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Full text of "The rise and progress of the Standard Oil Company"

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THE RISE AND PROGRESS 

OF THE 

STANDARD OIL COMPANY 



BY 



GILBERT HOLLAND MONTAGUE 






NEW YORK AND 


LONDON 


HARPER & 


BROTHERS 


PUBLISHERS 


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M C M I V 



■^_|i Jiarvard (Jniver^ty, 
Dept of Social Ethics. 



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Copyright, 1902, by Gbo. H. Ellis Co. 
Copyright, 1903, by Gilbert Holland Montague. 

j4li rig-hts reserved. 
Published July, igoj. 



PREFACE 

The study of the Standard Oil Company — 
of which this book is the outcome — was 
undertaken by the author while Ricardo 
Scholar in Economics at Harvard Univer- 
sity for the year 1 900-1 901. The results 
of this study were reported from time to 
time to the Seminary of the Department 
of Economics, and eventually were printed 
in the Quarterly Journal of Economics pub- 
lished for Harvard University. The peri- 
od from 1865 till 1879 was treated in the 
Quarterly for February, 1902, in an article 
entitled '*The Rise and Supremacy of the 
Standard Oil Company" ; and in the Quar- 
terly for February, 1903, under the title of 
"The Later History of the Standard Oil 
Company," the narrative was continued to 

• • • 

111 



Preface 

the present. By the courtesy of the edi- 
tors and the pubHshers of the Quarterly 
Journal of Economics these two articles, 
which together compose this book, are re- 
printed unchanged. 

The sources of this history are the re- 
ports of official investigating commissions 
and committees. Chief of these are the 
report of the "Hepburn" committee ap- 
pointed in 1879 by the Legislature of New 
York to investigate railway abuses; the 
report submitted to Congress in 1888 by 
the committee appointed to investigate 
trusts, and the report of the Industrial 
Commission appointed by the President 
in 1898 and making its preliminary report 
on trusts in 1900. 

The oil business, in its early phase, was 
the reflex of prevalent railway methods. 
To attempt to judge the situation without 
first ascertaining the standards set by the 
railway management of the time is not 
merely unfair, it is subversive of all his- 
torical accuracy. The South Improve- 

iv 



Preface 

ment Company of 1872 is an instance in 
point. Its interrupted contracts with the 
railroads have since been generally exe- 
crated, and, as it is shown in these pages, 
probably rightly. But, while condemning 
these contracts, be it remembered that 
they followed in principle the best lights 
of the railway economy of the period ; that 
they were part of the generally accepted 
"evening system," by which railways in 
perfect good faith^ protected themselves 
against disastrous competition. To ap- 
point a group of the largest shippers 
"eveners," and in return for a special 
rebate require them to apportion traffic 
among the roads, seemed at that time a 
practice both inevitable and legitimate. 
This knowledge of contemporary railroad 
history may not change the current judg- 
ment upon the contracts of the South 
Improvement Company ; but it helps to a 
fairer distribution of the blame, if there 
be any, between the railroads and the 
company. 

V 



Preface 

The constant reference in the text to 
authorities in the foot-notes will not, it is 
hoped, detract from the narrative. In a 
matter so much discussed as the subject of 
this history there seems no longer room 
for unverified opinion. And if verification 
seems sometimes too insistent, the impor- 
tance of authenticating facts which too 
often have been loosely disputed should 
be sufficient excuse. 

Gilbert Holland Montague. 

Cambridge, Massachusetts. 



THE RISE AND PROGRESS 

OF THE 

STANDARD OIL COMPANY 



Harvard University. 
Dept of So€iai Ethics, 



.' -i- 



THE RISE AND PROGRESS 

OF THE 

STANDARD OIL COMPANY 



The rise and progress of the Standard 
Oil Company, from its inception in 1865 
till its control, in 1878, of ninety -five 
per cent, of the oil business of the United 
States, has presented itself to different 
critics in somewhat different characters; 
certain conservative writers think it was 
largely the result of discriminations in 
freight rates, extorted by more or less 
questionable practices from the easy virtue 
of the railroads. But just why the rail- 
roads found it expedient to grant such 
unusual favors, and why this particular 



The Rise and Progress of 

group of men, above all others, proved 
best able to extort such favors, no one 
has satisfactorily explained. Corruption 
of the railway officials has been vaguely 
suggested; but it has not been shown 
whence this group of men had the means 
to suborn the railways, and no writer has 
been able to point to a piece of precise 
evidence, found by any court or investi- 
gating committee in the United States, 
which proved such subornation of rail- 
way officials, though it is not inconceiva- 
ble that some evidence may exist. Con- 
gressional and legislative committees, on 
the other hand, and the more cautious 
writers on trusts, have been equally 
put to it to find in those acts of the rail- 
ways which eventually made the Standard 
Oil Company supreme any self-interested 
motives. The fact of the discrimination 
in freight rates seems to account for the 
supremacy of the Standard Oil Company. 
But why those refiners identified with 
the Standard Oil Company, instead of 

2 



The Standard Oil Company 

some other group of refiners, should per- 
sistently have obtained the best rates, 
has been, to these investigators, a baf- 
fling mystery. 

The secret of this strange success with 
the railways is not, however, completely 
insoluble. If the episodes in the prog- 
ress of the Standard Oil Company from 
1865 till 1877 be carefully studied, the 
motives of every act, both of the com- 
pany and of the railways, will certainly 
be revealed. The materials for this study 
are not lacking. A vast amount of ev- 
idence showing the ability of the Stan- 
dard Oil Company to turn these possi- 
bilities to advantage has been gathered 
by various commissions and investigating 
committees. With such sources of infor- 
mation as these available, an intelligible 
narrative may readily be put together. 
Not only may each act of the company 
and of the railways be authenticated, but 
also, at each step in the progress, the in- 
creasing efficiency and importance of the 

3 



x 



The Rise and Progress of 

company may be estimated, and the mo- 
mentary opportunities of railway and in- 
dustrial conditions may be gauged. And 
so in what seems at first sight an unac- 
countable and suspiciously rapid growth 
may be discerned signs of inevitable devel- 
opment — the operation of motives which 
are, at any rate, explicable. 

1865-70 

In 1865, when Mr. John D. Rockefeller 
began in a small way to refine petroleum 
at Cleveland, Ohio, the oil industry was in 
a singularly inchoate state. With the suc- 
cess of Drake's oil-well at Titus ville, Penn- 
sylvania, in 1859, refiners had been re- 
leased from the necessity of distilling coal 
into petroleum before refining petroleum 
into kerosene; and at the same time the 
sources of petroleum were shown to be 
enormously greater than they had ever 
before been guessed. This discovery stim- 
ulated consumers to increased use of lubri- 

4 



The Standard Oil Company 

cants and burning oils, and in this way 
rapidly increased the demand in the arts 
for the refined product. In even greater 
measure it encouraged the production of 
crude petroleum. Within a year after 
Drake's success wells had been sunk all 
around Oil City and along the Alleghany 
River. In 1864 had occurred the Cherry 
''run," followed by the Benninghoff and 
the Pioneer *'runs" and the sensational 
exploitation of Pithole Creek. While Mr. 
Rockefeller was erecting his little refinery, 
Pithole City — now a field sown with wheat 
— had a post-office nearly as large as that 
of Philadelphia. From Manitoulin Island 
to Alabama, and from Missouri to Central 
New York, wells had been bored for oil. 
So rapid had been the increased demand 
for the products of petroleum, and so un- 
expected had been the increase of supply, 
that in 1865 existing refineries proved 
quite inadequate to the business suddenly 
thrust upon them. 

The difficulties besetting refiners in 1865 

5 



The Rise and Progress of 

were chiefly such as could be cured by an 
increase of capital. In 1861 the best wells 
had been thirty miles from the railroads. 
Because of the lack of barrels and the dif- 
ficulty of transportation, petroleum had 
fallen from $20 a barrel to almost noth- 
ing. By 1863 boats had begun transporting 
petroleum down Oil Creek, and small pipe- 
lines and branch railway lines had been 
built. In 1866 a more efficient cylinder 
refining-still was invented, casing and tor- 
pedoes were coming to be used in drilling, 
the tank-car began to replace the clum- 
sy flat-car with its wooden tubs, and 
pipe-lines regularly transported petroleum 
from the wells to the railroads. To secure 
these economies in refining, small concerns 
must either increase their capital to about 
$500,000 or else combine into this larger 
and more efficient unit of production. 
Mr. Rockefeller was among the first to see 
the exigency; and in 1867 he united into 
the firm of Rockefeller, Andrews & Flagler 
the refineries of William Rockefeller & 

6 



The Standard Oil Company 

Co., Rockefeller & Andrews, Rockefeller & 
Co., S. V. Harkness, and H. M. Flagler. 
The reasons for this union, as he after- 
wards stated them, must even then have 
been evident: "The cause leading to the 
combination was the desire to unite our 
skill and capital, in order to carry on a 
business of some magnitude and impor- 
tance in place of the small business that 
each had separately heretofore carried 
on. 

