzled by the Rutter circular. It certainly was plausible. Was it not true that every man shared equally under it? As the days passed, the dazed mental condition into which it had thrown the oil men cleared up. Mr. Allen’s editorials began to take effect. The pipe-lines left out of the pool began to ask how it could be legal that the railroads should enter into an arrangement which obviously would drive them out of business. The creek refiners began to ask by what right the advantage of geographical position at the wells should be taken from them, and Cleveland be allowed to retain the advantages of her proximity to the Western market; Pittsburg her position on the Ohio River and the market it commanded; all of the cities the advantage of their proximity to great local markets and to such necessary supplies as barrels and acids. Besides, was it constitutional for the railroads thus to regulate interstate commerce? Was not the arrangement, as far as the Pennsylvania was concerned, plainly prohibited by the new constitution of the state of Pennsylvania? The producers slowly began to realise, too, that the Rutter circular, like the South Improvement charter and contracts, did not recognise them as a body. The contract of March 25, 1872, provided that the rates fixed should not be “liable to any change either for increase or decrease without first giving to William Hasson, president of the Producers’ Union, at Oil City, at least ninety days’ notice in writing of such contemplated change.” This agreement was totally ignored. It was an “insolent equalisation,” the oil men concluded, and the sum total of their dissatisfaction finally found expression at a mass-meeting at Parker’s Landing, on October 2. Directly after this meeting a committee appointed sent to Messrs. Scott, Vanderbilt and Jewett, the new president of the Erie, letters calling their attention to the Rutter circular, and stating the objections of the producers to it. These letters sent on October 6 received no attention from any of the railroad presidents addressed for over three weeks, when the following was received from the Pennsylvania:

Gentlemen:—Your communication of the 6th inst., to Thomas A. Scott, president, was received, and has been referred to me.

In establishing the recent rates and arrangements for the transportation of oil, the object which was at all times kept in view was to place all interests on an equality, giving to no one an undue advantage over any other.

We believe that this object has been accomplished, and that by adhering to our present rates the interests both of the producers, refiners and transporters will be promoted.

Very truly yours, A. J. CASSATT.

“Brief, tardy and unsatisfactory,” was the Derrick’s characterisation of Mr. Cassatt’s letter. It was evidence to the oil men that if anything was to be done to break the new tariff it would have to be done in court, for the railroads meant to stand by their creation.

In this discussion of the Rutter circular Mr. Rockefeller’s name scarcely appeared. It was known that he had been admitted to the conferences at which the tariff was arranged. This was taken as a matter of course. There was nothing which concerned the oil business which John Rockefeller was not on the inside of. Mr. Blanchard later stated that the “crude equivalent” scheme was suggested by certain Western refiners. The tremendous advantage Cleveland secured by the new arrangement, practically 300 miles of free transportation, seemed to prove, too, that Mr. Rockefeller had not been inactive during the conference. Whether he had or had not suggested the points in the “Rutter circular” so advantageous to his interests, he used them now to aid him in accomplishing one of the shrewdest and most far-reaching moves of his life—the move which was to lead at last to the realisation of his Great Purpose—the concentration of the oil business in his own hands. For Mr. Rockefeller, quiet as he had been since the breaking up of the Refiners’ Association in the summer of 1873, had by no means given up the idea of doing for the refining interest of the whole country what he had done for that of Cleveland through the South Improvement Company.

Mr. Rockefeller has shown repeatedly in his conquering business career remarkable ability to learn from experience. The breaking up of the Refiners’ Association may have seemed a disaster to him. He did not allow it to be a profitless disaster. He extracted useful lessons from the experience, and, armed with this new wisdom, bent his whole mind to working out a third plan of campaign. He now knew that he could not hope to make again so rich a haul as he had made through the defunct South Improvement scheme. The experience of the past year with the refiners convinced him that it would take time to educate them to his idea of combination; but he had learned who of them were capable of this education. As for the producers, the alliance attempted with them was enough to demonstrate that they would never endure long the restraints of any association. Besides, the bulk of them still held the, to him, unpractical belief that rebates were wrong. Mr. Rockefeller had also re-learned in these eighteen months what he knew pretty well before, that the promise to give or take away a heavy freight traffic was enough to persuade any railroad king of the day to break the most solemn compact.

With all these reflections fresh in mind, Mr. Rockefeller again bent over a map of the refining interests of the United States. Here was the world he sighed to conquer. If we may suppose him to have begun his campaign as a great general with whom he has many traits in common—the First Napoleon—used to begin his, by studding a map with red-headed pegs marking the points he must capture, Mr. Rockefeller’s chart would have shown in and around Boston perhaps three pegs, representing a crude capacity of 3,500 barrels; in and around New York fifteen pegs, a capacity of 9,790 barrels; in and around Philadelphia twelve pegs, a capacity of 2,061 barrels; in Pittsburg twenty-two pegs, a capacity of 6,090 barrels; on the creek twenty-seven pegs, a capacity of 9,231 barrels.[42] His work was to get control of this multitude of red pegs and to fly above them the flag of what the irreverent call the “holy blue barrel.”[43]

Some time in the summer of 1874, after it had become certain that Colonel Potts’s plan for an equalisation of oil freights would be carried out, Mr. Rockefeller wrote to his former colleague in the South Improvement Company, W. G. Warden, of Philadelphia, telling him he wanted to talk over the condition of the oil business with him, and inviting him to bring Charles Lockhart, of Pittsburg, to that Mecca of American schemers, Saratoga, for a conference with him and Mr. Flagler. Mr. Warden hesitated. He had been much abused for his relation with the South Improvement Company. He had seen the National Refiners’ Association fail. He had begun to feel a distaste for combination. Besides, he was doing very well in Philadelphia. However, after some hesitation, he and Mr. Lockhart went to Saratoga. The four gentlemen breakfasted together and later strolled out to a pavilion. Here they discussed again, as they had nearly three years before, when they prepared the South Improvement assault, the condition of the oil business.

Mr. Rockefeller now had something besides a theory to present to the gentlemen he wished to go into his third scheme. He had the most persuasive of all arguments—an actual achievement. “Three years ago,” he could tell them, “I took over the Cleveland refineries. I have managed them so that to-day I pay a profit to nobody. I do my own buying, I make my own acid and barrels, I control the New York terminals of both the Erie and Central roads, and ship such quantities that the railroads give me better rates than they do any other shipper. In 1873 I shipped over 700,000 barrels by the Central, and my profit on my capitalisation, $2,500,000, was over $1,000,000. This is the result of combination in one city. The railroads now have arranged a new tariff, by which they mean to put us all on an equal footing. They say they will give no rebates to anyone, but if we can join with Cleveland the strongest forces in other great shipping points, and apply to them the same tactics I have employed, we shall become the largest shipper, and can demand a rebate in return for an equal division of our freight. We proved in 1872–1873 that we could not do anything by an open association. Let us who see what a combination strictly carried out will effect unite secretly to accomplish it. Let us become the nucleus of a private company which gradually shall acquire control of all refineries everywhere, become the only shippers, and consequently the master of the railroads in the matter of freight rates.” It was six hours before the gentlemen in conference left the pavilion, and when they came out Mr. Warden and Mr. Lockhart had agreed to transfer their refineries in Philadelphia and Pittsburg to the Standard Oil Company, of Cleveland, taking stock in exchange. They had also agreed to absorb, as rapidly as persuasion or other means could bring it about, the refineries in their neighbourhood. Their union with the Standard was to remain an absolute secret—the concerns operating under their respective names.[44]

On October 15, 1874, Mr. Rockefeller consummated another purchase of as great importance. He bought the works of Charles Pratt and Company, of New York city. As before, the purchase was secret. The strategic importance of these purchases for one holding Mr. Rockefeller’s vast ambition was enormous. It gave him as allies men who were among the most successful refiners, without doubt, in each of the three greatest refining centres of the country outside of Cleveland, where he ruled, and of the creek, where he had learned that neither he nor any member of the South Improvement Company could do business with facility. To meet these purchases the stock of the Standard Oil Company was increased, on March 10, 1875, to $3,500,000.[45] The value of the concern as a money-earner at this early date, 1874, is shown by the fact that Pratt and Company paid not less than $265 for the Standard stock they received in exchange for their works.[46]

The first intimation that the Oil Region had that Mr. Rockefeller was pushing another combination was in March of 1875, when it was announced that an organisation of refiners, called the Central Association, of which he was president, had been formed. Its main points were that if a refiner would lease to the association his plant for a term of months he would be allowed to subscribe for stock of the new company. The lease allowed the owner to do his own manufacturing, but gave Mr. Rockefeller’s company “irrevocable authority” to make all purchases of crude oil and sales of refined, to decide how much each refinery should manufacture, and to negotiate for all freight and pipe-line expenses. The Central Association was a most clever device. It furnished the secret partners of Mr. Rockefeller a plausible proposition with which to approach the firms of which they wished to obtain control.

Little as the Oil Regions knew of the real meaning of the Central Association, the news of its organisation raised a cry of monopoly, and the advocates of the new scheme felt called upon to defend it. The defense took the line that the conditions of the trade made such a combination of refineries necessary. Altogether the ablest explanation was that of H. H. Rogers, of Charles Pratt and Company, to a reporter of the New York Tribune:

“There are five refining points in the country,” said Mr. Rogers, “Pittsburg, Philadelphia, Cleveland, the Oil Regions and New York city. Each of these has certain local advantages which may be briefly stated as follows: Pittsburg, cheap oil; Philadelphia, the seaboard; Cleveland, cheap barrels, and canal as well as railroad transportation; the Oil Regions, crude oil at the lowest figure; and all the products of petroleum have the best market in New York city. The supply of oil is three or four times greater than the demand.[47] If the oil refineries were run to their full capacity, the market would be overstocked. The business is not regular, but spasmodic. When the market is brisk and oil is in demand, all the oil interests are busy and enjoy a fair share of prosperity. At other times, the whole trade is affected by the dullness. It has been estimated that not less than twenty millions of dollars are invested in the oil business. It is therefore to the interest of every man who has put a dollar in it to have the trade protected and established on a permanent footing. Speculators have ruined the market. The brokers heretofore have been speculating upon the market with disastrous effects upon the trade, and this new order of things will force them to pursue their legitimate calling, and realise their profits from their industry and perseverance. Two years ago an attempt was made to organise an oil refiners’ association, but it was subsequently abandoned. There was no cohesion of interests, and agreements were not kept. The movement at the present time is a revival of the former idea, and, it is believed, has already secured fully nine-tenths of the oil refiners in the country in its favour. I do not believe there is any intention among the oil men to ‘bull’ the market. The endeavour is to equalise all around and protect the capital invested. If by common consent, in good faith, the refiners agree to reduce the quantities to an allotment for each, made in view of the supply and demand, and the capacity for production, the market can be regulated with a reasonable profit for all. The price of oil to-day is fifteen cents per gallon. The proposed allotment of business would probably advance the price to twenty cents. To make an artificial increase, with immense profits, would be recognised as speculative instead of legitimate, and the oil interests would suffer accordingly. Temporary capital would compete with permanent investment and ruin everything. The oil producers to-day are bankrupt. There have been more failures during the last five months than in five years previously. An organisation to protect the oil capital is imperatively needed. Oil to yield a fair profit should be sold for twenty-five cents per gallon. That price would protect every interest and cover every outlay for getting out the crude petroleum, transporting by railroad, refining and the incidental charges of handling, etc. The foreign markets will regulate the price to a great extent, because they are the greatest consumers. The people of China, Germany, and other foreign countries cannot afford to pay high prices. Kerosene oil is a luxury to them, and they do not receive sufficient compensation for their labour to enable them to use this oil at an extravagant price. The price, therefore, must be kept within reasonable limits.”

The Oil Regions refused flatly to accept this view of the situation. The world would not buy refined at twenty-five cents, they argued. “You injured the foreign market in 1872 by putting up the price. Our only hope is in increasing consumption. The world is buying more oil to-day than ever before, because it is cheap. We must learn to accept small profits, as other industries do.” “The formation of the Refiners’ Association has thrust upon the trade an element of uncertainty that has unsettled all sound views as to the general outlook,” said the Derrick. “The scope of the Association,” wrote a Pittsburg critic, “is an attempt to control the refining of oil, with the ultimate purpose of advancing its price and reaping a rich harvest in profits. This can only be done by reducing the production of refined oil, and this will in turn act on crude oil, making the stock so far in excess of the demand as to send it down to a lower figure than it has yet touched.”

“The most important feature of this contract,” said a “veteran refiner,” “is perhaps that part which provides that the Executive Committee of the Central Association are to have the exclusive power to arrange with the railroads for the carrying of the crude and refined oil. It is intended by this provision to enable the Executive Committee to speak for the whole trade in securing special rates of freight, whereby independent shippers of crude oil, and such refiners as refuse to join the combination, and any new refining interest that may be started, may be driven out of the trade. The whole general purpose of the combination is to reap a large margin by depressing crude and raising the price of refined oil, and the chief means employed is the system of discrimination in railroad freights to the seaboard.”