With the reorganization of the firm of 
Rockefeller, Andrews & Flagler, in 1870, 
into the Standard Oil Company of Ohio, 
with capital stock of $1,000,000, the first 
period of the oil industry may be said to 
close. No company had sought, or, in- 
deed, has since sought, to control the oil- 
fields. So far as may be known, no refiner 
had yet organized the pipe-lines to his ex- 
clusive advantage or exacted of the rail- 
roads better freight rates than were grant- 

* Report of the Industrial Commission^ 1900, p. 
799- 

7 



The Rise and Progress of 

ed to his competitor. The transportation 
of oil by rail and by pipe-line was left to 
independent companies, and it was only by 
the competition and by the improvements 
of such companies that the cost of the 
transportation had been reduced. Till 1870 
the competition of refiners was solely con- 
cerned with efficiency of production ; and, 
since this was to be gained only by refin- 
eries of $500,000 capitalization or more, 
there was concentration among the strong- 
er concerns and extermination of the weak- 
er. By its process of concentration, and 
solely on account of its superior efficiency, 
the Standard Oil Company of Ohio became 
in 1870 larger than most of its competitors, 
and produced four per cent, of all the oil 
refined.^ After 1870 the progress of the 



* Evidence as to the capacity of the Standard Oil 
Company of Ohio in 1870. — B. B. Campbell (a 
prominent opponent of the Standard Oil Com- 
pany) (Investigation of Trusts, Congress, 1888, p. 
116): 

" Question. How large at that time [1870] was the 

8 



The Standard Oil Company 

oil industry, generally, and the precedence 
of the Standard Oil Company, in particu- 
lar, was to lie in the direction of cheaper 
transportation exacted of the transporta- 
tion companies by the refiners. 



interest of those who now represent the Standard 
Oil Trust? 

*' Answer. Not much larger interest, I should 
judge, than some of their competitors." 

Charles T. Morehouse {"Hepburn" Report, New 
York, 1879, p. 2624): 

"Q. Now tell us what was their [the Standard Oil 
Company's] capacity then [1870] as compared with 
other works at Cleveland and other points? 

'* A. Not as large as some of the other works, . . . 
but comparing very favorably with such works as 
Charles • Pratt & Co. and three or fo\ir in the oil 
regions." 

Lewis Emery (at present the most prominent op- 
ponent of the Standard Oil Company) {Report of the 
Industrial Commission, 1900, p. 646): 

"Mr. H. M. Flagler swore they had a capacity of 
six hundred barrels per day of crude oil in their re- 
finery, the production at that time [1870] being 
about sixteen thousand barrels a day. That would 
give them four per cent, of the refining business at 
that time. At that time there existed in the oil 
country, spread from Louisville, Kentucky, to Port- 
land, Maine, more than two hundred and fifty re- 
fineries." 



The Rise and Progress op 

1870-74 

Though the progress of the oil industry 
from 1865 till 1870 be said to have deter- 
mined the most efficient unit of produc- 
tion, and though the advance of the next 
seven years be said to consist in cheapen- 
ing the transportation of oil, yet it must 
not be forgotten that a considerable ad- 
vance in refining took place in this later 
period. Large refineries soon began man- 
ufacturing for their own use barrels, tin 
cans, boxes for enclosing cans, paint, glue, 
and sulphuric acid. By experiment the 
process of distillation was made applicable 
to qualities of petroleum which previously 
had been almost useless. By improve- 
ment in the details of refining, more dur- 
able machinery, tanks, and pumps were 
constructed, and a better illuminant was 
produced at less cost. In 1875 a method 
had been devised of utilizing the residuum 
of crude petroleum left after the manu- 
facture of illuminating oil ; and, after the 

10 



The Standard Oil Company 

example of the shale works of Scotland, 
the process of refining lubricants and paraf- 
fine wax from the waste that previously 
was used as fuel had been adopted in the 
larger refineries. These improvements, 
however, were by no means so considerable 
in the period from 1870 till 1877 as the ad- 
vantage from the control of transporta- 
tion; and, though they rendered unprofit- 
able those refineries which could not buy 
better machinery or utilize their residuum, 
they were quite too generally adopted by 
large refiners to account for the growing 
pre-eminence of the Standard Oil Com- 
pany. 

From 1870 till 1877, then, the struggle of 
the refiners was chiefly for transportation 
facilities. Until the issuance of the so- 
called ''Rutter Circular," in 1874, the ad- 
vantage they sought lay chiefly in dis- 
criminating freight rates. From 1874 till 
1877 the large refiners sought both to ob- 
tain special rates from the railroads and to 
organize into systems for their own ad- 

II 



The Rise and Progress of 

vantage the bewildering net-work of pipe- 
lines that had been building since 1869. 
By surpassing skill in both regions of activ- 
ity the Standard Oil Company grew in 
seven years from a concern controlling four 
per cent, of the refined oil output into one 
controlling ninety-five per cent. Organi- 
zation of the pipe-lines came late, because 
of the excessive amount of capital it de- 
manded. Opportunities for discriminat- 
ing freight rates, however, presented them- 
selves early. How the Standard Oil Com- 
pany availed itself of the unique railway 
conditions and of the practices common in 
the freight traffic of that time is one of the 
most sensational episodes in the history of 
American railroads. 

By 1 87 1 the New York Central, the 
Erie, and the Pennsylvania railroads had 
completed connections that afforded them 
entrance to Chicago, and the great struggle 
for the traffic of the West had set in. The 
roads were so poor, and the necessity for 
revenue so great, that rate wars had begun 

12 



The Standard Oil Company 

as early as 1869, when the New York Cen- 
tral and the Pennsylvania roads had se- 
cured connection with Chicago. With the 
entrance of the Erie road and, in 1874, of 
the Baltimore and Ohio into Chicago, the 
competition for traffic throughout the re- 
gion of the trunk lines became more em- 
bittered. During the years from 1869 till 
1873 the agents of the roads met annually 
at New York to agree upon freight rates; 
and afterwards, in order to get traffic, they 
regularly broke their agreement. Every 
year during this period fourth-class rates 
from Chicago to New York fell from about 
80 cents per one hundred pounds in De- 
cember to about 25 cents in August and 
September. This reckless competition for 
traffic was extended to the oil regions. 
The Pennsylvania Railroad, which had the 
earliest and closest connection with the 
centre of petroleum production at Oil 
City, hauled oil to Pittsburg, a distance 
of eighty miles, and to Philadelphia, a 
distance of four hundred miles. 

X3 



The Rise and Progress of 

The Erie Railroad, which had no direct 
communication with the oil country, ef- 
fected an entrance by a connection with 
the Atlantic and Great Western road, and 
hauled oil from Oil City to New York, a 
distance of five hundred and fifty miles. 
The New York Central Railroad entered 
Oil City by connections at Cleveland, and 
hauled oil to New York, a distance of seven 
hundred and forty miles. Just as agents 
of the roads had annually agreed upon a 
rate from Chicago to the seaboard, making 
the charge 80 cents by each road with 
a differential of 5 cents in favor of Balti- 
more and Philadelphia, so in the case of the 
oil traffic the same rate was charged by 
each road on oil moving from Oil City to 
the seaboard. The effect of this "group 
rate" was naturally displeasing to refiners 
at Pittsburg : it deprived them of all geo- 
graphical advantage, and enabled their 
competitors at Cleveland — among others, 
the Standard Oil Company — to ship oil 
seven hundred and forty miles by the New 

14 



The Standard Oil Company 

York Central Railroad at precisely the 
rate they were charged for a haulage of 
four hundred miles. 

Clearly this was a coincidence in 
rates not based upon any correspond- 
ing coincidence of cost, and as such 
constituted a case of discrimination. The 
competition of the railroads, however, 
was so fierce as to make no other ad- 
justment practicable. In the practice 
and theory of railway rates, moreover, 
ample economic justification is to be 
found. 

Because of the futility of basing rates on 
cost of service, a system of freight rates 
has arisen which favors certain classes of 
goods, certain localities, and certain in- 
dividuals. By lowering rates on cheap 
goods, by lowering rates at competitive 
points, and by lowering rates to bene- 
fit growing concerns, the revenue of the 
railways is greatly increased with very- 
slight increase in its expenses. By lower- 
ing rates in those three ways, then, and 

15 



The Rise and Progress of 

charging "what the traffic will bear," the 
railways may do business most cheaply, 
give lowest rates, and make the most 
profit. In pursuance of this principle, 
discriminations of the first sort have been 
practised from the earliest times. "Group 
rates" — a form of the second sort of dis- 
crimination — have been freely made since 
1869, when the railways first made the 
rates uniform on all the routes between 
the competitive points of New York and 
Chicago. Similar "group rates" have 
since been established in the coal traffic 
from the anthracite regions to the sea- 
board, and in the fruit traffic of California 
and Florida. The prominence of such 
"group rates" in the pooling agreements 
of the trunk lines in 1873, 1875, and 1877, 
and in the "Southwestern pooling agree- 
ments" of 1879, show how general was 
their acceptance. So fundamental, in- 
deed, have they become in American rail- 
way tariffs that the Interstate Commerce 
Commission has repeatedly sanctioned 

16 



The Standard Oil Company 

them.* Discriminations of the third sort 
were common throughout the period from 
1870 till 1874, and by 1875 the ''evening 
system" — a form of the third class of dis- 
criminations which the South Improvement 
Company closely anticipated — had become 
especially prominent in the cattle business 
between New York and Chicago.^ These 

* In the milk cases {Report of the Interstate Com- 
merce Commission, ii,, p. 273 ; vii., p. 97) the principle 
of the " group rates " is interestingly discussed from 
the most conservative stand-point. 

' The principle of the "cattle eveners' agreement" 
has been stated as follows: "The trunk lines leading 
to New York agreed upon a per cent, of the busi- 
ness which each road should receive, and appointed 
three cattle eveners, whose duty it was to see that 
the shipments were made over all the roads in the 
agreed proportions ; and for that service they were 
to receive $15 a car ... on every car-load of cattle 
shipped from the West to New York, no matter by 
whom shipped. . . . The commission was later re- 
duced to $10. Now every man is made his own 
evener — i.e., if he ships his cattle by the road he 
is requested to he gets a certain price ; if he ships 
contrary to directions his price is made $10 higher; 
and this is said to work very well, the rates via all 
routes of course being the same." — Report of the 
"Hepburn" Committee, New York, 1879, pp. 69, 70. 

17 



The Rise and Progress of 

various sorts of discrimination, then — 
special tariffs, ''group rates," and "even- 
ing systems" — must all be regarded as 
practices inevitable in the railway man- 
agement of the period — as essential con- 
sequences of railway economy in its devel- 
opment. 