“The veteran refiner” was right in his supposition that Mr. Rockefeller intended to use the enormous power his combination gave him to get a special rate. As a matter of fact he had seen to that before the “veteran refiner” expressed his mind. It will be remembered that in April, 1874, Mr. Rockefeller had made a contract with the Erie by which he was to ship fifty per cent. of his refined oil over that road at a rate as low as any competing line gave any shipper and he was to have a lease of the Weehawken oil terminal. Now this contract remained in force until the first of March, 1875, when a new one was made with the Erie guaranteeing the road the same percentage of freight and giving the Standard a ten per cent. rebate on whatever open tariff should be fixed. This rebate Mr. Blanchard says was quite independent of what the Central might be giving the Standard. He says that one reason the Standard was given the rebate was that it was suspected the Pennsylvania was allowing the Empire Transportation Company an even larger one. If true, this would not affect any refiner necessarily as the Empire was not a refiner in March, 1875. The real reason, of course, was what Mr. Blanchard gives later—that by this rebate they kept the Standard trade, now greatly increased by the purchase of the outside works already mentioned, although it should be noticed the Erie officials knew nothing of the Standard having control of any other refinery than that of Charles Pratt and Company.

The announcement of the Central Association put an altogether new feature on oil transportation. If this organisation succeeded, and the refiners in it claimed nine-tenths of the capacity of the country—it gave Mr. Rockefeller “irrevocable authority” to negotiate freights. The Pennsylvania road immediately felt the pressure. The oil they had carried for big firms like those of Charles Lockhart in Pittsburg and of Warden, Frew and Company in Philadelphia was in the hands of the Standard Oil Company, and Mr. Rockefeller asked a rebate of ten per cent. on open rates. The road demurred. Colonel Potts objected strenuously. Three years later in a paper discussing this rebate and its consequences he said:

“The rebate was a modest one, as was its recipient. Yet the railway Cassandras prophesied from it a multitude of evils—a gradual destruction of all other refiners and a gradual absorption of their property by the favourite, who, with this additional armament, would rapidly progress towards a control of all cars, all pipes, all production, and finally of the roads themselves. Their prophecies met but little faith or consideration. The Standard leaders themselves were especially active in discouraging any such radical purpose. Their little rebate was enough for them. Everybody else should prosper, as would be shortly seen. They needed no more refineries; they had already more than they could employ—why should they hunger after greater burdens? It was the railroads they chiefly cared for, and next in their affections stood the 100 rival refineries. Such beneficent longings as still remained (and their bosoms overflowed with them) spread out their steady waves toward the poor producers whom, not to be impious, they had always been ready to gather under their wings, yet they would not.

“This unselfish language soothed all alarm into quiet slumbering. It resembles the gentle fanning of the vampire’s wings, and it had the same end in view—the undisturbed abstraction of the victim’s blood.”

Colonel Potts’s argument against the rebate—doubtless clothed in much less picturesque language in 1875 than his feelings stirred him to in 1878, for a good enough reason, too, as we shall see—failed to convince the Pennsylvania officials. They decided to yield to the Standard. Mr. Cassatt, then third vice-president of the road, in charge of transportation, said in 1879 that the rebate was given because they found the Standard was getting very strong, that they had the backing of the other roads, and that if the Pennsylvania wanted to retain its full share of business and at fair rates they must make arrangements to protect themselves.

No one of the roads knew certainly what the others were doing for the Standard until October 1, 1875. The freight agents then met to discuss again the freight pool they had formed in 1874. It had not been working with perfect satisfaction. The clause granting the rebate of twenty-two cents to the pipe-lines which sustained an agreed rate of pipage had been abandoned after about five months’ experiment. It was thought to stimulate new pipes. The roads in making a new adjustment made no effort to regulate pipe-line tariffs. The “crude rebate” as it was called—carrying oil to a refinery for nothing—was left in force. At this meeting Mr. Blanchard found that both of the Erie’s big rivals were granting the Standard a ten per cent. rebate. He also found that he was not getting fifty per cent. of the Standard’s business as the contract called for—that the Standard controlled not only the Cleveland and New York works of which he knew, but large works in Pittsburg and Philadelphia.[48]

Mr. Rockefeller was certainly now in an excellent condition to work out his plan of bringing under his own control all the refineries of the country. The Standard Oil Company owned in each of the great refining centres, New York, Pittsburg and Philadelphia, a large and aggressive plant run by the men who had built it up. These works were, so far as the public knew, still independent and their only relation that of the “Central Association.” As a matter of fact they were the “Central Association.” Not only had Mr. Rockefeller brought these powerful interests into his concern; he had secured for them a rebate of ten per cent. on a rate which should always be as low as any one of the roads gave any of his competitors. He had done away with middlemen, that is, he was “paying nobody a profit.” He had undeniably a force wonderfully constructed for what he wanted to do and one made practically impregnable as things were in the oil business then, by virtue of its special transportation rate.

As soon as his new line was complete the work of acquiring all outside refineries began at each of the oil centres. Unquestionably the acquisitions were made through persuasion when this was possible. If the party approached refused to lease or sell, he was told firmly what Mr. Rockefeller had told the Cleveland refiners when he went to them in 1872 with the South Improvement contracts, that there was no hope for him; that a combination was in progress which was bound to work; and that those who stayed out would inevitably go to the wall. Naturally the first fruits to fall into the hands of the new alliance were those refineries which were embarrassed or discouraged by the conditions which Mr. Rogers explains above. Take as an example the case of the Citizens’ Oil Refining Company of Pittsburg, as it was explained in 1888 to the House Committee on Manufactures in its trust investigation. A. H. Tack, a partner in the company, told the story:[49]

“We began in 1869 with a capacity of 1,000 barrels a day. At the start everything was couleur de rose, so much so that we put our works in splendid shape. We manufactured all the products. We even got it down to making wax, and using the very last residuum in the boilers. We got the works in magnificent order and used up everything. We began to feel the squeeze in 1872. We did not know what was the matter. Of course we were all affected the same way in Pennsylvania, and of course we commenced shifting about, and meeting together, and forming delegations, and going down to Philadelphia to see the Pennsylvania Railroad, meeting after meeting and delegation after delegation. We suspected there was something wrong, and told those men there was something wrong somewhere; that we felt, so far as position was concerned, we had the cheapest barrels, the cheapest labour, and the cheapest coal, and the route from the crude district was altogether in our favour. We had a railroad and a river to bring us our raw material. We had made our investment based on the seaboard routes, and we wanted the Pennsylvania Railroad to protect us. But none of our meetings or delegations ever amounted to anything. They were always repulsed in some way, put off, and we never got any satisfaction. The consequence was that in two or three years there was no margin or profit. In order to overcome that we commenced speculating, in the hope that there would be a change some time or other for the better. We did not like the idea of giving up the ship. Now, during these times the Standard Oil Company increased so perceptibly and so strong that we at once recognised it as the element. Instead of looking to the railroad I always looked to the Standard Oil Company. In 1874 I went to see Rockefeller to find if we could make arrangements with him by which we could run a portion of our works. It was a very brief interview. He said there was no hope for us at all. He remarked this—I cannot give the exact quotation—‘There is no hope for us,’ and probably he said, ‘There is no hope for any of us’; but he says, ‘The weakest must go first.’ And we went.”

All over the country the refineries in the same condition as Mr. Tack’s firm sold or leased. Those who felt the hard times and had any hope of weathering them resisted at first. With many of them the resistance was due simply to their love for their business and their unwillingness to share its control with outsiders. The thing which a man has begun, cared for, led to a healthy life, from which he has begun to gather fruit, which he knows he can make greater and richer, he loves as he does his life. It is one of the fruits of his life. He is jealous of it—wishes the honour of it, will not divide it with another. He can suffer heavily his own mistakes, learn from them, correct them. He can fight opposition, bear all—so long as the work is his. There were refiners in 1875 who loved their business in this way. Why one should love an oil refinery the outsider may not see; but to the man who had begun with one still and had seen it grow by his own energy and intelligence to ten, who now sold 500 barrels a day where he once sold five, the refinery was the dearest spot on earth save his home. He walked with pride among its evil-smelling places, watched the processes with eagerness, experimented with joy and recounted triumphantly every improvement. To ask such a man to give up his refinery was to ask him to give up the thing which, after his family, meant most in life to him.

To Mr. Rockefeller this feeling was a weak sentiment. To place love of independent work above love of profits was as incomprehensible to him as a refusal to accept a rebate because it was wrong! Where persuasion failed then, it was necessary, in his judgment, that pressure be applied—simply a pressure sufficient to demonstrate to these blind or recalcitrant individuals the impossibility of their long being able to do business independently. It was a pressure varied according to locality. Usually it took the form of cutting their market. The system of “predatory competition” was no invention of the Standard Oil Company. It had prevailed in the oil business from the start. Indeed, it was one of the evils Mr. Rockefeller claimed his combination would cure, but until now it had been used spasmodically. Mr. Rockefeller never did anything spasmodically. He applied underselling for destroying his rivals’ market with the same deliberation and persistency that characterised all his efforts, and in the long run he always won. There were other forms of pressure. Sometimes the independents found it impossible to get oil; again, they were obliged to wait days for cars to ship in; there seemed to be no end to the ways of making it hard for men to do business, of discouraging them until they would sell or lease, and always at the psychological moment a purchaser was at their side. Take as an example the case of the Harkness refinery in Philadelphia, a story told to the same committee as that of Mr. Tack:

“I was the originator of the enterprise,” said William W. Harkness, “believing that there was no better place than Philadelphia to refine oil, particularly for export. We commenced then, as near as I can now recollect, about 1870, and we made money up to probably 1874. We managed our business very close and did not speculate in oil. We bought and we sold, and we paid a great deal of attention to the statistical part of our business so as to save waste, and we did a nice business. But we found in some years that probably five months out of a year we could not sell our oil unless it would be at a positive loss, and then we stopped. Then when we could sell our oil, we found a difficulty about getting cars. My brother would complain of it, but I believed that the time would come when that would be equalised. I had no idea of the iniquity that was going on; I could not conceive it. I went on in good faith until about 1874, and then the trouble commenced. We could not get our oil and were compelled to sell at a loss. Then Warden, Frew and Company formed some kind of running arrangement where they supplied the crude, and we seemed to get along a little better. After a while the business got complicated, and I got tired and handed it over to my brother; I backed out. That was about 1875. I was dissatisfied and wanted to do an independent business, or else I wanted to give it up. In 1876—I recollect that very well, because it was the year of the Centennial Exposition—we were at the Centennial Exposition. I was sitting in front of the great Corliss engine, admiring it, and he told me there was a good opportunity to get out. Warden, Frew and Company, he said, were prepared to buy us out, and I asked him whether he considered that as the best thing to do; whether we had not better hold on and fight it through, for I believed that these difficulties would not continue; that we would get our oil. I knew he was a competent refiner, and I wanted to continue business, but he said he thought he had better make this arrangement, and I consented, and we sold out; we got our investment back.”[50]

Here we have a refiner discouraged by the conditions which Mr. Rockefeller claims his aggregation will cure. Under the Rutter circular and the discrimination in freight to the Standard which followed, his difficulty in getting oil increases, and he consents to a running arrangement with Mr. Rockefeller’s partner in Philadelphia, but he wants to do an “independent business.” Impossible. As he sits watching the smooth and terrible power of that famous Corliss engine of 1876, an engine which showed to thousands for the first time what great power properly directed means, he realised that something very like it was at work in the oil business—something resistless, silent, perfect in its might—and he sold out to that something. Everywhere men did the same. The history of oil refining on Oil Creek from 1875 to 1879 is almost uncanny. There were at the beginning of that period twenty-seven plants in the region, most of which were in a fair condition, considering the difficulties in the business. During 1873 the demand for refined oil had greatly increased, the exports nearly doubling over those of 1872. The average profit on refined that year in a well-managed refinery was not less than three cents a gallon. During the first half of 1874 the oil business had been depressed, but the oil refiners were looking for better times when the Rutter circular completely demoralised them by putting fifty cents extra freight charges on their shipments without an equivalent raise on competitive points. It was not only this extra charge, enough to cut off their profits, as business then stood, but it was that the same set of men who had thrown their business into confusion in 1872 was again at work. The announcement of the Central Association with Mr. Rockefeller’s name at its head confirmed their fears. Nevertheless at first none of the small refiners would listen to the proposition to sell or lease made them in the spring of 1875 by the representative first sent out by the Central Association. They would have nothing to do, they said bluntly, with any combination engineered by John D. Rockefeller. The representative withdrew and the case was considered. In the mean time conditions on the creek grew harder. All sorts of difficulties began to be strewn in their way—cars were hard to get, the markets they had built up were cut under them—a demoralising conviction was abroad in the trade that this new and mysterious combination was going to succeed; that it was doing rapidly what its members were reported to be saying daily: “We mean to secure the entire refining business of the world.” Such was the state of things on the creek when in the early fall of 1875 an energetic young refiner and oil buyer well known in the Oil Regions, J. D. Archbold, appeared in Titusville as the representative of a new company, the Acme Oil Company, a concern which everybody believed to be an offshoot of the Standard Oil Company of Cleveland, though nobody could prove it. As a matter of fact the Acme was capitalised and controlled entirely by Standard men, its stockholders being, in addition to Mr. Archbold, William Rockefeller, William G. Warden, Frank Q. Barstow, and Charles Pratt. It was evident at once that the Acme Oil Company had come into the Oil Regions for the purpose of absorbing the independent interests as Mr. Rockefeller and his colleagues were absorbing them elsewhere. The work was done with a promptness and despatch which do great credit to the energy and resourcefulness of the engineer of the enterprise. In three years, by 1878, all but two of the refineries of Titusville had “retired from the business gloriously,” as Mr. Archbold, flushed with victory, told the counsel of the Commonwealth of Pennsylvania in 1879, when the state authorities were trying to find what was at work in the oil interests to cause such a general collapse. Most of the concerns were bought outright, the owners being convinced that it was impossible for them to do an independent business, and being unwilling to try combination. All down the creek the little refineries which for years had faced every difficulty with stout hearts collapsed. “Sold out,” “dismantled,” “shut down,” is the melancholy record of the industry during these four years. At the end practically nothing was left in the Oil Regions but the Acme of Titusville and the Imperial of Oil City, both of them now under Standard management. To the oil men this sudden wiping out of the score of plants with which they had been familiar for years seemed a crime which nothing could justify. Their bitterness of heart was only intensified by the sight of the idle refiners thrown out of business by the sale of their factories. These men had, many of them, handsome sums to invest, but what were they to put them in? They were refiners, and they carried a pledge in their pockets not to go into that business for a period of ten years. Some of them tried the discouraged oil man’s fatal resource, the market, and as a rule left their money there. One refiner who had, according to popular report, received $200,000 for his business, speculated the entire sum away in less than a year. Others tried new enterprises, but men of forty learn new trades with difficulty, and failure followed many of them. The scars left in the Oil Regions by the Standard Combination of 1875–1879 are too deep and ugly for men and women of this generation to forget them.

In Pittsburg the same thing was happening. At the beginning of the work of absorption—1874—there were between twenty-two and thirty refineries in the town.[51] As we have seen, Lockhart and Frew sold to the Standard Oil Company of Cleveland some time in 1874. In the fall of that year a new company was formed in Pittsburg, called the Standard Oil Company of Pittsburg. Its president was Charles Lockhart; its directors William Frew, David Bushnell, H. M. Flagler, and W. G. Warden—all members of the Standard Oil Company and four of them stockholders in the South Improvement Company. This company at once began to lease or buy refineries. Many of the Pittsburg refiners made a valiant fight to get rates on their oil which would enable them to run independently. To save expense they tried to bring oil from the oil fields by barge; the pipe-lines in the pool refused to run oil to barges, the railroad to accept oil brought down by barge. An independent pipe-line attempted to bring it to Pittsburg, but to reach the works the pipe-line must run under a branch of the Pennsylvania railroad. It refused to permit this, and for months the oil from the line was hauled in wagons from the point where it had been held up, over the railroad track, and there repiped and carried to Pittsburg. At every point they met interference until finally one by one they gave in. According to Mr. Frew, who in 1879 was examined as to the condition of things in Pittsburg, the company began to “acquire refiners” in 1875. In 1877 they bought their last one; and at the time Mr. Frew was under examination he could not remember but one refinery in operation in Pittsburg not controlled by his company.

Nor was it refiners only who sold out. All departments of the trade began to yield to the pressure. There was in the oil business a class of men known as shippers. They bought crude oil, sent it East, and sold it to refineries there. Among the largest of these was Adnah Neyhart, whose active representative was W. T. Scheide. Now to Mr. Rockefeller the independent shipper was an incubus; he did a business which, in his judgment, a firm ought to do for itself, and reaped a profit which might go direct into the business. Besides, so long as there were shippers to supply crude to the Eastern refineries at living prices, so long these concerns might resist offers to sell or lease.

Some time in the fall of 1872 Mr. Scheide began to lose his customers in New York. He found that they were making some kind of a working arrangement with the Standard Oil Company, just what he did not know. But at all events they no longer bought from him but from the Standard buyer, J. A. Bostwick and Company. At the same time he became convinced that Mr. Rockefeller was after his business. “I knew that they were making some strenuous efforts to get our business,” he told the Hepburn Commission in 1879, “because I used to meet Mr. Rockefeller in the Erie office.” At the same time that he was facing the loss of customers and the demoralising conviction that the Standard Oil Company wanted his business, he was experiencing more or less disgust over business conditions in New York. “I did not like the character of my customers there,” Mr. Scheide told the committee. “I did not think they were treating us fairly and squarely. There was a strong competition in handling oil. The competition had got to be so strong that ‘outside refiners,’ as they called themselves then, used to go around bidding up the price of their works on the Standard Oil Company, and they were using me to sell their refineries to the Standard. They would say to refiners: ‘Neyhart will do so and so, and we are going to continue running.’ And they would say to us that the Standard was offering lower prices. I recollect one instance in which they, after having made a contract to buy oil from me if I would bring it over the Erie Railway, broke that contract for the 1–128th part of a cent a gallon. I sold out the next week.” When Mr. Scheide went to the freight agent of the Erie road, Mr. Blanchard, and told him of his decision to sell, Mr. Blanchard tried to dissuade him. During the conversation he let out a fact which must have convinced Mr. Scheide more fully than ever that he had been wise in determining to give up his business. Mr. Blanchard told him as a reason for his staying and trusting to the Erie road to keep its contracts with him that the Standard Oil Company had been offering him five cents more a barrel than Mr. Scheide was paying them, and would take all their cars, and load them all regularly if they would throw him over and give them the business. It is interesting to note that when Mr. Scheide sold in the spring of 1875, it was, as he supposed, to Charles Pratt and Company. Well informed as he was in all the intricacies of the business—and there were few abler or more energetic men in trade at the time—he did not know that Charles Pratt and Company had been part and parcel of the Standard Oil Company since October, 1874.

Of course securing a large crude shipping business like Mr. Neyhart’s was a valuable point for the Standard. It threw all of the refiners whom he had supplied out of crude oil and forced several of them to come to the Standard buyer—a first step, of course, toward a lease or sale. At every point, indeed, making it difficult for the refiner to get his raw product was one of the favourite manœuvres of the combination. It was not only to crude oil it was applied. Factories which worked up the residuum or tar into lubricating oil and depended on Standard plants for their supply were cut off. There was one such in Cleveland—the firm of Morehouse and Freeman. Mr. Morehouse had begun to experiment with lubricating oils in 1861, and in 1871 the report of the Cleveland Board of Trade devoted several of its pages to a description of his business. According to this account he was then making oils adapted to lubricating all kinds of machinery—he held patents for several brands and trade marks, and had produced that year over 25,000 barrels of different lubricants besides 120,000 boxes of axle grease. At this time he was buying his stock or residuum from one or another of the twenty-five Cleveland refiners. Then came the South Improvement Company and the concentration of the town’s refining interest in Mr. Rockefeller’s hands. Mr. Morehouse, according to the testimony he gave the Hepburn Commission in 1879, went to Mr. Rockefeller, after the consolidation, to arrange for supplies. He was welcomed—the Standard Oil Company had not at that time begun to deal in lubricating oils—and encouraged to build a new plant. This was done at a cost of $41,000, and a contract was made with the Standard Oil Company for a daily supply of eighty-five barrels of residuum. Some time in 1874 this supply was cut down to twelve barrels. The price was put up too, and contracts for several months were demanded so that Mr. Morehouse got no advantage from the variation in crude prices. Then the freights went up on the railroads. He paid $1.50 and two dollars for what he says he felt sure his big neighbour was paying but seventy or seventy-five cents (there is no evidence of any such low rate to the Standard from Cleveland to New York by rail). Now it was impossible for Mr. Morehouse to supply his trade on twelve barrels of stock. He begged Mr. Rockefeller for more. It was there in the Standard Oil works. Why could he not have it? He could pay for it. He and his partner offered to buy 5,000 barrels and store it, but Mr. Rockefeller was firm. All he could give Mr. Morehouse was twelve barrels a day. “I saw readily what that meant,” said Mr. Morehouse, “that meant squeeze you out—buy your works. They have got the works and are running them; I am without anything. They paid about $15,000 for what cost me $41,000. He said that he had facilities for freighting and that the coal-oil business belonged to them; and any concern that would start in that business, they had sufficient money to lay aside a fund to wipe them out—these are the words.”[52]

At every refining centre in the country this process of consolidation through persuasion, intimidation, or force, went on. As fast as a refinery was brought in line its work was assigned to it. If it was an old and poorly equipped plant it was usually dismantled or shut down. If it was badly placed, that is, if it was not economically placed in regard to a pipe-line and railroad, it was dismantled even though in excellent condition. If it was a large and well-equipped plant advantageously located it was assigned a certain quota to manufacture, and it did nothing but manufacture. The buying of crude, the making of freight rates, the selling of the output remained with Mr. Rockefeller. The contracts under which all the refineries brought into line were run were of the most detailed and rigid description, and they were executed as a rule with a secrecy which baffles description. Take, for example, a running arrangement made by Rockefeller in 1876, with a Cleveland refinery, that of Scofield, Shurmer and Teagle. The members of this concern had all been in the refining business in Cleveland in 1872 and had all handed over their works to Mr. Rockefeller, when he notified them of the South Improvement Company’s contracts. Mr. Shurmer declared once in an affidavit that he alone lost $20,000 by that manœuvre. The members of the firm had not stayed out of business, however. Recovering from the panic caused by the South Improvement Company, they had united in 1875, building a refinery worth $65,000, with a yearly capacity of 180,000 barrels of crude. On the first year’s business they made $40,000. Although this was doing well, they were convinced they might do better if they could get as good freight rates as the Standard Oil Company, and in the spring of 1876 they brought suit against the Lake Shore and Michigan Southern and the New York Central and Hudson River Railroads for “unlawful and unjust discrimination, partialities and preferences made and practised ... in favour of the Standard Oil Company, enabling the said Standard Oil Company to obtain to a great extent the monopoly of the oil and naphtha trade of Cleveland.” The suit was not carried through at the time. Mr. Rockefeller seems to have suggested a surer way to the firm of getting the rates they wanted. This was to make a running arrangement with him. He seems to have demonstrated to them that they could make more money under his plan than outside, and they signed a contract for a remarkable “joint adventure.” According to this document Scofield, Shurmer and Teagle put into the business a plant worth at that time about $73,000 and their entire time. Mr. Rockefeller put in $10,000 and his rebates! That is, he secured for the firm the same preferential rates on their shipments that the Standard Oil Company enjoyed. The firm bound itself not to refine over 85,000 barrels a year and neither jointly nor separately to engage in any other form of oil business for ten years—the life of the contract. Scofield, Shurmer and Teagle were guaranteed a profit of $35,000 a year. Profits over $35,000 went to Mr. Rockefeller up to $70,000; any further profits were divided.

The making of this contract and its execution were attended by all the secret rites peculiar to Mr. Rockefeller’s business ventures. According to the testimony of one of the firm given a few years later on the witness stand in Cleveland the contract was signed at night at Mr. Rockefeller’s house on Euclid Avenue in Cleveland, where he told the gentlemen that they must not tell even their wives about the new arrangement, that if they made money they must conceal it—they were not to drive fast horses, “put on style,” or do anything to let people suspect there were unusual profits in oil refining. That would invite competition. They were told that all accounts were to be kept secret. Fictitious names were to be used in corresponding, and a special box at the post-office was employed for these fictitious characters. In fact, smugglers and house-breakers never surrounded their operations with more mystery.

But make his operations as thickly as he might in secrecy, the effect of Mr. Rockefeller’s steady and united attack on the refining business was daily becoming more apparent. Before the end of 1876 the alarm among oil producers, the few independent refineries still in business, and even in certain railroad circles was serious. On all sides talk of a united effort to meet the consolidation was heard.

Chapter Six: STRENGTHENING THE FOUNDATIONS

FIRST INTERSTATE COMMERCE BILL—THE BILL PIGEON-HOLED THROUGH EFFORTS OF STANDARD’S FRIENDS—INDEPENDENTS SEEK RELIEF BY PROPOSED CONSTRUCTION OF PIPE-LINES—PLANS FOR THE FIRST SEABOARD PIPE-LINE—SCHEME FAILS ON ACCOUNT OF MISMANAGEMENT AND STANDARD AND RAILROAD OPPOSITION—DEVELOPMENT OF THE EMPIRE TRANSPORTATION COMPANY AND ITS PROPOSED CONNECTION WITH THE REFINING BUSINESS—STANDARD, ERIE AND CENTRAL FIGHT THE EMPIRE TRANSPORTATION COMPANY AND ITS BACKER, THE PENNSYLVANIA RAILROAD—THE PENNSYLVANIA FINALLY QUITS AFTER A BITTER AND COSTLY WAR—EMPIRE LINE SOLD TO THE STANDARD—ENTIRE PIPE-LINE SYSTEM OF OIL REGIONS NOW IN ROCKEFELLER’S HANDS—NEW RAILROAD POOL BETWEEN FOUR ROADS—ROCKEFELLER PUTS INTO OPERATION SYSTEM OF DRAWBACKS ON OTHER PEOPLE’S SHIPMENTS—HE PROCEEDS RAPIDLY WITH THE WORK OF ABSORBING RIVALS.