In one way or another every advantage 
obtained in rates by the large refiners at 
Cleveland, in the period from 1870 till 
1874, may be classified under one of these 
three sorts of discrimination. As soon as 
oil became a prominent export they bene- 
fited, with all other refiners, in the special 
rates on oil in barrels and in tanks. Under 
the "group rates" on oil from Oil City to 
the seaboard they enjoyed local discrimi- 
nation — a discrimination doubtless annoy- 
ing to refiners on the shorter routes, but 
not essentially different from that of the 
"group rate" from Chicago to New York, 
or those later enforced by pools and au- 
thorized by the Interstate Commerce Com- 
mission. And in 1872 they obtained from 

j8 



The Standard Oil Company 

the railroads, under the abortive contract 
of the South Improvement Company, an 
** evening arrangement" that, whether 
wrongly or not, has since become a hissing 
and a by-word with every opponent of the 
Standard Oil Company. 

Early in 1871 the advantage of Cleve- 
land over Pittsburg, as a refining centre, 
had become evident. Cleveland not only 
enjoyed the same railroad rates that Pitts- 
burg had, but also had water communica- 
tion to the East by way of the great lakes 
and the Erie Canal. Pittsburg depended 
almost entirely for transportation upon the 
railroads. Cleveland, however, could at 
any time avail herself of the competition 
of rail and water transportation by taking 
to lake vessels whenever the charges of the 
New York Central Railroad were unsatis- 
factory. 

Cleveland, as a competitive point, had 
the oil traffic of the New York Central at 
her mercy. Unless the refiners at Cleve- 

19 



The Rise and Progress of 

land were allowed low freight rates, the 
New York Central must see its traffic di- 
rected to lake vessels. As the danger of 
such loss became more imminent, the 
New York Central was obliged to grant 
greater and greater favors to the re- 
finers. And when, in 1 871, an unexpect- 
ed shift in the centre of oil production 
threatened the entire refining business 
at Cleveland, the railroads dependent on 
this business were stirred to unusual 
action. 

Beginning in 1871, at the Clarion River, 
remarkable discoveries of petroleum had 
been made throughout Butler and Clarion 
counties, in the region extending five 
miles beyond Antwerp, and southwest- 
ward a distance of fifteen miles to Millers- 
town and Greece City. **The develop- 
ment southward," says the editor of the 
Oil City Derrick,"^ "brought about condi- 
tions through which some of the most im- 

* P. C. Boyle, Report of the Industrial Commission, 
1900, p. 421. 

20 



The Standard Oil Company 

portant railroads of the country might be 
deprived of a share of the oil -carrying 
trade. The Pennsylvania Railroad, how- 
ever, was not affected by the transfer of 
activities from the Venango region to that 
of Butler and Clarion counties. The 
northern railway lines — namely, the Erie 
and New York Central — were naturally 
affected by the transfer of operations to 
distant fields, which they could not reach 
with their existing connections. The first- 
named road was materially aided by the 
gathering lines of the Pennsylvania Trans- 
portation Company, operated by Henry 
Harley ; but the New York Central and its 
connections were left without petroleum- 
feeders of any description." As usual in 
new developments of territory, the in- 
crease in production due to the large capac- 
ity of the wells, the over-capacity of the 
pipe-lines in the older oil-fields, and the 
over-production of refining plants which 
had taken place in the last two years — all 
these had conspired to make the transpor- 

21 



The Rise and Progress of 

tation and refining of oil unremuner- 
ative throughout the petroleum coun- 
try, and especially unprofitable at Cleve- 
land. 

To remedy this situation, a combination 
of the railroads and certain refiners was 
planned. " It had its inception," to quote 
again the editor of the Oil City Derrick,^ 
"with certain Philadelphia and Pittsburg 
refiners, with an agreement for co-opera- 
tion with certain Cleveland refiners. But 
philosophical minds, viewing the subject 
from this distance, are agreed that it had 
its origin, as a matter of fact, with the rail- 
road interests rather than with the oil 
interests." The form which this com- 
bination took was a contract between the 
railroads and certain refiners of Pitts- 
burg, Philadelphia, and Cleveland organ- 

^ Boyle, Report of the Industrial Commission, 1900, 
p. 42 1 . Mr. Boyle's impartiality has been questioned 
by opponents of the Standard Oil Company (see 
Report of the Industrial Commission, 1900, p. 398), 
but has never been disproved. 

22 



The Standard Oil Company 

ized into the South Improvement Com- 
pany. 

By an act of the Pennsylvania Legislat- 
ure on May i, 1871, the South Improve- 
ment Company had been created and vest- 
ed with all the powers conferred by the act 
of April 7, 1870, upon the Pennsylvania 
Company. The powers of the company 
included authority ''to construct and op- 
erate any work or works, public or private, 
designed to include, increase, facilitate, or 
develop trade, travel, or the transporta- 
tion of freight, live-stock, passengers, or 
any traffic by land or water, from or to any 
part of the United States." ^ Of the two 
thousand shares of this company, nine 
hundred were owned by Messrs. H. M. 
Flagler, O. H. Payne, William Rockefeller, 
H. Bostwick, and J. D. Rockefeller, who 
later were to become prominent in the 
Standard Oil Company.^ 

* Report of the Industrial Commission, 1900, p. 607. 

* Lewis Emery, Report of the Industrial Com- 
mission, 1900, p. 619. 

23 



The Rise and Progress of 

On January i8, 1872, the South Im- 
provement Company effected the desired 
combination by completing contracts with 
the Pennsylvania, the New York Central, 
and the Erie railroads. According to the 
contracts^ the South Improvement Com- 
pany agreed to ship forty-five per cent, of 
all the oil transported by it over the Penn- 
sylvania Railroad, and to divide the re- 
mainder equally between the Erie and the 
New York Central railroads, to furnish 
suitable tankage facilities for shipping pe- 
troleum and receiving it at its destina- 
tion, and to keep records of the amount of 
petroleum and its products shipped over 
the railroads both by itself and by other 
parties. The railroads in return agreed to 
allow the South Improvement Company 
rebates on all petroleum and its products 
carried by them, to charge all other parties 
not less than the full rates specified in the 

^ These contracts are printed in full in *' Hep- 
burn" Report, Exhibits, New York, 1879, pp. 418- 

449- 

24 



The Standard Oil Company 

contract,* to furnish to the South Improve- 
ment Company way-bills of all petroleum 
or its product transported over their lines 
by any parties whatsoever, and, finally, 
"at all times to co-operate, as far as it 
legally may, with the party hereto of the 
first part, to maintain the business of the 
party hereto of the first part against loss 
or injury by competition, to the end that 
the party hereto of the first part may keep 

* Rates and rebates according to contract: 
"On Crude Petroleum 

Gross Rate (a) . Rebate (a) . 

"From any common point to 

Cleveland $0.80 $0.40 

Pittsburg 80 .40 

New York 2.56 1.06 

"On Refined Oil, etc. 
" From Pittsburg to New York $2.00 $0.50 
"From Cleveland to New York 2.00 .50" 



"This contract provided that the railways should 
increase the freight to about double what they had 
been charging on all oil shipped." — M. L. Lock- 
wood, Report of the Industrial Commission, 1900, 

P- 385. 

(a) For each barrel of forty-five gallons. ''Hep- 
hum'' Report, Exhibits, New York, 1879, p. 422. 

25 



The Rise and Progress op 

up a remunerative, and so a full and regu- 
lar business, and to that end shall lower or 
raise the gross rates of transportation over 
its railroads and connections, as far as it 
legally may^ for such times and to such ex- 
tent as may be necessary to overcome such 
competition." The aim of the railroads, 
as avowed in the preamble, was plainly an 
increase in traffic : " whereas the magnitude 
and extent of the business and operations 
to be carried on by the party hereto of the 
first part will greatly promote the interest 
of the party hereto of the second part, and 
make it desirable for it by fixing certain 
rates of freight, drawbacks, and rebates, 
and by the other provisions of this agree- 
ment to encourage the outlay proposed by 
the party hereto of the first part, and to 
facilitate and increase the transportation 
to be received from it, . . . the party 
hereto of the second part covenants and 
agrees." And for the attainment of that 
end, the railroads reserved the right to 
grant similar rebates and advantages to 

26 



The Standard Oil Company 

any other party who should furnish an 
amount of transportation equal to that 
furnished by the South Improvement 
Company, and equal facilities for promot- 
ing the petroleum trade. 

In general outline the contract was very 
like those subsequently made with the 
grain-elevator owners in the Northwest, 
and with the cattle-shippers of Chicago. 
Throughout this period it was the policy 
of the railroads to bind to themselves grow- 
ing businesses, in which, as in the elevator 
and refining industries, considerable cap- 
ital and much enterprise were necessary 
in order to succeed, and by granting to 
these concerns special rates to build up 
trade for the industries and traffic for 
themselves. By this form of personal 
discrimination the railroads entering New 
York had built up traffic for themselves 
and business for A. T. Stewart, who was 
competing for the market in the Central 
West with Field, Leiter & Co., of Chicago. 
Where the competition for traffic was keen, 

27 



The Rise and Progress of 

the railroads usually contracted with the 
strongest shipper or group of shippers to 
carry freight at a special rate, or else — as 
in the case of the large cattle-shippers at 
Chicago and the South Improvement Com- 
pany in the oil regions — appointed the 
group " evener," and in return for a special 
rebate required it to apportion traffic among 
the roads according to a fixed ratio/ 

Such are the economic grounds on which 
to judge this contract. Popular judg- 
ment, however, was much less deliberate. 
On January 1 8th the contract was signed ; 
and on February 27th, the day after the 
contract went into effect, an excited mass- 
meeting was held at Titusville and an or- 
ganization to oppose the new company 
hastily effected. At once a complete 
embargo was placed on the sale of oil to 

* As to the frequency of such discriminations, see 
the ''Hepburn'' Report, New York, 1879, pp. 48-71, 
The plan of the cattle-eveners' contract is contained 
in the '' Hepburn'' Report, New York, 1879, p. 70; of 
A.T. Stewart's contract, " Hepburn" Report, p-p. 4^2, 
808, 1597. 

28 



The Standard Oil Company 

the South Improvement Company. Com- 
mittees were hurriedly despatched to the 
railway officials, to Harrisburg, and to 
Washington. On March 1 5th a resolution 
was introduced into the House of Repre- 
sentatives at Washington to investigate 
the South Improvement Company. On 
March 25 th, in an agreement signed by the 
independent refiners, the railroads public- 
ly abrogated their contract with the com- 
pany, and announced that ''all arrange- 
ments for the transportation of oil after 
this date shall be upon a basis of perfect 
equality to all shippers, producers, and 
refiners, and that no rebates, drawbacks, 
or other arrangements of any character 
shall be made or allowed that will give any 
party the slightest difference in rates or 
any discrimination of any character what- 
ever;^ and, with this announcement, they 
issued new rates about forty per cent, 
lower than those provided by the contract. 

* Investigation of Trusts, Congress, 1888, p. 361. 

29 



The Rise and Progress of 

On April 6th, before it had the opportunity 
to do any business, the South Improve- 
ment Company was summarily deprived 
of its charter by the Pennsylvania Legis- 
lature. The company has never since had 
an apologist. The Standard Oil Company, 
in spite of its part in the unfortunate com- 
bination, has always disapproved of the 
contract.^ And the bitterest reproach 
which opponents of the Standard Oil Com- 
pany heap against it is the taunt that the 
contract of the South Improvement Com- 
pany was renewed with the Standard '* alli- 
ance," which was then forming.^ 

^ John D. Archbold, Report of the Industrial Com- 
mission, 1900, p. 540: 

" I have no knowledge of any relations on the part 
of the Standard Oil Company succeeding to the 
South Improvement Company whatever. I have 
been an opponent of the South Improvement Com- 
pany, as you well know. I have disapproved of it 
in theory, and practically disapproved of it to-day. 
I want to say that the statements that what was the 
South Improvement Company is continued in the 
Standard are not true; if they had been true, I 
would not have been in it." 

2 Such statements are made by H. D. Lloyd, 

30 



The Standard Oil Company 

In the condition which led in 1872 to 
the formation and the contract of the 
South Improvement Company lies the fact 
that must decide economic opinion upon 
the company. Since 1867, competition in 
refining methods had ruined most of the 
smaller refineries. By 1869, all but fifteen 
had for this reason been obliged to sell out 
to more efficient concerns.^ In 1 869 began 
the competition between railways that re- 

Wealth against Commonwealth, pp. 58-60; J. F. Hud- 
son, Railways and the Republic, pp. 70, 71; E. C. 
Patterson, ''Hepburn" Report, New York, 1879, p. 
1693; W. T. Scheide, Ibid., p. 2766; A. B. Hepburn, 
Report of the Committee, Ibid., p. 42 ; B. B. Campbell, 
Investigation of Trusts, Congress, 1888, p. 364; Lewis 
Emery, Report of the Industrial Commission, 1900, 
pp. 639-645; George Rice, Ibid., p. 694. No con- 
firming evidence has been offered. 

*H. H. Rogers {''Hepburn" Report, New York, 
1879, p. 2605): 

"Q. Was the Standard Oil Company at that time 
[1872] a large producer? A. Oh yes! 

" Q. Was the Standard Oil Company at that time 
the largest producer? A. The largest refiner, yes. 

"Q. Where? A. In Cleveland and New York, 
and I think they had some interests in the oil re- 
gions." 

31 



The Rise and Progress of 

suited almost immediately in personal dis- 
crimination in rates, and hastened the 
extermination of such refineries as were 
already declining. Over-production of oil 
in 1870 and 1871 had increased the de- 
pression, so that in 1872, when the centre 
of operations was shifted southward, and 
ruin threatened the large refineries as well 
as the small, feeling throughout the indus- 
try was extremely nervous. According to 
their usual practice at that time the rail- 
ways cast about for the strongest group of 
refiners with whom they might ally to 
protect their traffic. That the South Im- 
provement Company was the strongest 
group of refiners has never been disputed. 
In 1872 the Standard Oil Company was 
the largest concern in the oil region, and 
the combined capacity of the refineries or- 
ganized into the South Improvement Com- 
pany far exceeded that of the unorganized 
refiners.^ That the industrial efficiency of 

* Digest of evidence, Report of the Industrial Com- 
mission, 1900, p. 148: " Mr. Emery insists vigorously 

32 



The Standard Oil Company 

the favored company was superior to that 
of other refiners seems equally demon- 
strable. By the sheer superiority of its 
organization, and — so far as is known — 
quite unaided by unusual discrimination 
in rates, the Standard Oil Company had 
obtained in 1872 its pre-eminent position. 
By similar efficiency of capital and ability 
other members of the South Improvement 
Company had survived and grown, while 
their poorer competitors had suffered from 
depression. From the railway point of 
view, then, the situation in 1872 justified 
a special contract; and in the South Im- 
provement Company was presented the 
fittest party to such a contract. 

Whether the rebate provided by the 
contract excessively rewarded the com- 
pany for its services as '* evener " is a ques- 
tion of fact, not to be settled off-hand. 
The violent popular uprising, the quick- 

that it would have been absolutely impossible for 
any one else to secure the amount of business neces- 
sary to meet this requirement of railways." 

33 



The Rise and Progress of 

ness with which the contract was with- 
drawn by the railroads, the reticence and 
subsequent penitence of all concerned in 
making it, and the odium in which it has 
since been held by both friends and ene- 
mies of the Standard Oil Company may 
indeed be regarded as evidence that its 
provisions were unwarranted. The prin- 
ciple of the contract, however — the com- 
bination of both the railways and the 
strongest refiners to restore profitable 
stability to traffic and industry — was in- 
evitable in the practice and theory of 
railway economics. 

The panic caused in 1872 by publishing 
the contract of the South Improvement 
Company, though never more than fright 
— for the contract was never kept — still 
seemed to make the situation more acute. 
Under the stress of such difficult condi- 
tions, small concerns gave place to large, 
and large concerns combined into yet 
greater ones. Throughout 1872, 1873, 
and 1874 small refiners were driven into 

34 



The Standard Oil Company 

insolvency or forced into selling. The 
causes assigned for this are two. "The 
over-production of 1873, 1874, and 1875," 
explains a leading opponent of the Stand- 
ard Oil Company, ''and the consequent 
almost entire destruction of petroleum 
values gave the Standard Oil Company, 
with its organization and capital, almost 
the desired monopoly." * Discrimination 
in freight rates in favor of the large re- 
finers was the other and more aggravating 
cause. For, though they never resumed 
the contract of the South Improvement 
Company, nevertheless, at the solicitation 
of refiners who had signed the agreement 
of March 25, 1872, the railroads soon re- 
sumed the practice of increasing traffic by 
giving special rates to the large shippers;^ 

* Letter of the Delegation of Oil Producers, deliv- 
ered to the Pennsylvania Railroad September ii, 
1 87 7' Quoted in Investigation of Trusts, Congress, 
1888, p. 363. 

^ George R. Blanchard, of the Erie Railroad 
{''Hepburn'' Report, New York, 1879, p. 3394): 

"I was then convinced . . . that the agreement of 

35 



The Rise and Progress op 

and, though their motives were — so far 
as evidence is shown — thoroughly self-in- 

March 25 lasted less than two weeks, and that at 
an early date the Empire Line [later the great rival 
of the Standard] was receiving a large drawback or 
commission from the Pennsylvania Railroad, which 
was either being shared with the shippers or an ad- 
ditional amount was being allowed to them. ... It 
is, therefore, clear that one of the largest shippers 
who signed that March agreement did not feel that 
it bound him to pay the rates he had agreed to 
pay; and he gave convincing reasons to believe that 
others, signers and parties to that agreement, did 
not pay them, and possessed equal or greater ad- 
vantages by way of rival routes. ... I opened nego- 
tiations to increase our traffic, which resulted in an 
agreement, with the concurrence of the Atlantic and 
Great Western, as follows: 

"Erie Railway Co., 
"Office of Second Vice-President, 
"New York, March 29, 1873. 

"Memorandum 
"Between Mr. John D. Archbold [of the Stand- 
ard], Mr. Bennett, and Mr. Porter, and Mr. Osborn, 
and myself. Rate for March, '73, to be 132^ from 
Union [published rate, $1.65]. Rate thereafter to 
be $1.25 from same point as the maximum for 1873, 
If the common-point rate is made from Titusville at 
any time in 1873, on bona fide shipments, Erie and 
Atlantic and Great Western will make same rate 
from same date. With this rate the refiners agree 

36 



The Standard Oil Company 

terested,* they hastened the absorption of 
the small refineries by the larger, and es- 
pecially the expansion of the Standard Oil 

to give us their entire product to New York for the 
year, and the preference always at same rate as 
actual shipment by other lines. 

" (Signed) 

"John D. Archbold. 

"G. R. Blanchard. 

"... I also learned at that time that this pro- 
ducers' agreement [of March 25] was exploded by 
the action of the Producers' Union before that time. 
. . . These facts effectually refute the testimony of 
Mr. Patterson, that the agreement of March 25 con- 
tinued more than two years, or any period beyond 
three weeks, at the rates it stipulated, and show 
that at least two of its signers did not feel bound to 
pay the rates it named, and that they and others 
by other lines endeavored immediately after it was 
signed to obtain, and did secure, reduced rates, as 
usual before its execution, and peddled oil among 
the railroads wherever they could secure an advan- 
tage, however small, over each other on the rail- 
roads." 