From the time the Central Association announced itself, independent refiners and the producers as a body watched developments with suspicion. They had little to go on. They had no means of proving what was actually the fact that the Central Association was the Standard Oil Company working secretly to bring its competitors under control or drive them out of business. They had no way of knowing what was actually the fact that the Standard had contracts with the Central, Erie and the Pennsylvania which gave them rebates on the lowest tariff which others paid. That this must be the case, however, they were convinced, and they determined early in 1876 to call on Congress for another investigation. A hearing was practically insured, for Congress since 1872 had given serious attention to the transportation troubles. The Windom Committee of 1874 had made a report, the sweeping recommendations of which gave much encouragement to those who suffered from the practices of the railroads. Among other things this committee recommended that all rates, drawbacks, etc., be published at every point and no changes allowed in them without proper notification. It recommended the Bureau of Commerce which, in 1902, twenty-eight years later, was created. So serious did the Windom Committee consider the situation in 1874, that it made the following radical recommendations:

The only means of securing and maintaining reliable and effective competition between railways is through national or state ownership, or control of one or more lines which, being unable to enter into combinations, will serve as a regulation of other lines.

One or more double-track freight-railways honestly and thoroughly constructed, owned or controlled by the government, and operated at a low rate of speed, would doubtless be able to carry at a much less cost than can be done under the present system of operating fast and slow trains on the same road; and, being incapable of entering into combinations, would no doubt serve as a very valuable regulator of existing railroads within the range of their influence.

With Congress in such a temper the oil men felt that there might be some hope of securing the regulation of interstate commerce they had asked for in 1872. The agitation resulted in the presentation in the House of Representatives, in April, of the first Interstate Commerce Bill which promised to be effective. The bill was presented by James H. Hopkins of Pittsburg. Mr. Hopkins had before his eyes the uncanny fate of the independent oil interests of Pittsburg, some twenty-five factories in that town having been reduced to two or three in three and one-half years. He had seen the oil-refining business of the state steadily reduced, and he thought it high time that something was done. In aid of his bill a House investigation was asked. It was soon evident that the Standard was an enemy of this investigation. Through the efforts of a good friend of the organisation—Congressman H. B. Payne, of Cleveland—the matter was referred to the Committee on Commerce, where a member of the house, J. N. Camden, whose refinery, the Camden Consolidated Oil Company, if it had not already gone, soon after went into the Standard Oil Alliance, appeared as adviser of the chairman! Now what Mr. Hopkins wanted was to compel the railroads to present their contracts with the Standard Oil Company. The Committee summoned the proper railroad officers, Messrs. Cassatt, Devereux and Rutter, and O. H. Payne, treasurer of the Standard Oil Company. Of the railroad men, only Mr. Cassatt appeared, and he refused to answer the questions asked or to furnish the documents demanded. Mr. Payne refused also to furnish the committee with information. The two principal witnesses of the oil men were E. G. Patterson of Titusville, to whose energy the investigation was largely due, and Frank Rockefeller of Cleveland, a brother of John D. Rockefeller. Mr. Patterson sketched the history of the oil business since the South Improvement Company identified the Standard Oil Company with that organisation, and framed the specific complaint of the oil men, as follows: “The railroad companies have combined with an organisation of individuals known as the Standard Ring; they give to that party the sole and entire control of all the petroleum refining interest and petroleum shipping interest in the United States, and consequently place the whole producing interest entirely at their mercy. If they succeed they place the price of refined oil as high as they please. It is simply optional with them how much to give us for what we produce.”

Frank Rockefeller gave a pretty complete story of the trials of an independent refiner in Cleveland during the preceding four years. His testimony in regard to the South Improvement Company has already been quoted. He declared that at the moment, his concern, the Pioneer Oil Company, was unable to get the same rates as the Standard; the freight agent frankly told him that unless he could give the road the same amount of oil to transport that the Standard did he could not give the rate the Standard enjoyed. Mr. Rockefeller said that in his belief there was a pooling arrangement between the railroads and the Standard and that the rebate given was “divided up between the Standard Oil Company and the railroad officials.” He repeatedly declared to the committee that he did not know this to be a positive fact, that he had no proof, but that he believed such was the truth. Among the railroad officials whom he mentioned as in his opinion enjoying spoils were W. H. Vanderbilt, Thomas Scott and General Devereux. Of course the newspapers had it that he had sworn that such was the fact. Colonel Scott promptly wired the following denial:

“The papers of this morning publish that a man named Rockefeller stated before your committee that myself and other officers of this company were participants in rebates made to the Standard Oil Company. So far as the statement relates to myself and the officers of this company it is unqualifiedly false, and I have to ask that you will summon the officers of the Standard Oil Company, or any other parties that may have any knowledge of that subject, in order that such villainous and unwarranted statements may be corrected.”

General Devereux published in the Cleveland press an equally emphatic denial. Although Mr. Rockefeller promptly declared that he had stated to the committee that he had no personal knowledge that there was such a pool as he had intimated between the railroad men and the Standard, that he had only given his suspicions, there were plenty of people to overlook his explanation and assert that he had given proof of such a division of spoils. The belief spread and is met even to-day in oil circles. Now the only basis for any such assertion was the fact that W. H. Vanderbilt, Peter H. Watson and Amasa Stone were at that time, 1876, stockholders in the Standard Oil Company. There is no evidence of which the writer knows that General Devereux or Colonel Scott ever held any stock in the concern. Indeed, in 1879, when A. J. Cassatt was under examination as to the relations of the Pennsylvania Railroad and the Standard Oil Company, his own lawyer took pains to question him on this point—an effort, no doubt, to silence the accusation which at that date was constantly repeated.

“Mr. Cassatt,” Mr. MacVeagh said, “I want to direct your attention to a personal matter which was asked you to a certain extent. You were asked whether you had any knowledge that Mr. Vanderbilt, representing the New York Central, or Mr. Jewett, representing the Erie, had any interest whatever in the Standard Oil Company or any of its affiliated companies. I wish to extend that question to the other trunk lines. I wish you would state whether or not to your knowledge Mr. Garrett, or anybody representing the Baltimore and Ohio, had any such interest?”

“They have not to my knowledge.”

* * * * *

“Then I wish you would state whether Mr. Scott or yourself, or any other officers of the Pennsylvania Railroad Company, had any such interest?”

“Never to my knowledge. I speak of absolute knowledge as to myself, but as to Mr. Scott to the best of my knowledge and belief.”

Of course after this controversy the railroads were more obdurate than ever. Mr. Payne and Mr. Camden were active, too, in securing the suppression of the investigations and they soon succeeded not only in doing that but in pigeon-holing for the time Mr. Hopkins’s Interstate Commerce Bill.

But the oil men had not been trusting entirely to Congressional relief. From the time that they became convinced that the railroads meant to stand by the terms of the “Rutter Circular” they began to seek an independent outlet to the sea. The first project to attract attention was the Columbia Conduit Pipe Line. This line was begun by one of the picturesque characters of Western Pennsylvania, “Dr.” David Hostetter, the maker of the famous Hostetter’s Bitters. Dr. Hostetter’s Bitters’ headquarters were in Pittsburg. He had become interested in oil there, and had made investments in Butler County. In 1874 he found himself hampered in disposing of his oil and conceived the idea of piping it to Pittsburg, where he could make a connection with the Baltimore and Ohio road, which up to this time had refused to go into the oil pool. Now at that time the right of eminent domain for pipes had been granted in but eight counties of Western Pennsylvania. Allegheny County, in which Pittsburg is located, was not included in the eight, a restriction which the oil men attributed rightly, no doubt, to the influence of the Pennsylvania Railroad in the State Legislature. That road could hardly have been expected to allow the pipes to go to Pittsburg and connect with a rival road if it could help it. Dr. Hostetter succeeded in buying a right of way through the county, however, and laid his pipes within a few miles of the city to a point where he had to pass under a branch of the Pennsylvania Railroad. The spot chosen was the bed of a stream over which the railroad passed by a bridge. Dr. Hostetter claimed he had bought the bed of the run and that the railroad owned simply the right to span the run. He put down his pipes, and the railroad sent a force of armed men to the spot, tore up the pipes, fortified their position and prepared to hold the fort. The oil men came down in a body, and, seizing an opportune moment, got possession of the disputed point. The railroad had thirty of them arrested for riot, but was not able to get them committed; it did succeed, however, in preventing the relaying of the pipes and a long litigation over Dr. Hostetter’s right to pass under the road ensued. Disgusted with this turn of affairs Dr. Hostetter leased the line to three young independent oil men of whom we are to hear more later. They were B. D. Benson, David McKelvy and Major Robert E. Hopkins, all of Titusville. Resourceful and determined they built tank wagons into which the oil from the pipe was run and was carted across the tracks on the public highway, turned into storage tanks and again repiped and pumped to Pittsburg. They were soon doing a good business. The fight to get the Columbia Conduit Line into Pittsburg aroused again the agitation in favour of a free pipe-line bill, and early in 1875 bills were presented in both the Senate and House of the state and bitter and long fights over them followed. It was charged that the bills were in the interest of Dr. Hostetter. He wants to transport his blood bitters cheaply, sneered one opponent! Many petitions for the bill were circulated, but there were even stronger remonstrances and the source of some of them was suspicious enough; for instance, that of the “Pittsburg refiners representing about one-third of the refining capacity of the Pennsylvania district and nearly one-third of the entire capacity now in business.” As the Pittsburg refiners were nearly all either owned or leased by the Standard concern, and the few independents had no hope save in a free pipe-line, there seems to be no doubt about the origin of that remonstrance. Although the bills were strongly supported, they were defeated, and the Columbia Conduit Line continued to “break bulk” and cart its oil over the railroad track.

Another route was arranged which for a time promised success. This was to bring crude oil by barges to Pittsburg, then to carry the refined down the Ohio River to Huntington and thence by the Richmond and Chesapeake road to Richmond. This scheme, started in February, was well under way by May, and “On to Richmond!” was the cry of the independents. Everything possible was done to make this attempt fail. An effort was even made to prevent the barges which came down the Allegheny River from unloading, and this actually succeeded for some time. There seemed to be always some hitch in each one of the channels which the independents tried, some point at which they could be so harassed that the chance of a living freight rate which they had seen was destroyed.

Some time in April, 1876, the most ambitious project of all was announced. This was a seaboard pipe-line to be run from the Oil Regions to Baltimore. Up to this time the pipe-lines had been used merely to gather the oil from the wells and carry it to the railroads. The longest single line in operation was the Columbia Conduit, and it was built thirty miles long. The idea of pumping oil over the mountains to the sea was regarded generally as chimerical. To a trained civil engineer it did not, however, present any insuperable obstacles, and in the winter of 1875 and 1876 Henry Harley, whose connection with the Pennsylvania Transportation Company has already been noted, went to his old chief in the Hoosac Tunnel, General Herman Haupt, and laid the scheme before him. If it was a feasible idea would General Haupt take charge of the engineering for the Pennsylvania Transportation Company? At the same time Mr. Harley employed General Benjamin Butler to look after the legal side of such an undertaking. Both General Haupt and General Butler were enthusiastic over the idea and took hold of the work with a will. It was not long before the scheme began to attract serious attention. The Eastern papers in particular took it up. The references to it were, as a whole, favourable. It was regarded everywhere as a remarkable undertaking: “Worthy,” the New York Graphic said, “to be coupled with the Brooklyn Bridge, the blowing up of Hell Gate, and the tunnelling of the Hudson River.” As General Haupt’s plans show, it was a tremendous undertaking, for the line would be, when finished, at least 500 miles long, and it would be worked by thirty or more tremendous pumps. On July 25 a meeting was held at Parker’s Landing, presenting publicly the reports of General Haupt and General Butler. The authority and seriousness of the scheme as set forth at this meeting alarmed the railroads. If this seaboard line went through it was farewell to the railroad-Standard combination. Oil could be shipped to the seaboard by it at a cost of 16⅔ cents a barrel, General Haupt estimated. All of the interests, little and big, which believed that they would be injured by the success of the line, began an attack.

Curiously enough one of the first points of hostility was General Haupt himself. An effort was made to discredit his estimate in order to scare people from taking stock. They recalled the Hoosac Tunnel scandal and the fact that the General once built a bridge which had tumbled down, ridiculed his estimate of the cost, etc., etc. The “card” in which General Haupt answered his chief critic, one who signed himself “Vidi,” was admirable:

A CARD FROM GENERAL HAUPT

What are the charges that I am requested to “smash”?

They are, as I understand them from others, for some I have not seen:

1. That I once built a bridge that tumbled down.

2. That I was connected with the Hoosac Tunnel that cost seventeen millions of dollars.

3. That my estimates of cost of transportation are ridiculously low and unreliable.

1. I did design a bridge some twenty years ago, and constructed a span near Greenfield, in Massachusetts, which gave way, owing to a defective casting, while being tested. The bridge was not finished; had not been opened to the public; had not been accepted from the contractor, who repaired the damage in such a manner that a recurrence of a break would have been impossible. I have built spans of bridges and tested them until they broke, to ascertain their ultimate strength, but I supposed that this was a matter that concerned myself and not the public. If the bridge had been thrown open for public use, and an accident had then occurred from defective design or material, the engineer might have been censurable, but not otherwise. In an experience of nearly forty years I have never had a bridge to fail, after being opened for travel, or a piece of masonry to give way. No accident occurred even upon the temporary military bridges constructed during the war, which President Lincoln used to say were built of bean poles and corn stalks.

2. How about the Hoosac Tunnel?

In 1856 I undertook to build the Hoosac Tunnel, at that time ridiculed as visionary and utterly impracticable. I carried it on until 1862, when its practicability was so fully demonstrated that it was considered some discredit to Massachusetts to allow the work to proceed under engineers from another state, and honourable members of the Legislature declared that Massachusetts had engineers as competent as any that could be found in Pennsylvania. The work in my hands, as was proved by reports of investigating committees, was costing less than $2,000,000, and the trouble then was that the margin was considered too large, and that I was making too much money on the $2,000,000, which the state had agreed to advance. In 1862 the state took the work out of my hands and put it under control of state commissioners and engineers. The result was that instead of getting the Hoosac Tunnel completed for $2,000,000, which was amply sufficient in the hands of H. Haupt and Company, it has now cost, under state management, nearly $17,000,000.