* Mr. Paul de Rousiers has suggested that the 
motives of the railroad might have been mixed; 
that their act might have been inspired by inevitable 
railway policy reinforced by bribes from the Stand- 
ard Oil Company. No proven case of bribery is 
recorded, however, by any investigating committee, 
commission, or court. 

37 



The Rise and Progress of 

Company, which was the largest of all. To 
profit by these discriminations, and im- 
mediately by the advantages of concen- 
trated capital, the Standard Oil Company 
of Ohio increased its capital stock in 1872 
to $2,500,000, and in the same year com- 
bined with the Standard Oil Company of 
Pittsburg, the Cleveland Standard Refin- 
ery, the Pittsburg Refinery, the Atlantic 
Refining Company of Philadelphia, and 
Charles Pratt & Co. of New York— all lead- 
ing independent refiners — into the Stand- 
ard "alliance,"^ which ten years later was 
to be the basis of the Standard Oil Trust. 
*'It was a union, not of corporations, but 
of their stockholders," says the solicitor 
of the Standard Oil Company. "The sev- 
eral companies continued to conduct their 
business as before. They ceased to be 
competitive with one another in the sense of 

* The official name of the "alHance" was the Cen- 
tral Association of Refiners, Mr. John D. Rockefeller, 
president, and Mr. Charles Pratt, secretary and treas- 
urer. 

38 



The Standard Oil Company 

striving to undersell one another. They 
continued to be competitors in the sense 
that each strove to show at the end of each 
year the best results in making the best 
product at low cost. From time to time 
new persons and additional capital were 
taken into this association. Whenever 
and wherever a man showed himself skil- 
ful and useful in any branch of the busi- 
ness, he was sought after. As business in- 
creased, new corporations were formed in 
various States, in the same interest, some 
as trading companies, some as manufact- 
uring companies." * The motives of the 
combination, as stated by Mr. Dodd, were 
all owing to conditions prevalent in the 
period from 1870 till 1874. ** Railroad 
rates were excessive and lacking in uni- 
formity. When refiners were able to com- 
bine and throw a large volume of business 
to any particular road, they would get fa- 
vorable rates. The rebate-and-drawback 

* S. C. T. Dodd, Combinations. 

39 



The Rise and Progress of 

system was then universal, and was not 
confined to oil. Undoubtedly this fact 
had much to do with the combination of 
refiners above referred to, and which came 
to be known as the Standard. But it was 
by no means the only reason. The men 
in control of that combination foresaw 
that a business which had thus far been 
disastrous would require co-operation on a 
large scale." ' 

By early developments of its refining 
capacity, then, the Standard Oil Company 
had succeeded in 1870 in controlling four 
per cent, of the production of the oil re- 
gions. By 187 1 it had so availed itself of 
the competition between the trunk lines 
as to enjoy rates equal to those of the re- 
finers at Pittsburg. In the depression of 
1872 it had unsuccessfully essayed, with 
other refiners, to act as "evener" for the 
railroads. Frustrated in this attempt, it 
had returned to its policy of concentration 

* S. C. T. Dodd, Combinations. 
40 



The Standard Oil Company 

— purchasing small refineries, uniting with 
large ones, and exacting of the railroads 
discriminations proportionate to its size. 
By 1874 the capital of the Standard Oil 
Company of Ohio had been increased to 
$3,500,000. The control of the Standard 
"alliance" had been extended over more 
than half the refining industry, and the 
combination was ready to enter upon the 
purchase of pipe-lines. The railroads had 
not conspired to cause this development,^ 
neither could sharp practice in competition 
account for it. This remarkable increase 
since 1870 in industrial efficiency must be 
due to superior ability and capital. This 
still more striking increase in advantages 
of transportation must be due to the same 
causes, coupled with peculiar opportuni- 
ties of geographical location and railway 
conditions. Five years after this suprem- 
acy was accomplished, William H. Van- 

* It has frequently been stated, though never 
proved, that railroad officials were financially in- 
terested in the Standard Oil Company, 

41 



The Rise and Progress op 

derbilt, in reply to a question before the 
Hepburn Committee, set forth what seems 
on the whole the true explanation : 

"Question. Can you attribute, or do you at- 
tribute in your own mind, the fact of there being 
one refiner instead of fifty now to any other 
cause except the larger capital of the Standard 
Oil Company? 

"Answer. There are a great many causes: it 
is not from their capital alone that they have 
built up this business. There is no question 
about it but that these men — and if you come 
into contact with them I guess you will come 
to the same conclusion I have long ago — I think 
they are smarter fellows than I am, a good deal. 
They are very enterprising and smart men. I 
never came in contact with any class of men as 
smart and as able as they are in their business, 
and I think that a great deal is to be attributed 
to that. 

"Q. Would that alone monopolize a business 
of that sort? 

"A. It would go a great ways towards build- 
ing it up. They never could have got in the 
position they are in now without a great deal of 
ability, and one man would hardly have been 
able to do it ; it is a combination of men. 

42 



The Standard Oil Company 

"Q. Wasn't it a combination that embraced 
the smart men in the railways as well as the 
smart men in the Standard Company? 

*'A. I think those gentlemen, from their 
shrewdness, have been able to take advantage of 
the competition that existed between the rail- 
roads for their business, as it grew, and that they 
have availed themselves of it there is no ques- 
tion of doubt. 

"Q. Don't you think they have also been able 
to make their affiliations with railroad compa- 
nies and railroad officers? 

"A. I have not heard it charged that any 
railway official had any interest in any of their 
companies, only that I have seen in the papers, 
some years ago, that I had an interest in it. 

"Q. Your interest in your railway is so large 
a one that nobody would conceive, as a matter 
of personal interest, that you would have an in- 
terest antagonistic to your road? 

''A. When they came to do business with us 
in any magnitude that is the reason I disposed 
of my interest. 

' ' Q. And that is the only way you can account 
for the enormous monopoly that has grown up? 

"i4. Yes; they are very shrewd men. I 
don't believe that by any legislative enactment 
or anything else, through any of the States or all 

43 



The Rise and Progress of 

of the States, you can keep such men down. 
You can't do it! They will be on top all the 
time. You see if they are not." ["Hepburn'' 
Report, New York, 1879, p. 2605.] 



1874-77 

By its economies in refining, attained 
as early as 1870 — and in freight rates, 
the reward of its predominance in the in- 
dustry in 1872 — the Standard Oil Com- 
pany in 1873 escaped in great measure the 
depression which harassed its competitors. 
This depression, if continued, promised to 
be disastrous both to the newly formed 
"alliance" and to its dwindling compet- 
itors. In the interest of both parties, 
therefore, relief was sought in the restric- 
tion of the oil production. Throughout 
1873 there was a disposition on the part of 
the producers outside the region of the 
great wells to suspend operations. In 
1874, because of the small inducement to 
continue, there was an important shut- 

44 



The Standard Oil Company 

down in Clarion County/ But these meth- 
ods of relief were unavailing. Through- 
out 1874 the weaker refineries were forced 
to sell to the stronger, who reduced the 
over-production at once by dismantling 
their works, so that in 1874 there were 
*'in the oil regions proper but few refin- 
eries, and those universally owned by the 
Standard Oil Company, those at Pitts- 
burg being owned or controlled by that 
combination, or by the Conduit and Em- 
pire lines. ^ By its supremacy in the oil 
regions, then, the Standard Oil Company 
in 1874 had added to its economies in 
efficiency and in transportation by rail the 
advantage of restricting over-production, 
and in the period from 1874 till 1877 was 
ready to add the advantage of controlling 
the pipe -lines. 

In 1869 the first extended system of 

* P. C. Boyle, Report of the Industrial Commission, 
1900, p. 427. 

* B. B. Campbell, Investigation of Trusts, Con- 
gress, 1888, p. 364. 

45 



The Rise and Progress of 

pipe -lines — the Mutual Pipe -Line — was 
laid in Clarion County. At the same time 
William H. Abbott and Henry Harley, 
with a capital of $2,000,000, were or- 
ganizing into the Pennsylvania Transpor- 
tation Company the five hundred miles 
of pipe centring at the Miller farm. Van- 
dergrift & Forman were establishing in 
Butler County a system which was later to 
be the nucleus of the United Pipe -Line 
System, and the American Transfer Com- 
pany and the Empire Transportation Com- 
pany were forming. Such systems, how- 
ever, were rare until 1874. Most of the 
pipe -lines were scarcely ten miles long, 
and extended from Clarion River to some 
common point of shipment, where stated 
freight rates were given. Their over-ca- 
pacity had become so excessive, their com- 
petition so ill-considered, and their sol- 
vency so much a matter of doubt that by 
1874 most of them had been united into 
the system of Vandergrift & Forman, the 
Pennsylvania Transportation Company, 

46 



The Standard Oil CompaiNY 

the Columbia Conduit Company, or the 
American Transfer Company. Vander- 
grift & Forman at that time controlled 
twenty-five or thirty per cent, of the pipe- 
line traffic in the oil regions, and the five 
companies together controlled by far the 
greater part of the traffic/ Such was the 
situation when the Standard Oil Company 
took a hand in the business. 

In 1874 the firm of Vandergrift & For- 
man was reorganized. Its name was 
changed to the United Pipe-Line Com- 
pany; and its officers were Mr. Vander- 
grift, president, and six officials of the 
Standard ''alliance" among its nine direc- 
tors.^ In the same year the five great 
systems of pipe-lines agreed upon a uni- 
form schedule of charges,^ and the patrons 
of these systems were allowed special dis- 
criminations by the railroads. This new 

1 E. C. Patterson, ''Hepburn'' Report, New York, 
1879, p. 1693. ^ Ibid. 

3W. T. Scheide, ''Hepburn" Report, New York, 
1879, p. 2769. 

47 



The Rise and Progress of 

adjustment contained in the ''Rutter Cir- 
cular" of September 9, 1874, raised the 
charges for transportation of oil nearly 
to the rates fixed by the contract of the 
South Improvement Company, and al- 
lowed a rebate of 2 2 cents on all oil coming 
from the five great systems of pipe-lines 
which maintained the uniform schedule of 
charges/ By this new tariff the organiza- 

^ The "Rutter Circular" fixed the following rates 
on refined and crude oil: 

"The rates on refined oil from all refineries at 
Cleveland, Titusville, and elsewhere in and adjacent 
to the oil regions shall be as follows: 

Per barrel. 

"To Boston $2.10 

Philadelphia 1.85 

Baltimore 1.85 

New York 2.00 

"Net rate on Albany, fifteen per cent, less, from 
which shall be refunded the amount paid for tho 
transportation of crude oil by rail from the mouth of 
the pipes to the said refineries upon the basis of four- 
teen barrels of crude oil to the refineries for every 
ten barrels of refined oil forwarded by rail from them 
[the refineries] to the Eastern points named. 

"Settlements of this drawback to be made on the 
refined oil forwarded durinsr each month. 



^o 



48 



The Standard Oil Company 

tion of the remaining lines into one or an- 
other system was considerably hastened; 
and in this process of bringing order into 
the confused net-work of pipe-lines the 
Standard "alliance," the United Pipe-Line 
Company, owned by the Standard Oil 
Company, and the great systems and their 
patrons are greatly benefited. With the 
railway companies the purpose was merely 
to put an end to the unreliable service 
of the small pipe -lines, and to secure 
for themselves a larger and more certain 
traffic. With the pipe -lines, however — 

"No rebate on these rates will be paid on oil 
reaching refineries direct by pipes. 

"On crude oil the rates from all initial points of 
rail shipments in the oil region shall be as follows: 

"To Boston, $1-75 per barrel. 

"To New York, $1.50 per barrel (net rate on 
Albany fifteen per cent. less). 

"To Philadelphia, $1.50 per barrel. 

"To Baltimore, $1.50 per barrel. 

"From which shall be refunded 22 cents per bar- 
rel only on oil coming from pipes which maintain 
the agreed rates of pipeage. A barrel shall in all 
cases be computed at forty-five gallons." . . . — In- 
vestigation of Trusts, Congress, 1888, p. 363. 

49 



The Rise and Progress of 

though each of the allied pipe-lines and 
every refiner who was served by them 
shared impartially in the rebate* — the ef- 
fect was particularly to build up the larger 
pipe-line and the larger refiner at the ex- 
pense of the smaller. For this reason the 
economies in transportation by rail and 
pipe-line effected in 1874 tended greatly to 
increase the predominance of the United 
Pipe-Line Company and the Standard *' al- 
liance." 

In the year following the United Pipe- 
Line Company acquired, by purchase, the 
greater part of the pipe-lines which had 
not participated in the agreement. Com- 
binations among the large systems — the 
United Pipe- Line Company, the Columbia 
Conduit Company, and the Empire Trans- 
portation Company — gradually absorbed 
all the others. Meanwhile the pipe-lines 
enjoying the discriminations so abused 
their privilege by high charges that in 1875 

iW. T. Scheide, "Hepburn" Report, New York, 
1879, pp. 2770, 2794. 

50 



The Standard Oil Company 

competition from without and suspicion 
within broke up the agreement. In 1874 
the Baltimore and Ohio Railroad had en- 
tered Chicago and was making advances 
to the Columbia Conduit Company. The 
railway situation was uneasy; and when, 
in 1875, ttie Erie Railroad accused the 
Pennsylvania Railroad of granting secret 
discriminations to the Empire Transporta- 
tion Company, the agreement among the 
pipe-lines was immediately broken. The 
Columbia Conduit Company attached itself 
to the Baltimore and Ohio Railroad; the 
Empire Transportation attached itself to 
the Pennsylvania Railroad ;^ and the United 
Pipe-Line Company, through its owner, 
the Standard Oil Company, completed an 
agreement with the Erie and the New York 
Central railroads, according to which it 
gave to each road fifty per cent, of its 

* A copy of the contract between the Empire 
Transportation Company and the Pennsylvania 
Railroad is contained in the Investigation of Trusts, 
Congress, 1888, p. 210. 

51 



The Rise and Progress of 

traffic, guaranteed to the Erie Railroad 
twenty-seven per cent, of the entire oil 
traffic in the oil regions — which was the 
proportion the Erie Railroad had received 
under the **Rutter Circular" — and re- 
ceived in return upon all shipments a 
rebate of ten per cent.* The motives of 
the Erie and the New York Central rail- 
roads were plain. Entering the oil regions 
by connections from the north, these roads 
depended entirely for their traffic upon the 
Standard Oil Company at Cleveland. Ac- 
cordingly, for the guarantee that its oil 
traffic would not be diminished the Erie 
Railroad could afford to pay roundly ; and 
for the maintenance of the oil industry at 
Cleveland, and for the privilege of handling 
all its traffic, the New York Central Rail- 
road was ready to grant a liberal discrim- 
ination. Therefore, throughout the rest 
of 1875 all the pipe-lines in the oil regions 
arrayed themselves with one or another of 

* The details of this contract are contained in the 
*' Hepburn" Report, New York, 1879, pp. 175, 182. 

52 



The Standard Oil Company 

the three rival pipe-lines and their allied 
railroads ;^ and the armed peace thus main- 
tained continued throughout 1876. 

In 1877, with the aid of the Pennsyl- 
vania Railroad, the Empire Transportation 
Company secured control of a refinery at 
Communipaw, and began constructing oth- 
ers at Philadelphia. The roads in alliance 
with the Standard Oil Company were the 
first to discover the encroachment, and 
resented it before the Standard Oil Com- 
pany had time to act. '' Unless checked," 
said Mr. Blanchard, of the Erie Railroad, 
** the result would be 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 these improvements and ar- 
rangements to be made, which, when com- 
pleted, would be beyond our control. We 
determined, therefore, to make the issue 
with the Pennsylvania Railroad Com- 

^W. T. Scheide, ''Hepburn'' Report, New York, 
1879, p. 2795; J. C. Welch, Ibid., p. 3673. 

53 



The Rise and Progress of 

pany."^ At the suggestion of the rail- 
roads, accordingly, the Standard Oil Com- 
pany, by ceasing on March i8, 1877, 
to send freight over the Pennsylvania 
Railroad, precipitated a war between 
the great pipe - lines and their allied 
roads. 

The suddenness and fury of the war for 
the oil traffic which followed is explained 
only by the strained relations of the trunk 
lines at that time. Since 1874, when 
the Baltimore and Ohio Railroad entered 
Chicago, there had been a ruinous war of 
rates. Freight charges during this period 
from Chicago to the seaboard had fallen 
from $1 to 10 cents. New York Central 
and the Erie railroads had lost millions, 
and the Baltimore and Ohio and the Penn- 
sylvania railroads had ceased to pay divi- 
dends.^ The struggle in the oil region was, 

*G. R. Blanchard, ''Hepburn'' Report, New 
York, 1879, p. 1463. 

^Report of the ''Hepburn'' Committee, New York, 

1879. P- 2,^ 

54 



The Standard Oil Company 

therefore, merely part of a contest extend- 
ing half across the continent. Beginning 
fully a month before the larger contest 
approached settlement, it continued bitter- 
ly for six months until the very last agree- 
ments had been signed. In this struggle 
the Columbia Conduit Company connected 
with a branch of the Reading Railroad, 
and controlled the traffic in the newly 
discovered Bradford district. The Empire 
Transportation Company, meanwhile, aid- 
ed by the Pennsylvania Railroad, sought 
by a tremendous effort to crush the United 
Pipe -Line Company and the Standard 
Oil Company. The Pennsylvania Railroad 
carried oil at 8 cents a barrel less than 
cost,^ and ordered the refineries of the Em- 
pire Transportation Company to sell oil in 
the territory of the Standard alliance" at 
any price. But the Standard Oil Com- 
pany, with its high degree of mechanical 
efficiency, its well-organized united pipe- 

* Digest of the Report of the Industrial Commission, 
1900, p. 150. 

55 



The Rise and Progress of 

line system, and its firm alliance with the 
Erie and the New York Central railroads, 
proved superior. On October 17, 1877, 
the Pennsylvania Railroad was forced to 
abandon the struggle and to sign a con- 
tract which gave the Standard Oil Com- 
pany practically the monopoly of the pro- 
duction and transportation of oil in the 
United States. According to this contract 
the Standard Oil Company was appointed 
**evener," to apportion oil traffic in the 
following ratio : sixty-three per cent, of the 
oil traffic was to go to New York City and 
thirty-seven per cent, to Philadelphia and 
Baltimore ; of the traffic going to New York 
City, the New York Central, the Erie, and 
the Pennsylvania railroads were each to 
carry one-third ; of the traffic going to Phil- 
adelphia and Baltimore, the Pennsylvania 
Railroad was to carry seventy per cent, and 
the Baltimore and Ohio thirty per cent. 
By the terms of the contract the Pennsyl- 
vania Railroad was guaranteed an annual 
traffic of not less than two million bar- 

56 



The Standard Oil Company 

rels •/ and the Empire Transportation Com- 
pany was purchased for $3,000,000 by the 

^ In a letter of October 17, 1877, Mr. William 
Rockefeller set forth this contract in five provisions, 
the last providing as follows for the remuneration of 
the Standard Oil Company: 