I hope this explanation will be considered sufficient to “smash” Number 2.

3. As to Number 3, the insufficiency of my estimate.

The items which enter into such an estimate are pure and simple. There has been but one omission, and that is malicious mischief or deviltry, and this item is so uncertain that, without a more intimate acquaintance with “Vidi” and his supporters, I could not undertake to estimate it.

I have put coal at five dollars per ton or eighteen cents per bushel, now worth five cents at Brady’s and eight at Pittsburg. Is not this enough? I have allowed fifty per cent. greater consumption at each station than has been estimated by others. I have allowed $1,000 a year for each of two engine men at each station. Will anyone say this is not sufficient? And I have, to be safe, estimated the work down below the results given by any of the ordinary hydraulic formula. It would be absurd to tell experienced pipe men that oil cannot be pumped fifteen miles under 900 pounds pressure through a four–inch pipe with a discharge of 5,000 barrels per day, which is all that the estimate is based upon, and it allows sixty-five days’ stoppage besides.

Please, gentlemen, let me alone. I have had enough of newspaper controversy in former years. I am sick of it.

H. HAUPT.

At the same time that General Haupt was attacked the Pennsylvania Transportation Company was criticised for bad management. A long letter to the Derrick August 14, 1876, claimed that the company in the past had been mismanaged; that the credit it asked could not be given safely; that its management had been such that it had scarcely any business left. Indeed this critic claimed that the last pipe-line organised, a small line known as the Keystone, had during the last six months done almost double the business of the Pennsylvania. Under the direction of the Pennsylvania Railroad, it was believed, the Philadelphia papers began to attack the plan. Their claim was that the charters under which the Pennsylvania Transportation Company expected to operate would not allow them to lay such a pipe-line. The opposition became such that the New York papers began to take notice of it. The Derrick on September 16, 1876, copies an article from the New York Bulletin in which it is said that the railroads and the Standard Oil Company, “now stand in gladiatorial array, with shields poised and sword ready to deal the cut.” An opposition began to arise, too, from farmers through whose property an attempt was being made to obtain right of way. In Indiana and Armstrong counties the farmers complained to the secretary of internal affairs, saying that the company had no business to take their property for a pipe-line. One of the common complaints of the farmers’ newspapers was that leakage from the pipes would spoil the springs of water, curdle milk, and burn down barns. The matter assumed such proportions that the secretary referred it to the attorney-general for a hearing. In the meantime the Pennsylvania Transportation Company made the most strenuous efforts to secure the right of way. A large number of men were sent out to talk over the farmers into signing the leases. Hand bills were distributed with an appeal to be generous and to free the oil business from a monopoly that was crushing it. These same circulars told the farmers that a monopoly had hired agents all along the route misrepresenting the facts about their intentions. Mr. Harley, under the excitement of the enterprise and the opposition it aroused, became a public figure, and in October the New York Graphic gave a long interview with him. In this interview Mr. Harley claimed that the pipe-line scheme was gotten up to escape the Standard Oil monopoly. Litigation, he declared, was all his scheme had to fear. “John D. Rockefeller, president of the Standard monopoly,” he said, “is working against us in the country newspapers, prejudicing the farmers and raising issues in the courts, and seeking also to embroil us with other carrying lines.”

It was not long, however, before something more serious than the farmers and their complaints got in the way of the Pennsylvania Transportation Company. This was a rumour that the company was financially embarrassed. Their certificates were refused on the market, and in November a receiver was appointed. Different members of the company were arrested for fraud, among them two or three of the best known men in the Oil Regions. The rumours proved only too true. The company had been grossly mismanaged, and the verification of the charges against it put an end to this first scheme for a seaboard pipe-line.

While all these efforts doomed to failure or to but temporary success were making, a larger attempt to meet Mr. Rockefeller’s consolidation was quietly under way. Among those interested in the oil business who had watched the growing power of the Standard with most concern was the head of the Empire Transportation Company, Colonel Joseph D. Potts. In connection with the Pennsylvania Railroad Colonel Potts had built up this concern, founded in 1865, until it was the most perfectly developed oil transporter in the country. It operated 500 miles of pipe, owned a thousand oil-tank cars, controlled large oil yards at Communipaw, New Jersey, was in every respect indeed a model business organisation, and it had the satisfaction of knowing that what it was it had made itself from raw material, that its methods were its own, and that the practices it had developed were those followed by other pipe-line companies. While the Empire had far outstripped all its early competitors, there had grown up in the last year a rival concern which Colonel Potts must have watched with anxiety. This concern, known as the United Pipe Line, was really a Standard organisation, for Mr. Rockefeller, in carrying out his plan of controlling all the oil refineries of the country, had been forced gradually into the pipe-line business.

His first venture seems to have been in 1873. In that year the oil-shipping firm of J. A. Bostwick and Company laid a short pipe in the Lower Field, as the oil country along the Allegheny River was called. Now J. A. Bostwick was one of the charter members of the South Improvement Company, and when Mr. Rockefeller enlarged his business in 1872 because of the power that enterprise gave him, he took Mr. Bostwick into the Standard. This alliance, like all the operations of that venture, was secret. The bitterness of the Oil Regions against the members of the South Improvement Company was so great for many months after the Oil War that Mr. Bostwick and Mr. Rockefeller seem to have concluded in 1873 that it would be a wise precautionary measure for them to lay a pipe-line upon which they could rely for a supply of oil in case the oil men attempted again to cut them off from crude, as they had succeeded in doing in 1872. Accordingly, a line was built and put in the charge of a man who has since become known as one of the “strong men” of the Standard Oil Company. This man, Daniel O’Day, was a young Irishman who had first appeared in the oil country in 1867, and had at once made so good a record for himself as transporting agent, that in 1869, when the oil-shipping firm of J. A. Bostwick needed a man to look after its shipments, he was employed. The record he made in the next two years was such that it reached the ear of Jay Gould himself, the president of the Erie, over which Mr. Bostwick was doing most of his shipping. Now the Erie at this time was making a hard fight to meet the growth of the Empire Transportation Company. So important did Jay Gould think this struggle that in 1871 he himself came to the Oil Regions to look after it. One of the first men summoned to his private car as it lay in Titusville was the young Irishman, O’Day. He came as he was, begrimed with the oil of the yards, but Mr. Gould was looking for men who could do things, and was big enough to see through the grime. When the interview was concluded, Daniel O’Day had convinced Jay Gould that he was the man to divert the oil traffic from the Pennsylvania to the Erie road, and he walked out with an order in his pocket which lifted him over the head of everybody on the road so far as that particular freight was concerned, for it gave him the right to seize cars wherever he found them. For weeks after this he practically lived on the road, turning from the Pennsylvania in this time a large volume of freight, and making it certain that it would have to look to its laurels as it never had before.

The next year after this episode came the Oil War. The anger of the oil men was poured out on everyone connected in any way with the stockholders of the South Improvement Company, and among others on Mr. O’Day. He knew no more of the South Improvement Company at the start than the rest of the region, but he did know that it was his business to take care of certain property intrusted to him. Resolutions calling on him to resign were passed by oil exchanges and producers’ unions. Mobs threatened his cars, his stations, his person, but with the grit of his race he hung to his post. There was, perhaps, but one other man in the employ of members of the South Improvement Company who showed the same courage, and that was Joseph Seep of Titusville. Almost every other employee fled, the principals in the miserable business took care to stay out of the country, but Mr. O’Day and Mr. Seep polished their shillalahs and stood over their property night and day until the war was over. Their courage did not go unrewarded. They were made the chief executive representatives, in the region, of the consolidated Standard interests which followed the war, though neither of them knew at the time that they were in the Standard employ. They supposed that the shipper Bostwick was an independent concern. It was a man of grit and force and energy then who took hold of the Standard’s pipe-line in 1873. Rapid growth went on. The little line with which they started became the American Transfer Company, gradually extending its pipes to seventy or eighty miles in Clarion County, and in 1875 building lines in the Bradford Field.

The American Transfer Company was soon working in harmony with the United Pipe Lines, of which Captain J. J. Vandergrift was the president. This system had its nucleus, like all the others of the country, in a short private line, built in 1869 by Captain Vandergrift. It had grown until in 1874 it handled thirty per cent. of the oil of the region. Now in 1872, after the Oil War, Captain Vandergrift had become a convert to Mr. Rockefeller’s theory of the “good of the oil business,” and as we have seen, had gone into the National Refiners’ Association as vice-president. Later he became a director in the Standard Oil Company. In 1874 he sold a one-third interest of his great pipe-line system to Standard men, and the line was reorganised in the interests of that company. That is, the Standard Oil Combination in 1876 was a large transporter of oil, for the directors and leading stockholders owned and operated fully forty per cent. of the pipe-lines of the Oil Regions, owned all but a very few of the tank cars on both the Central and Erie roads, and controlled under leases two great oil terminals, those of the Erie and Central roads. It was little wonder that Colonel Potts watched this rapid concentration of transportation and refining interests with dread. It was more dangerous than the single shipper, and he had always fought that idea on the ground of policy. “In the first place, it concentrates great power in the hands of one party over the trade of the road,” he told an investigating committee of Congress in 1888. “They can remove it at pleasure. In the second place I think a large number of parties engaged in the same trade are very apt to divide themselves into two different classes as to the way of viewing markets; one class will be hopeful, and the other the reverse. The result will be there will be always one or the other class engaged in shipping some of the traffic.... The whole question seems to me to resolve itself into determining what policy will bring the largest volume in the most regular way to the carrier; and it is my opinion, based upon such experience as I have had, that a hundred shippers of a carload a day would be sure to give to a carrier a more regular volume of business, and I think, probably, a larger total volume of business in a year’s time than one shipper of a hundred cars a day.”[53]

Holding this theory, Colonel Potts had opposed the rebate to the Standard granted by the Pennsylvania in 1875. Three years later he described in a communication, published anonymously, the effect of the rebates granted at that time:

“The final agreement with the railways was scarcely blotter-dried ere stealthy movements toward the whole line of outside refiners were evident, although rather felt than seen. As long as practicable, they were denied as mere rumours, but as they gradually became accomplished victories, as one refiner after another, through terror, through lack of skill in ventures, through financial weakness, fell shivering with dislike into the embrace of this commercial octopus, a sense of dread grew rapidly among those independent interests which yet lived, and notably among a portion of the railroad transporters.”

The chief “railroad transporter” who shared with the independents the sense of dread which Mr. Rockefeller’s absorption of refineries awakened was Mr. Potts himself. As he saw the independents of Pittsburg, Philadelphia, New York and the creek, shutting down, selling out, going into bankruptcy, while the Standard and its allies grew bigger day by day, as he saw the Standard interest developing a system of transportation greater than his own, he concluded to prevent, if possible, the one shipper in the oil business. “We reached the conclusion,” said Colonel Potts in 1888, “that there were three great divisions in the petroleum business—the production, the carriage of it, and the preparation of it for market. If any one party controlled absolutely any one of those three divisions, it practically would have a very fair show of controlling the others. We were particularly solicitous about the transportation, and we were a little afraid that the refiners might combine in a single institution, and some of them expressed a strong desire to associate themselves permanently with us. We therefore suggested to the Pennsylvania road that we should do what we did not wish to do—associate ourselves. That is, our business was transportation and nothing else; but, in order that we might reserve a nucleus of refining capacity to our lines, we suggested we should become interested in one or more refineries, and we became interested in two, one in Philadelphia and one in New York. It was incidental merely to our transportation. The extreme limit was 4,000 barrels a day only.”

It was in the spring of 1876 that the Empire began to interest itself in refineries. No sooner did Mr. Rockefeller discover this than he sought Mr. Scott and Mr. Cassatt, then the third vice-president of the Pennsylvania, in charge of transportation. It was not fair! Mr. Rockefeller urged. The Empire was a transportation company. If it went into the refining business it was not to be expected that it would deal as generously with rivals as with its own factories; besides, it would disturb the one shipper who, they all had agreed, was such a benefit to the railroads. Mr. Scott and Mr. Cassatt might have reminded Mr. Rockefeller that he was as truly a transporter as the Empire, but if they did they were met with a prompt denial of this now well-known fact. He was an oil refiner—only that and nothing more. “They tell us that they do not control the United Pipe Lines,” Mr. Cassatt said in his testimony in 1879. Besides, urged Mr. Rockefeller, if they have refineries of course they will give them better terms than they do us. Mr. Flagler told the Congressional Committee of 1888 that the Standard was unable to obtain rates through the Empire Transportation Company over the Pennsylvania Railroad for the Pittsburg or Philadelphia refineries as low as were given by competing roads, and, added he, “from the fact that the business during those years was so very close as to leave scarcely any margin of profit under the most advantageous circumstances. And we, finding ourselves undersold in the markets by competitors whom we knew had not the same facilities in the way of mechanical appliances for doing the business, knew that there was but one conclusion to be reached, and that was that the Empire Transportation Company favoured certain other shippers, I would say favoured its own refineries to our injury.”