"We ask, in consideration of the above-named 
guarantee of the business upon which it is under- 
stood we shall pay such rates as may be fixed from 
time to time by the four trunk lines (which rate, it is 
understood, shall be so fixed by the trunk lines as to 
place us on a parity as to cost of production with 
shippers by competing lines) , that you shall furnish 
us promptly all the transportation we may reason- 
ably require, and that you shall allow to and pay us 
weekly such commission on our own shipments 
and the shipments which we may control as may be 
agreed to by your company and the other trunk 
lines from time to time. This commission, it is 
understood, has for the present been fixed at ten per 
cent, upon the rate, and shall not be fixed at a less 
percentage, except by a mutual agreement of your 
company and ours; provided that no other shipper 
of oil by your line shall pay less than the rate fixed 
for us before such commission is deducted, and no 
commission shall be allowed any other shipper unless 
he shall guarantee and furnish such amount of oil for 
shipment as will, after deduction of commission al- 
lowed him, realize to you the same amount of profit 
you realize from our trade — that is, you will not 
allow any other shipper of oil any part of such com- 
mission, unless after such commission you realize 

57 



The Rise and Progress op 

Standard Oil Company and the United 
Pipe-Line Company.* The Standard Oil 

from the total of his business the same total of profit 
you realize from the total of our business, except so 
far as your company may be compelled to fill certain 
contracts for transportation made by the Empire 
Line with refineries and producers, which contracts 
terminate on or before May i, 1878 — a statement 
of which shall accompany your reply to the letter; 
such contracts to be fulfilled. We agree that all the 
stipulation herein contained shall be carried out by 
us for the period of five years from the date hereof." 
. . . — Investigation of Trusts, Congress, 1888, p. 208. 
* The motives of this act have been thus stated: 
" It was the desire on the part of the Pennsylvania 
Railroad to have a portion of our other business 
that induced them to bring about this negotiation 
with the Empire Transportation Company, and we 
yielded to their most urgent persuasions. We did 
not want the property, but they insisted upon it 
that we should buy it. We did finally yield to their 
persuasions, and purchased that portion of the Em- 
pire Transportation Company's property, meaning 
the local pipe-lines in the oil regions. We had stated 
in early discussions with representatives of the Penn- 
sylvania Railroad that we were willing to buy the 
refineries owned by the Empire Transportation 
C6mpany; but, as we were not interested in trans- 
portation at all, we wanted them to pay for the pipe- 
lines and own them themselves. But we yielded 
that point finally." — H. M. Flagler, of the Standard 
Oil Company, Investigation of Trusts, 1888, p. 773. 

58 



The Standard Oil Company 

Company, meanwhile, for its services as 
"evener" was remunerated in the follow- 
ing fashion: After May i, 1878, when the 
contracts between the Pennsylvania Rail- 
road and its shippers expired, the Standard 
Oil Company received a rebate of ten per 
cent, on all its freight. In addition to this 
it was allowed, with other shippers, a re- 
bate of 68 J cents in order that it might 
be on an equality with those refineries 
who shipped by the Erie Canal; and the 
American Transfer Company, which had 
now been united with the United Pipe- 
Line Company, was allowed 22 J cents as 
its share of the through rate. 

The Pennsylvania Railroad offered to 
carry oil for all shippers on these terms, 
except that for the ten per cent, rebate it 
asked such considerations as the Standard 
alone could furnish ; and, indeed, for those 
refiners who made all their shipments over 
its line, it continued to give rates as low as 
those of the Standard Oil Company. On 
December 8, 1878, however, when the Erie 

59 



The Rise and Progress of 

Canal was closed, the railroad ceased mak- 
ing such favorable rates for independent 
refiners; and on March 31, 1879, all pay- 
ments of rebates ceased.* 

In view of the bitterness of the war 

* A. J. Cassatt, testimony in Commonwealth of 
Pennsylvania v. Pennsylvania Railroad. Quoted in 
''Hepburn" Report, New York, 1879, pp. 483-519. 
Summarized by Archbold, Report of the Industrial 
Commission, 1900, p. 15 15. 

Expressed statistically, the rates and rebates of 
May I, 1878, are: 

Tariff rate on crude oil $1.40 

Allowance to American Transfer 

Company $0,225 

Allowance to Standard Oil Com- 
pany, ten per cent. ... 0.14 
Allowance to Standard Oil Com- 
pany 0.15 0.515 

Net rate to Standard Oil Com- 
pany $0,885 

Tariff rate on refined oil 1.90 

Rebate to all shippers .... $0,645 

Rebate to Standard Oil Com- 
pany 0.455 1-1° 

Net rate to Standard Oil Com- 
pany $0.80 

Net rate to other shippers 1-255 

Mr. Cassatt testified that large independent re- 

60 



The Standard Oil Company 

which it settled, this agreement was very 
favorable to the defeated party. The 
Pennsylvania Railroad had gone out of its 
way to strike at the power of the Standard 
"alliance," and after expensive fighting 
had been completely beaten and forced to 
sue for such terms as might mercifully be 
granted it. The Standard Oil Company, 
however, required of it only such favors 
as it already received of the New York 
Central and the Erie railroads, and, in re- 
turn, guaranteed its oil traffic, purchased 
its interest in the Empire Transportation 
Company, and advanced the money to 
buy oil-cars. It was, indeed, shrewd mag- 
nanimity ; for, in advancing the money to 
complete the sale, the Standard Oil Com- 
pany became the mortgager of the oil-cars 
of the railroad,^ and by aid of the discrim- 
inations provided in the contract it was 

finers usually receive secret rebates, which some- 
times equal those of the Standard Company. 

* H. M. Flagler, Investigation of Trusts, Congress, 
1888, pp. 770-774. 

61 



The Rise and Progress of 

able, in a few months, to drive the Colum- 
bia Conduit Company into selling.* So 
that in 1878 and 1879 the Standard Oil 
Company owned or controlled by contract 
every transporting agent in the oil regions. 

The achievement of this supremacy 
marks the close of the first phase of the 
Standard Oil Company. It owned the ter- 
minal facilities of the New York Central 
for handling oil at New York. It leased 
the terminal facilities of the Erie Railroad 
at New York. It owned or leased almost 
all the oil-cars on the Erie, the New York 
Central, and the Pennsylvania railroads.^ 
Through the United Pipe-Line Company 
and the American Transfer Company, it 
purchased, one after another, twenty -six 
pipe -lines that threatened competition.^ 

» John C. Welch, ''Hepburn" Report, New York, 
1879, p. 3671. 

^Report of the ''Hepburn" Committee, New York, 
1879, p. 40. 

^ Report of the Industrial Commission. 1900, p. 

lOI. 

62 



The Standard Oil Company 

And when, in 1879, the Tidewater Pipe- 
Line Company was built to the seaboard, 
in order to evade the discriminations of 
the railways, the Standard Oil Company 
was able, after a struggle of four years, to 
defeat that also. The dominance of the 
Standard Oil Company in the refining in- 
dustry was even more striking. In 1879 
it controlled ninety-five per cent, of the 
refineries in the oil region, and at one 
time during this period there were scarce- 
ly a dozen independent refiners in busi- 
ness.^ 

An explicated narrative — such as this 
has pretended to be — should bear its own 
judgment upon the agents who accom- 
plished the oil monopoly. That judgment 
— if the narrative has succeeded in logi- 
cal clearness — runs somewhat as follows: 
Given the railway and economic condi- 
tions, the progress of the Standard Oil 
Company was quite inevitable. Since it 

^Report of the Industrial Commission, 1900, p. 
95- 

63 



The Rise and Progress op 

showed at an early time bright promise of 
industrial efficiency, it readily acquired, 
after the fashion of the period, proportion- 
ate discrimination in freight rates. By get' 
ting control through discriminations of 
the means of transportation, it inevitably 
achieved monopoly. In support of this 
judgment it may be urged — as Mr. Paul de 
Rousiers boldly urges — that discrimina- 
tions, *' though important in the beginning, 
went into the background with the ab- 
sorption of the pipe-lines, and, though very 
helpful in the creation of the trust, were 
not indispensable to its continuance." 
Conditions alone, he continues, were such 
as to make monopoly in some sort inevi- 
table. ** Historically it is a fact; and one 
does not see how otherwise it could have 
obtained, in so quick and complete a fash- 
ion, the result towards which it tended." 
If the Standard Oil Company were not the 
strongest refiner, its most powerful rival 
would certainly have seized the same con- 
trol over transportation that the Standard 

64 



The Standard Oil Company 

Oil Company in fact secured. In the last 
analysis, monopoly by the Standard Oil 
Company was, under existing conditions, 
inevitable, simply because it was most ef- 
ficiently organized. 



The Rise and Progress of 



II 

1877-83 

The organization of the Standard "alli- 
ance," which in 1879 controlled the trans- 
portation of oil by rail and by pipe-line 
and produced ninety -five per cent, of the 
refined oil of the country, was an informal 
substitute for the modern trust. The 
bond of unity was common ownership of 
stock in the various companies of the "al- 
liance" and personal agreement between 
the officers of the respective companies 
and the officers of the Standard Oil Com- 
pany . * The Standard ' * alliance * ' included 
the Standard Oil Company of Cleveland, 
the Standard Company of Pittsburg, the 
Acme Oil Company of New York (located 

* ''Hepburn" Report, 1879, p. 2614. 

66 



The Standard Oil Company 

at Titusville), the Imperial Oil Company 
at Oil City, the Atlantic Refining Company 
of Philadelphia, the Camden Company of 
Maryland, Charles Pratt & Co. of New 
York, J. A. Bostwick & Co., Sone & Flem- 
ing Manufacturing Company, Warden, 
Frew & Co. of Philadelphia, and the Balti- 
more United Oil Company of Baltimore.* 
The petroleum producers, on the other hand, 
had meantime been organizing to stay the 
further progress of the Standard "alliance" 
in a league which suggested in its forms a 
revival of the fifteenth-century guild. 

In 1877 local lodges of the fraternal Gen- 
eral Council of the Petroleum Producers* 
Union had been formed, under the strictest 
obligations of secrecy, throughout the oil 
region. Eventually, from two thousand 
five hundred to three thousand producers 
were enrolled as members in the local 
lodges, which sent delegates to the Gener- 
al Council. The object of the union was 

^ " Hepburn" Report, 1879. pp. 42, 2615. 