As the Standard Oil Company paid a dividend of about fourteen per cent. in both 1875 and 1876, besides spending large sums in increasing its plants and facilities, the margin of profit cannot have been so low as it seemed to Mr. Flagler in 1888 to have been; naturally enough, for he saw dividends of from fifty to nearly 100 per cent. later.

Mr. Vanderbilt and Mr. Jewett soon joined their protests to Mr. Rockefeller’s. “The steps it (the Empire) was then taking,” said Mr. Jewett, “unless checked would result in a diversion largely of the transportation of oil from our roads; the New York Central road and our own determined that we ought not to stand by and permit those improvements and arrangements to be made which, when completed, would be beyond our control.”[54] These protests increased in vehemence, until finally the Pennsylvania officials remonstrated with Mr. Potts. “We endeavoured,” says Mr. Cassatt, “to try to get those difficulties harmonised, talked of getting the Empire Transportation Company to lease its refineries to the Standard Oil Company, or put them into other hands, but we did not succeed in doing that.” “Rather than do that,” Colonel Potts told Mr. Cassatt, when he proposed that the Empire sell its refineries, “we had rather you would buy us out and close our contract with you.”

When the Standard Oil Company and its allies, the Erie and Central, found that the Pennsylvania would not or could not drive the Empire from its position, they determined on war. Mr. Jewett, the Erie president, in his testimony of 1879 before the Hepburn Commission, takes the burden of starting the fight. “Whether the Standard Oil Company was afraid of the Empire Line as a refiner,” he said, “I have no means of knowing. I never propounded the question. We were opposed to permitting the Empire Line, a creature of the Pennsylvania Railroad, to be building refineries, to become the owners of pipe-lines leading into the oil field and leading to the coast, without a contest, and we made it without regard to the Standard Oil Company or anybody else; but when we did determine to make it, I have no doubt we demanded of the Standard Oil Company during the contest to withdraw its shipments from the Pennsylvania.” Mr. Flagler gave the following version of the affair to the Congressional Committee of 1888:—

We made an agreement with the Empire Transportation Company for shipments over the Pennsylvania Railroad on behalf of the Pennsylvania interests, which were then owned by the Standard Oil Company, simply because there was no alternative. It was the only vehicle by which these Pittsburg refineries and the Philadelphia refineries carried their crude oil over the Pennsylvania Railroad. There was no other medium by which business could be done over the Pennsylvania Railroad, except through the Empire Transportation Company, a subsidiary company of the Pennsylvania Railroad Company. The Empire Transportation Company was not only the owner of pipe-lines in the Oil Regions, and tank-cars on the Pennsylvania Railroad, but also of refineries at Philadelphia and New York, and to that extent were our competitors. We, having no interest whatever in transportation,[55] naturally felt jealous of the Empire Transportation Company, and drew the attention of the northern lines. By that I mean the New York Central and the Erie railroads. With the peculiar position of the oil business on the Pennsylvania Railroad, their attention was called to this very soon after the Empire Transportation Company began the business of refining. The position taken by the two Northern trunk lines in their intercourse with the Pennsylvania Railroad, as was admitted by Mr. Cassatt in his testimony, and stated to me by the representatives of the two Northern roads, Mr. Vanderbilt and Mr. Jewett, was that it was unfair to them that the Pennsylvania Railroad did not divest itself of the manufacturing business.

Backed by the Erie and Central, Mr. Rockefeller, in the spring of 1877, finally told Mr. Cassatt that he would no longer send any of his freight over the Pennsylvania unless the Empire gave up its refineries. The Pennsylvania refused to compel the Empire to this course. According to Mr. Potts’s own story, the road was partially goaded to its decision by a demand for more rebates, which came from Mr. Rockefeller at about the time he pronounced his ultimatum on the Empire. “They swooped upon the railways,” says Colonel Potts, “with a demand for a vast increase in their rebate. They threatened, they pleaded, it has been said they purchased—however that may be, they conquered. Minor officials intrusted with the vast power of according secret rates conceded all they were asked to do, even to concealing from their superiors for months the real nature of their illegal agreements.” Probably it was at this time that there took place the little scene between Mr. Vanderbilt and Mr. Rockefeller and his colleagues, of which the former told the Hepburn Commission in 1879. The Standard people were after more rebates. They affirmed other roads were giving larger rebates than Mr. Vanderbilt, and that their contract with him obliged him to give as much as anybody else did.

“Gentlemen,” he told them, “you cannot walk into this office and say we are bound by any contract to do business with you at any price that any other road does that is in competition with us; it is only on a fair competitive basis, a fair competition for business at a price that I consider will pay the company to do it.”

Soon after this interview, so rumour says, Mr. Vanderbilt sold the Standard stock he had acquired as a result of the deals made through the South Improvement Company. “I think they are smarter fellows than I am, a good deal,” he told the commission, somewhat ruefully. “And if you come in contact with them I guess you will come to the same conclusion.”

Spurred on then by resentment at the demands for new rebates, as well as by the injustice of Mr. Rockefeller’s demand that the Empire give up its refineries, the Pennsylvania accepted the Standard’s challenge, resolved to stand by the Empire, and henceforth to treat all its shippers alike. No sooner was its resolution announced in March, 1877, than all the freight of the Standard, amounting to fully sixty-five per cent. of the road’s oil traffic, was taken away. An exciting situation, one of out-and-out war, developed, for the Empire at once entered on an energetic campaign to make good its loss by developing its own refineries, and by forming a loyal support among the independent oil men. Day and night the officers worked on their problem, and with growing success. When Mr. Rockefeller saw this he summoned his backers to action. The Erie and Central began to cut rates to entice away the independents. It is a sad reflection on both the honour and the foresight of the body of oil men who had been crying so loudly for help, that as soon as the rates were cut on the Standard lines many of them began to attempt to force the Pennsylvania to follow. “They found the opportunity for immediate profits by playing one belligerent against the other too tempting to resist,” says Colonel Potts. “We paid them large rebates,” said Mr. Cassatt; “in fact, we took anything we could get for transporting their oil. In some cases we paid out in rebates more than the whole freight. I recollect one instance where we carried oil to New York for Mr. Ohlen, or someone he represented, I think at eight cents less than nothing. I do not say any large quantities, but oil was carried at that rate.”

While the railroads were waging this costly war the Standard was carrying the fight into the refined market. The Empire had gone systematically to work to develop markets for the output of its own and of the independent refineries. Mr. Rockefeller’s business was to prevent any such development. He was well equipped for the task by his system of “predatory competition,” for in spite of the fact that Mr. Rockefeller claimed that underselling to drive a rival from a market was one of the evils he was called to cure, he did not hesitate to employ it himself. Indeed, he had long used his freedom to sell at any price he wished for the sake of driving a competitor out of the market with calculation and infinite patience. Other refiners burst into the market and undersold for a day; but when Mr. Rockefeller began to undersell, he kept it up day in and day out, week in and week out, month in and month out, until there was literally nothing left of his competitor. A former official of the Empire Transportation Company, who in 1877 took an active part in the war his company was waging against the Standard, once told the writer that in every town, North or South, East or West, in which they already had a market for their refined oil, or attempted to make one, they found a Standard agent on hand ready to undersell. The Empire was not slow in underselling. It is very probable that in many cases it began it, for, as Mr. Cassatt says, “They endeavoured to injure us and our shippers all they could in that fight, and we did the same thing.”

In spite of the growing bitterness and cost of the contest, the Empire had no thought of yielding. Mr. Potts’s hope was in a firm alliance with the independent oil men, many of the strongest of whom were rallying to his side. At the beginning of the fight he had very shrewdly enlisted in his plan one of the largest independent producers of the day, B. B. Campbell, of Butler. “Being a pleasure and a duty to me,” says Mr. Campbell, “I entered into the service with all the zeal and power that I have. I made a contract with the Empire Line wherein I bound myself to give all my business to this line.” At the same time Mr. Potts sought the help of the man who was generally accepted as the coolest, most intelligent, and trustworthy adviser in matters of transportation the Oil Regions had, E. G. Patterson, of Titusville. Mr. Patterson was a practical railroad man, and an able and logical opponent of the rebate and “one shipper” systems. He had been prominent in the fight against the South Improvement Company, and since that time he had persistently urged the independents to wage war only on the practice of rebates—to refuse them themselves and to hold the railroads strictly to their duty in the matter. Several conferences were held, and finally, in the early summer, Mr. Potts read the two gentlemen a paper he had drawn up as a contract between the producers and the Empire. It speaks well for the fair-mindedness of Mr. Potts that when he read this document to Mr. Campbell and Mr. Patterson, both of whom were skilled in the ways of the transporter, they “accepted it in a moment.”

“It was made the duty of Mr. Patterson and myself to get signatures of producers to this agreement,” says Mr. Campbell, “in a sufficient amount to warrant the Pennsylvania road entering into a permanent agreement. The contract, I think, was for three years.” The attempt to enlist a solid body of oil men in the scheme was at once set on foot, but hardly was it under way before troubles of most serious import came upon the Pennsylvania road. A great and general strike on all its branches tied up its traffic for weeks. In Pittsburg hundreds of thousands of dollars’ worth of property were destroyed by a mob of railroad employees. It is not too much to say that in these troubles the Pennsylvania lost millions of dollars; it is certain that as a result of them the company that fall and the coming spring had to pass its dividends for the first time since it commenced paying them, and that its stock fell to twenty-seven dollars a share (par being fifty dollars). Overwhelmed by the disasters, Mr. Scott and Mr. Cassatt felt that they could not afford any longer to sustain the Empire in its fight for the right to refine as well as transport oil.

While the coffers of the Pennsylvania were empty, those of the Standard were literally bursting with profits; for the Standard, the winter before this fight came on, had carried to completion for the first time the work which it had been organised to accomplish, that is, it had put up the price of refined oil, in defiance of all laws of supply and demand, and held it up for nearly six months. The story of this dramatic commercial hold-up is told in the next chapter; it is enough for present purposes to say that in the winter of 1876–1877 millions of gallons of oil were sold by Mr. Rockefeller and his partners at a profit of from fifteen to twenty-five cents a gallon. The curious can compute the profits; they certainly ran into the multi-millions. A dividend of fifty per cent. was paid for the year following the scoop, and “there was plenty of money made to throw that dividend out twice over and make a profit,” Samuel Andrews, one of the Standard’s leading men, told an Ohio investigating committee in 1879. The Standard then had a war budget big enough for any opposition, and it is not to be wondered at that the Pennsylvania, knowing this and finding its own treasury depleted, was ready to quit.

It was August when Mr. Scott and Mr. Cassatt decided to give up the fight. Peace negotiations were at once instituted, Mr. Cassatt going to Cleveland to see Messrs. Rockefeller and Flagler, and Mr. Warden, who was visiting them there. Later, the same gentlemen met Mr. Scott and Mr. Cassatt at the St. George Hotel, in Philadelphia. “The subject of discussion at these meetings,” said Mr. Cassatt in 1879, when under examination, “was whether we could not make some contract or agreement with the Standard Oil Company by which this contest would cease. They insisted that the first condition of their coming back on our line to ship over our road must be that the Empire Transportation Company, which company represented us in the oil business, must cease the refining of oil in competition with them. The Empire Transportation Company objected to going out of the refining business.” The result of this objection Colonel Potts stated in 1888: “Our contract with the Pennsylvania road gave to them the option, at any time they saw proper, upon reasonable notice, of buying our entire plant; they exercised that option.” “Was that at your request or desire?” the chairman asked the Colonel. “No, sir. It was at the request of the Pennsylvania road through their officials.” The question then came up as to who should buy the plant of the Empire Transportation Company. “The Standard wanted us to do so,” says Mr. Cassatt. “They wanted us to buy the pipe-lines and cars; we objected to buying the pipe-lines, and it resulted in their buying them and the refining plants. The negotiations were carried on in Philadelphia, Mr. Rockefeller and Mr. Flagler mainly representing the Standard. A substantial agreement was reached about the last of October. The agreement would have been probably perfected about that time except that the counsel for the Empire Line thought it was necessary that they should advertise the fact that they were going to sell their property, and have a meeting of their stockholders, and get their assent to the sale before the papers were finally signed.”

This meeting of which Mr. Cassatt speaks was held on October 17. Colonel Potts made a statement to the stockholders, which he began by a brief review of the growth of the company from the point when twelve years before it had started as a new route charged with the duty of meeting formidable competitors. He pointed out that at the close of the twelfth year the company was the owner of a large fleet of lake vessels, of elevators and docks at the City of Erie, of improved piers in New York City, of nearly 5,000 cars, of over 500 miles of pipe-lines, of valuable interests in refineries, of all the appliances of a great business. In these twelve years, Colonel Potts told his stockholders, the organisation had collected more than one hundred million dollars, and in the last year their cars had moved over 30,000 miles of railway. He explained to the stockholders the condition of the oil business which had made it necessary, in his judgment, for the Empire Transportation Company to go into the refining business. It was done with the greatest reluctance, Colonel Potts declared, but it was done because he and his colleagues believed that there was no other way for them to save to the Pennsylvania road permanently the proportion of the oil traffic which they had acquired in the twelve years in which they had been in business. He reviewed, dispassionately, the circumstances which had led the Pennsylvania road to ask the company to give up its refineries. He stated his reasons for deciding that it was wiser for the Empire to resign its contracts with the Pennsylvania and go into liquidation than to submit to the demands of the Standard interests. Colonel Potts followed his statement by an abstract of the agreements which had been made between the Standard people and the Empire. By these agreements the Standard Oil Company bought of the Empire Transportation Company their pipe-line interest for the sum of $1,094,805.56, their refining interests in New York and Philadelphia for the sum of $501,652.78, $900,000 worth of Oil Tank Car Trust, and they also settled with outside refiners and paid for personal property to the extent of $900,000 more, making a total cash payment of $3,400,000. Two millions and a half of this money, Colonel Potts told the stockholders, would be paid that evening by certified checks if the agreements were ratified. “Not knowing what your action might be at this meeting,” he concluded, “we are still in active business. We could not venture to do anything that would check our trade, that would repel customers, that would drive any of them away from us. We must be prepared if you said no to go right along with our full machinery under our contract, or under such modification of that as we could fight through. We could not stop moving a barrel of oil. We must be ready to take any offered to us; we must supply parties taking oil. There was nothing we could do but what was done; nothing was stopped, nothing is stopped, everything is going on just as vigorously at this moment through as wide an extent of country as ever it did, and it will continue to do so until after you take action, until after we get these securities or the money. That, we suppose, will be about six o’clock to-day, if you act favourably, and at that time we shall, if everything goes through, telegraph to every man in our service, and to the heads of departments what has been done, and at twelve o’clock to-night we shall cease to operate anything in the Empire Transportation Company.”

The stockholders accepted the proposition, and that night at Colonel Potts’s office on Girard Street, Philadelphia, Mr. Scott and Mr. Cassatt, of the Pennsylvania Railroad, Colonel Potts and two of his colleagues in the Empire, and two of the refiners with whom he was affiliated, met William Rockefeller, Mr. Flagler, Mr. Warden, Mr. Lockhart, Charles Pratt, Jabez A. Bostwick, Daniel O’Day, and J. J. Vandergrift, and their counsel, and the papers and checks were signed and passed, wiping out of existence a great business to which a body of the best transportation men the state of Pennsylvania has produced had given twelve years of their lives. After the meeting was over, there were sent out from Philadelphia to scores of employees of the Empire Transportation Company scattered throughout the state, telegrams stating that at twelve o’clock that night the company would cease to exist. For twelve years the organisation had been doing a growing business. On the date of this telegram its operations were more extensive, its opportunities more promising, under fair play, than they had ever been before in its history. The band of men who had built it up to such healthy success were not giving it up because they had lost faith in it, or because they believed there were larger opportunities for them in some other business; they were giving it up because they were compelled to, and probably men never went out of business in this country with a deeper feeling of injustice than that of the officials of the Empire Transportation Company on October 17, 1877, when they sent out the telegrams which put their great creation into liquidation.

The pipe-lines thus acquired were at once consolidated with the other Standard lines. Only a few independent lines, and only one of these of importance—the Columbia Conduit—now remained in the Oil Regions. This company had been doing business, since 1875, under the difficulties already described. Dr. Hostetter, the chief stockholder, had become heartily sick of the oil business and wanted to sell. He had approached the Empire Line, and there had been some negotiations. Then came the fall of the Empire and Dr. Hostetter sought the United Pipe Line. Intent on stopping every outlet of oil not under their control the Standard people bought the Columbia Conduit. By the end of the year the entire pipe-line system of the Oil Regions was in Mr. Rockefeller’s hands. He was the only oil gatherer. Practically not a barrel of oil could get to a railroad without his consent. He had set out to be simply the only oil refiner in the country, but to achieve that purpose he had been obliged to make himself an oil transporter. In such unforeseen paths do great ambitions lead men!

The first effect of the downfall of the Empire was a new railroad pool. Indeed when it became evident that the Pennsylvania would yield, the Erie, Central and the Standard had begun preparing a new adjustment, and the papers for this were ready to be signed on October 17, with those transferring the pipe-line property. Never had there been an arrangement which gathered up so completely the oil outlets, for now the Baltimore and Ohio road came into a pool for the first time. Mr. Garrett had always refused the advances of the other roads, but when he saw that the Columbia Conduit Line, his chief feeder, was sure to fall into Standard hands; when he began to suspect the Baltimore refiners were going into the combination, he realised that if he expected to keep an oil traffic he must join the other roads. The new pool, therefore, was between four roads. Sixty-three per cent. of the oil traffic was conceded to New York, and of the sixty-three per cent. going there the Pennsylvania road was to have twenty-one per cent. Thirty-seven per cent. of the traffic was to go to Philadelphia and Baltimore, and of this thirty-seven per cent. the Pennsylvania had twenty-six per cent. The Standard guaranteed the road not less than 2,000,000 barrels a year, and if it failed to send that much over the road it was to pay it a sum equal to the profits it would have realised upon the quantity in deficit. In return for this guarantee of quantity the Standard was to pay such rates as might be fixed from time to time by the four trunk lines (which rates it was understood should be so fixed by the trunk lines as to place them on a parity as to cost of transportation by competing lines), and it was to receive weekly a commission of ten per cent. on its shipments it controlled.[56] No commission was to be allowed any other shipper unless he should guarantee and furnish such a quantity of oil that after deducting any commission allowed, the road realised from it the same amount of profits as it did from the Standard trade. The points in the agreement were embodied in a letter from William Rockefeller to Mr. Scott. This letter and the answer declaring the arrangement to be satisfactory to the company are both dated October 17.[57]

Four months later Mr. Rockefeller was able to take another step of great advantage. He was able to put into operation the system of drawbacks on other people’s shipments which the South Improvement Company contracts had provided for, and which up to this point he seems not to have been securely enough placed to demand. There were no bones about the request now. Mr. O’Day, the general manager of the American Transfer Company, a pipe-line principally in Clarion County, Pennsylvania, which, including its branches, was from eighty to 100 miles in length, a company now one of the constituents of the United Pipe Line, wrote to Mr. Cassatt:

“I here repeat what I once stated to you, and which I wish you to receive and treat as strictly confidential, that we have been for many months receiving from the New York Central and Erie Railroads certain sums of money, in no instance less than twenty cents per barrel on every barrel of crude oil carried by each of these roads.” Continuing, Mr. O’Day says: “Co-operating as we are doing with the Standard Oil Company and the trunk lines in every effort to secure for the railroads paying rates of freight on the oil they carry, I am constrained to say to you that in justice to the interests I represent we should receive from your company at least twenty cents on each barrel of crude oil you transport.... In submitting this proposition I find that I should ask you to let this date from November 1, 1877, but I am willing to accept as a compromise (which is to be regarded as strictly a private one between your company and ours) the payment by you of twenty cents per barrel on all crude oil shipments commencing with February 1, 1878.”[58]

Mr. Cassatt complied with Mr. O’Day’s request. In a letter to the comptroller of the road he said that he had agreed to allow this commission after having seen the receipted bills, showing that the New York Central allowed them a commission of thirty-five cents a barrel, and the Erie Railroad a commission of twenty cents a barrel on Bradford oil and thirty cents on all other oils. Thus the Standard Oil Company, through the American Transfer Company, received, in addition to rebates on its own shipments, from twenty to thirty-five cents drawback a barrel on all crude oil which was sent over the trunk lines by other people as well as by itself.[59]

The effect of this new concentration of power was immediate in all the refining centres of the country. Most of the Baltimore refiners, some eight in number, which up to this time had remained independent, seeing themselves in danger of losing their oil supply, were united at the end of 1877 into the Baltimore United Oil Company, with J. N. Camden at their head. Mr. Camden was president of the Camden Consolidated Company of Parkersburg, West Virginia, a concern already in the Standard alliance, and he and his partners held the majority stock in the Baltimore concern. The method of reaching the Baltimore independents who looked with dislike or fear on the Standard was a familiar one: An officer of one of the concerns owned by the Standard Oil Company would approach the outsider who was feeling the pressure and propose a sale or a lease to himself personally. It was an escape, and it usually ended in the complete absorption of the plant by the Standard. A few of the Baltimore interests refused to go into the Baltimore United Oil Company. Among them was a woman, a widow, Mrs. Sylvia C. Hunt, who had conducted a successful refinery there for several years, and whose business ability and energy had been the admiration of all those with whom she had come in contact. Her interests had been particularly cherished by the Empire Line, “Mrs. Hunt’s cars” being given precedence many a time by agents at Titusville or other shipping points who knew her story. In the summer of 1877 her works burned out. With a courage which was generally commented on at the time Mrs. Hunt at once rebuilt and in less than six months had her plant in running order. Then came the fall of the Empire Transportation Company, the sale of the Columbia Conduit Company, and the entrance of the Baltimore and Ohio into the Oil Pool. Every refiner in Baltimore knew what that meant, and the wise sold when Mr. Camden proposed it. Mrs. Hunt, however, did not want to sell. She distrusted the new company. Finally with many misgivings she leased for five years at $5,000 a year. It was less than half she had been making, so she claimed, and among her old friends there was much indignation. Colonel Potts, indeed, in telling her story in his “Brief History of the Standard Oil Company,” said: “It could fairly have been expected that something of chivalrous feeling would be inspired by the sight of this indomitable spirit who had wrought so noble a work against such great odds. But though fine sentiments and generous words find frequent exodus from the lips of the Standard managers, they are never seconded by generous deeds. They crushed her business and her spirit as remorselessly as they would have killed a dog.” These are bitter words written when Colonel Potts was still smarting from his defeat. They were written, too, without reflection that Mrs. Hunt, if allowed to have all the oil she wanted, allowed equal rates, allowed to use her ability and experience, allowed freedom to sell in the markets she had built up, would undoubtedly have increased her business. She would have profited by the high prices of refined oil which Mr. Rockefeller was taking all this trouble to secure. She might have grown a formidable competitor even, and disturbed the steadiness of the working of the great machine. Colonel Potts forgot that if the Great Purpose was realised nobody must do business except under Mr. Rockefeller’s control.

In New York City the new tariff and pooling arrangements caused the greatest uneasiness, for here was the largest group of prosperous independent refiners. They had all allied themselves with the Empire Transportation Company in the spring of 1877 when its fight with the Standard had begun, but they had been dropped immediately when peace negotiations were begun, and a letter of remonstrance they sent Mr. Scott at the time was never answered.[60] The experiences of several of these independents have been recorded in court testimony. One or two will suffice here. For instance, among the Eastern refiners was the firm of Denslow and Bush; their works were located in South Brooklyn. They had begun in a very small way in 1870, and by 1879 were doing a business of nearly 1,000 barrels of crude a day. They had transported nearly all their oil by the Empire Line. After that line went out of business in October, 1877, the contract with Denslow and Bush was transferred to the Pennsylvania Railroad Company. This contract terminated on the first day of May, 1878. Some time in March they received formal notice of its expiration, and solicited an interview with the officers of the Pennsylvania Railroad in order to make some arrangements for the further transportation of their oil. Mr. Cassatt named New York. The meeting was held at Mr. Denslow’s office, 123 Pearl Street. Besides Mr. Bush, there were present to meet Mr. Cassatt, Messrs. Lombard, Gregory, King, H. C. Ohlen, and C. C. Burke, all independents. When Mr. Bush was under examination in the suit against the Pennsylvania Railroad in 1879 he gave an account of what happened at this interview:

“We asked Mr. Cassatt what rate of freight we should have after the expiration of these contracts, whether we should have as low a rate of freight as the Standard Oil Company or any other shipper? He said, ‘No,’ We asked why. ‘Well, in the first place, you can’t ship as much oil as the Standard Oil Company,’ ‘Well, if we could ship as much oil’—I think Mr. Lombard put this question—‘would we then have the same rate?’ He said, ‘No,’ ‘Why?’ ‘Why, you could not keep the road satisfied; it would make trouble.’ And he remarked in connection with that, that the Standard Oil Company was the only party that could keep the roads harmonised or satisfied. He intimated, I believe, that each road had a certain percentage of the oil business, and they could divide that up and give each road its proportion, and in that way keep harmony, which we could not do. Right after that he made the remark that he thought that we ought to fix it up with the Standard; we ought to do something so as to all go on and make some money, and I think we gave him very distinctly to understand that we didn’t propose to enter into any ‘fix up’ where we would lose our identity, or sell out, or be under anybody else’s thumb. I believe that he went so far as to say that he would see the Standard, and do everything he could to bring that thing about. We told him very clearly that we didn’t want any interference in that direction, and if there was anything to be done, we thought we were quite capable of doing it. The interview perhaps lasted an hour. There was a great deal of talk of one kind and another, but this is, I think, the substance. This interview was in March, 1878, I think.

“Another interview at which I was present was either in June or July. Mr. Scott was present. This interview was brought about because we had been deprived, as we believed, of getting a sufficient number of cars we were entitled to. We had telegraphed or written to Mr. Cassatt—at least, Mr. Ohlen, our agent, had, on several occasions, and tried to get an interview, and finally this one was appointed, at which Mr. Scott would be present. When we arrived there we found Mr. Brundred, from Oil City; and Mr. Scott went on to state that he thought that we were receiving our fair proportion of cars. They tried to make us believe and feel, I suppose, that we were getting our due proportion, when for some considerable time previous to this we had not been able to do any business in advance; we could only do business from hand to mouth. We could not sell any refined oil unless we absolutely had the crude oil in our possession in New York, and Mr. Lombard, one of our number, had sold a cargo of crude oil, I think, of 9,000 barrels, and Denslow and Bush absolutely stopped their refinery for three weeks consequently, in order to let their oil go to Ayres and Lombard to finish their vessel, because they would only get three or four cars a day; and we stopped our place for three weeks to give them our crude oil, all we could give—our proportion—in order to lift them out and get their vessel cleared. After trying to impress upon us that we were getting our proportion of cars, we asked Mr. Scott substantially the same question we asked Mr. Cassatt in New York, whether we could have, if there was any means by which we could have, the same rate of freight as other shippers got, and he said flatly, ‘No’; and we asked him then if we shipped the same amount of oil as the Standard, and he said, ‘No,’ and gave the same reasons Mr. Cassatt had in New York, that the Standard Oil Company were the only parties that could keep peace among the roads. We stated to Mr. Scott that we would like to know to what extent we would be discriminated against, because we wanted to know what disadvantage we would have to work under. And we went away very much dissatisfied. All the information we got on that point was from Mr. Cassatt in New York, when he stated that the discrimination would be larger on a high rate of freight than on a low rate of freight, which led us to infer that it was a percentage discrimination. That is all the point that I recollect we ever got as to the amount of the commission. We told Mr. Scott that if they hadn’t sufficient cars on their road we would like to put some on, and he told us flatly that they had just bought out one line and they would not allow another one to be put on; that if they hadn’t cars enough they would build them. He seemed to show considerable feeling that afternoon, and he said: ‘Well, you have cost us in fighting for you now a million dollars’ (or a million and a half, something like that—a very large sum), ‘and we don’t propose to go into another fight.’”[61]

Strange as it may seem there were not only men in the refining business who were willing to fight under these conditions, there were men among the very ones who had succumbed at the opening of the Standard’s onslaught who were ready to try the business again. Among these was William Harkness, whose experience up to 1876 was related in the preceding chapter. Mr. Harkness’s next experience in the oil business was related to the same committee as that already mentioned:

“When I was compelled to succumb,” he said, “I thought it was only temporarily; that the time would come when I could go into the business I was devoted to. We systematised all our accounts and knew where the weak points were. I was in love with the business. I selected a site near three railroads and the river. I took a run across the water—I was tired and discouraged and used up in 1876, and was gone three or four months. I came back refreshed and ready for work, and had the plans and specifications and estimates made for a refinery that would handle 10,000 barrels of oil a day, right on this hundred acres of land. I believed the time had arrived when the Pennsylvania Railroad would see their true interest as common carriers, and the interest of their stockholders and the business interest of the city of Philadelphia, and I took those plans, specifications, and estimates, and I called on Mr. Roberts, president of the Pennsylvania Railroad Company. I had consulted one or two other gentlemen, whose advice was worth having, whether it would be worth my while to go to see President Roberts. I went there and laid the plans before him, and told him I wanted to build a refinery of 10,000 barrels capacity a day. I was almost on my knees begging him to allow me to do that. He said; ‘What is it you want?’ I said; ‘I simply ask to be put upon an equality with everybody else, and especially the Standard Oil Company.’ I said; ‘I want you to agree with me that you will give me transportation of crude oil as low as you give it to the Standard Oil Company or anybody else for ten years, and then I will give you a written assurance that I will do this refining of 10,000 barrels of oil a day for ten years.’ I asked him if that was not an honest position for us to be in; I, as a manufacturer, and he, the president of a railroad. Mr. Roberts said there was a great deal of force in what I said, but he could not go into any written assurance. He said he would not go into any such agreement, and I saw Mr. Cassatt. He said in his frank way; ‘That is not practicable, and you know the reason why.’”

As this work of absorption went on steadily, persistently, the superstitious fear of resistance to proposals to lease or sell which came from parties known or suspected to be working in harmony with the Standard Oil Company, which had been strong in 1875, grew almost insuperable. In Cleveland this was particularly true. A proposal from Mr. Rockefeller was certainly regarded popularly as little better than a command to “stand and deliver.” “The coal-oil business belongs to us,” Mr. Rockefeller had told Mr. Morehouse. “We have facilities; we must have it. Any concern that starts in business we have sufficient money laid aside to wipe out”[62]—and people believed him! The feeling is admirably shown in a remarkable case still quoted in Cleveland—and which belongs to the same period as the foregoing cases, 1878—a case which took the deeper hold on the public sympathy because the contestant was a woman, the widow of one of the first refiners of the town, a Mr. B——, who had begun refining in Cleveland in 1860. Mr. B——’s principal business was the manufacture of lubricating oil. Now at the start the Standard Oil Company handled only illuminating oil, and accordingly a contract was made between the two parties that Mr. B—— should sell to Mr. Rockefeller his refined oil, and that the Standard Oil Company should let the lubricating business in Cleveland alone. This was the status when in 1874 Mr. B—— died. What happened afterwards has been told in full in affidavits made in 1880,[63] and they shall tell the story; the only change made in the documents being to transfer them for the sake of clarity from the legal third person to the first, and to condense them on account of space.

Mrs. B——’s story as told in her affidavit is as follows:

“My husband having contracted a debt not long prior to his death for the first time in his life, I, for the interest of my fatherless children, as well as myself, thought it my duty to endeavour to continue the business, and accordingly took $92,000 of the stock of the B—— Oil Company and afterwards reduced it to $72,000 or $75,000, the whole stock of the company being $100,000, and continued business from that time until November, 1878, making handsome profits out of the business during perhaps the hardest years of the time since Mr. B—— had commenced. Some time in November, 1878, the Standard Oil Company sent a man to me by the name of Peter S. Jennings, who had been engaged in the refining business and had sold out to the Standard Oil Company. I told Mr. Jennings that I would carry on no negotiations with him whatever, but that if the Standard Oil Company desired to buy my stock I must transact the business with its principal officer, Mr. Rockefeller. Mr. Jennings, as representing the Standard Oil Company, told me that the president of the company, Mr. Rockefeller, said that said company would control the refining business, and that he hoped it could be done in one or two years; but if not, it would be done, anyway, if it took ten years to do it.

“After two or three days’ delay Mr. Rockefeller called upon me at my residence to talk over the negotiation with regard to the purchase of my stock. I told Mr. Rockefeller that I realised the fact that the B—— Oil Company was entirely in the power of the Standard Oil Company, and that all I could do would be to appeal to his honour as a gentleman and to his sympathy to do with me the best that he could; and I begged of him to consider his wife in my position—that I had been left with this business and with my fatherless children, and with a large indebtedness that Mr. B—— had just contracted for the first time in his life; that I felt that I could not do without the income arising from this business, and that I had taken it up and gone on and been successful, and I was left with it in the hardest years since my husband commenced the business. He said he was aware of what I had done, and that his wife could never have accomplished so much. I called his attention to the contract that my husband had made with him in relation to carbon oil, whereby the Standard Oil Company agreed not to touch the lubricating branch of the trade carried on by my husband, and reminded him that I had held to that contract rigidly, at a great loss to the B—— Oil Company, but did so because I regarded it a matter of honour to live up to it. I told him that I had become alarmed because the Standard Oil Company was getting control of all the refineries in the country, and that I feared that the said Standard Oil Company would go into the lubricating trade, and reminded him that he had sent me word that the Standard Oil Company would not interfere with that branch of the trade. He promised, with tears in his eyes, that he would stand by me in this transaction, and that I should not be wronged; and he told me that, in case the sale was made, I might retain whatever amount of the stock of the B—— Oil Company I desired, his object appearing to be only to get the controlling stock of the company. He said that while the negotiations were pending he would come and see me, and I thought that his feelings were such on the subject that I could trust him and that he would deal honourably by me.

“Seeing that I was compelled to sell out, I wanted the Standard Oil Company to make me a proposition, and endeavoured to get them to do so, but they would not make a proposition. I then made a proposition that the whole stock of the B—— Oil Company with accrued dividends should be sold to said Standard Oil Company for $200,000, which was, in fact, much below what the stock ought to have been sold for; but they ridiculed the amount, and at last offered me only $79,000, not including accounts, and required that each stockholder in the B—— Oil Company should enter into a bond that within the period of ten years he or she would not directly or indirectly engage in or in any way be concerned in the refining, manufacturing, producing, piping, or dealing in petroleum or in any of its products within the county of Cuyahoga and state of Ohio, nor at any other place whatever.

“Seeing that the property had to go, I asked that I might, according to the understanding with the president of the company, retain $15,000 of my stock, but the reply to this request was; ‘No outsiders can have any interest in this concern; the Standard Oil Company has “dallied” as long as it will over this matter; it must be settled up to-day or go,’ and they insisted upon my signing the bond above referred to.

“The promises made by Mr. Rockefeller, president of the Standard Oil Company, were none of them fulfilled; he neither allowed me to retain any portion of my stock, nor did he in any way assist me in my negotiations for the sale of my stock; but, on the contrary, was largely instrumental in my being obliged to sell the property much below its true value, and requiring me to enter into the oppressive bond above referred to.

“After the arrangements for the sale of the refinery and of my stock were fully completed and the property had been sold by myself and the other stockholders, and after I had made arrangements for the disposition of my money, I received a note from Mr. Rockefeller, in reply to one that I had written to him threatening to make the transaction public, saying that he would give me back the business as it stood, or that I might retain stock if I wished to, but this was after the entire transaction was closed, and such arrangements had been made for my money that I could not then conveniently enter into it; and I was so indignant over the offer being made at that late day, after my request for the stock having been made at the proper time, that I threw the letter into the fire and paid no further attention to it.”[64]

The letter which Mrs. B—— destroyed was included in the affidavit in which Mr. Rockefeller answered Mrs. B——’s statement. It reads:

“November 13, 1878. DEAR MADAM: I have held your note of 11th inst., received yesterday, until to-day, as I wished to thoroughly review every point connected with the negotiations for the purchase of the stock of the B—— Oil Company, to satisfy myself as to whether I had unwittingly done anything whereby you could have any right to feel injured. It is true that in the interview I had with you I suggested that if you desired to do so, you could retain an interest in the business of the B—— Oil Company, by keeping some number of its shares, and then I understood you to say that if you sold out you wished to go entirely out of the business. That being my understanding, our arrangements were made in case you concluded to make the sale that precluded any other interests being represented, and therefore, when you did make the inquiry as to your taking some of the stock, our answer was given in accordance with the facts noted above, but not at all in the spirit in which you refer to the refusal in your note. In regard to the reference that you make as to my permitting the business of the B—— Oil Company to be taken from you, I say that in this, as all else that you have written in your letter of 11th inst., you do me most grievous wrong. It was of but little moment to the interests represented by me whether the business of the B—— Oil Company was purchased or not. I believe that it was for your interest to make the sale, and am entirely candid in this statement, and beg to call your attention to the time, some two years ago, when you consulted Mr. Flagler and myself as to selling out your interests to Mr. Rose, at which time you were desirous of selling at considerably less price, and upon time, than you have now received in cash, and which sale you would have been glad to have closed if you could have obtained satisfactory security for the deferred payments. As to the price paid for the property, it is certainly three times greater than the cost at which we could construct equal or better facilities; but wishing to take a liberal view of it, I urged the proposal of paying the $60,000, which was thought much too high by some of our parties. I believe that if you would reconsider what you have written in your letter, to which this is a reply, you must admit having done me great injustice, and I am satisfied to await upon innate sense of right for such admission. However, in view of what seems your present feelings, I now offer to restore to you the purchase made by us, you simply returning the amount of money which we have invested and leaving us as though no purchase had been made. Should you not desire to accept this proposal, I offer to you one hundred, two hundred, or three hundred shares of the stock at the same price that we paid for the same, with this addition, that we keep the property we are under engagement to pay into the treasury of the B—— Oil Company, an amount which, added to the amount already paid, would make a total of $100,000, and thereby make the shares $100 each.

“That you may not be compelled to hastily come to conclusion, I will leave open for three days these propositions for your acceptance or declination, and in the meantime believe me,

Yours very truly, “JOHN D. ROCKEFELLER.”

Mr. Rockefeller says further in the affidavit from which this letter is drawn: “It is not true that I made any promises that I did not keep in the letter and spirit, and it is not true that I was instrumental to any degree in her being obliged to sell the property much below its true value, and I aver that she was not obliged to sell out, and that such was a voluntary one upon her part and for a sum far in excess of its value; and that the construction which was purchased of her could be replaced for a sum not exceeding $20,000.”[65]

It is probably true, as Mr. Rockefeller states, that he could have reproduced Mrs. B——’s plant for $20,000; but the plant was but a small part of her assets. She owned one of the oldest lubricating oil refineries in the country, one with an enviable reputation for good work and fair dealing, and with a trade that had been paying an annual net income of from $30,000 to $40,000. It was this income for which Mr. Rockefeller paid $79,000; this income with the old and honourable name of the B—— Oil Company, with not a few stills and tanks and agitators.

It is undoubtedly true, as Mr. Rockefeller avers, that Mrs. B—— was not obliged to sell out, but the fate of those who in this period of absorption refused to sell was before her eyes. She had seen the twenty Cleveland refineries fall into Mr. Rockefeller’s hands in 1872. She had watched the steady collapse of the independents in all the refining centres. She had seen every effort to preserve an individual business thwarted. Rightly or wrongly she had come to believe that a refusal to sell meant a fight with Mr. Rockefeller, that a fight meant ultimately defeat, and she gave up her business to avoid ruin.