67 



The Rise and Progress op 

"the collection and dissemination of val- 
uable information respecting the produc- 
tion, storing or tanking, shipping, refining, 
and consumption of petroleum; the se- 
curing the most advantageous facilities for 
transportation; the protection of the pro- 
ducing interests against unfriendly legisla- 
tion and unjust exactions; the correction 
of all abuses and pernicious practices detri- 
mental to the producing business and the 
improvement of the trade generally." At 
the first meeting of the General Council, 
in the Universalist church in Titusville, 
November 21, 1877, Mr. Benjamin B. 
Campbell, a well-known opponent of the 
Standard, was elected president ; and stand- 
ing committees were chosen on finance, re- 
ports and statistics, transportation, pipe- 
lines, patents, refining, legislation, national 
legislation, and legal remedies. Once a 
month the General Council met regularly 
at Titusville.* 

* Investigation of Trusts, House Reports, First 

68 



The Standard Oil Company 

The first aim of the society was to stop 
the drilling of new wells and to induce pro- 
ducers to provide storage for their oil, in 
order that they might not be subject to 
the necessity of forced sales. Throughout 
northwestern Pennsylvania, in the coun- 
ties of Alleghany, Armstrong, Butler, Clar- 
ion, Venango, Crawford, and Warren, this 
object was effected; and, **had it not been 
for the unusual development of the oil- 
field in McKean County,'* as the report 
of the General Council naively explains, 
these efforts might have succeeded. But 
"the producers continued to crowd each 
other with new wells and to rely solely 
upon the United Pipe-Line to furnish stor- 
age and local transportation. The re- 
sult was that the eager driller of wells 
found his product at the mercy of the pur- 
chaser, and was speedily subjected to low 
prices and loss of oil." * Of more impor- 

Session, Fiftieth Congress, 1887-88, ix., p. 692; a 
copy of the constitution is given, p. 47. 

* Investigation of Trusts, Congress, 1888, p. 692. 

69 



The Rise and Progress op 

tance were the efforts of the society to se- 
cure transportation facilities. At a time 
when the transportation agents, both lo- 
cal and to the seaboard, were in alliance 
with the Standard interests, the Equitable 
Petroleum Company, formed by the pro- 
ducers of McKean County to provide an 
outlet by pipe -line to the McKean and 
Buffalo Railroad, thence to Buffalo, and 
by way of the Erie Canal to New York, 
was enthusiastically encouraged by the 
General Council. The committee on leg- 
islation meanwhile had introduced into 
Congress and into the Pennsylvania Leg- 
islature bills regulating the companies 
engaged in the transportation of petro- 
leum. These proposals, however, were 
not well received ; and in its report in 
1878 the disgruntled committee, describ- 
ing its labors, said: ''It has been sim- 
ply a history of failure and disgrace. 
If it has taught us anything, it is 
that our present law -makers are, as a 
body, ignorant, corrupt, and unprinci- 

70 



The Standard Oil Company 

pled." ^ So far, in spite of all its activity, 
the General Council had brought no prac- 
tical relief to the producers ; so that when, 
in May, 1878, the committee on legal 
remedies advised resort to whatever ex- 
isting laws there might be, the council at 
once authorized the committee to take the 
necessary steps. 

The committee immediately laid its 
grievances before the attorney - general ; 
and on behalf of the committee the at- 
torney-general brought action against the 
United Pipe-Line Company for the forfeit- 
ure of its charter, and prayed for an in- 
junction restraining the Pennsylvania 
Railroad, the Atlantic and Great Western 
Railroad, the Lake Shore and Michigan 
Southern Railroad, and the Dunkirk, Alle- 
ghany and Pittsburg Railroad from " com- 
bining to create and perpetuate a monop- 
oly of the oil business, from granting un- 
reasonable rebates to the Standard Oil 

* Investigation of Trusts, Congress^ 1888, p. 693. 

71 



The Rise and Progress of 

Company and its allies, from refusing cars 
to shippers, from breaking connections 
with other roads, from buying and selling 
petroleum in connection with the Standard 
combination, from refusing transportation, 
from making discriminations in form of 
one shipper against another, and from 
granting greater facilities to one than to 
another." 

Amid great popular excitement at Brad- 
ford these proceedings were decided upon. 
Mass-meetings were held, processions pa- 
raded the streets, and riot seemed immi- 
nent. The recent months had been marked 
by heavy depression in the oil trade and 
bitter antagonism of producers and oil 
buyers. Riotous meetings were held be- 
fore the United Pipe - Line Company's 
offices; men were hanged in effigy; and 
processions of masked men marched the 
streets, and groaned and hooted before the 
offices of the buyers. Numerous secret 
societies were formed among the pro- 
ducers ; and every morning the streets and 

72 



The Standard Oil Company 

sidewalks were found placarded with cab- 
alistic signs and proclamations. About 
^this time occurred the investigation of rail- 
roads in New York by the Hepburn Com- 
mittee of the legislature; and a similar 
investigation of the petroleum trade in 
Pennsylvania was being urged. In the 
popular frenzy of the moment all the offi- 
cers of the Standard Oil Company were in- 
dicted for conspiracy in restraint of trade, 
and requisition made to the Governor to 
secure their extradition from New York.* 

All these troubles arose from the de- 
pression incident to the excessive produc- 
tion of the McKean County wells, which 
was greater than the capacity of the stor- 
age-tanks. The storage-tanks were built 
by the pipe-line companies under contract 
with the producers to " carry in its system 
of pipes and tanks an amount of petroleum 
not exceeding the capacity of the tanks." 

The Pipe-Line Company, after due no- 

^ Investigation of Trusts, Congress, 1888, p. 706. 

73 



The Rise and Progress op 

tice that the surplus production exceeded 
its abiHty to construct tanks for storage, 
finally announced that while it would con- 
tinue to take oil for immediate shipment 
it could take no more for storage except as 
storage capacity was created by shipments. 
The producers, in order to save oil from 
running to waste at their wells, were forced 
to sell it at reduced price to refiners who 
would immediately ship the same or an 
equivalent amount from the pipe -line 
tanks. This enabled the Standard to pur- 
chase "immediate shipment" at a lower 
rate than "certificate" oil, because the 
latter had the privilege of remaining in 
storage. Immediate shipment seems to 
have been an absolute necessity so far as 
the Pipe -Line was concerned, and the 
lower price was the inevitable result of 
over-production, which soon affected "cer- 
tificate" as well as "immediate shipment" 
oil. For a time the claim of over-produc- 
tion and want of storage capacity was de- 
nied by the producers, but this eventually 

74 



4f 



The Standard Oil Company 

became too apparent for dispute. By ex- 
traordinary effort, however, and the ex- 
penditure of millions of capital, the Pipe- 
Line Company finally erected sufficient 
tankage to hold the accumulated surplus 
of oil ; and the producers in due time were 
satisfied. 

In the suit which was brought against 
the United Pipe-Line Company, asking for 
the forfeiture of its charter on the ground 
that it had made discriminations in pipe- 
age, it appeared that, so far as any discrim- 
inations existed, they were due to contracts 
for special rates inherited from the lines 
which had recently been absorbed in the 
company — among them, curiously enough, 
one between a member of the prosecuting 
committee of the Producers' Union and 
the Mutual Pipe-Line Company.* These 
discriminations were recognized by the 
Standard to be contrary to public poli- 
cy, and were at once discontinued. The 

^ Report of the Industrial Commission, 1900, i., pp. 
476-479. 

75 



The Rise and Progress of 

grievance for which the producers had 
brought prosecution against the railroads 
was a shipping agreement between the 
Standard and the railroads. This agree- 
ment provided that, since the Standard 
shipped ninety per cent, or more of the 
crude petroleum of the region, it might 
make requisition at any time for that per 
cent, of the oil-cars of the railroad. The 
producers maintained, however, that, since 
the Standard owned already a large num- 
ber of private cars running on the railroads, 
it ought not to be allowed its pro rata allot- 
ment of the railroad's cars upon demand ; 
particularly when, as happened at this 
time, the ten per cent, of railroad oil-cars 
was insufficient to transport the oil which 
independent producers wished to ship. 
The demands of the producers were un- 
usual, and the refusal of the transporta- 
tion companies to grant them seems quite 
within their rights. When it is considered 
that, meantime, propositions were being 
made to the producers by the Standard, 

76 



The Standard Oil Company 

according to which the price of crude oil 
should be based upon the relative price of 
refined, it would seem that a fair attempt, 
at least, had been made to satisfy the 
producing interest.^ Indeed, the issue of 
those suits proved them to be merely the 
ebullition of excited popular feeling. The 
indictment of conspiracy against the offi- 
cers of the Standard was continued, and 
eventually dropped.^ The suits against 
the Pennsylvania Railroad and against the 
United Pipe-Line Company were protract- 
ed,' and finally dismissed by an agreement 
among all parties; and with the passing 
of this period of litigation the importance 
of the Petroleum Producers' Union practi- 
cally ended. 

In 1 88 1 the Standard Oil Company of 
Ohio, the nucleus of the Standard "alli- 
ance," was a corporation capitalized at 
$3,500,000. Since the formation of the 
"alliance" it had maintained connections 

* Investigation of Trusts, Congress, 1888, p. 694. 
' Ibid., p. 710. 3 Ibid., p 711. 

77 



The Rise and Progress of 

with its allies by a union, not of corpora- 
tions, but of stockholders. ** Then," as the 
solicitor of the Standard Oil Company- 
explains, ''for convenience of control and 
management the Standard Oil Trust was 
formed. It was simply an agreement, 
placing all the stock of these various com- 
panies in the hands of trustees, declaring 
the terms on which they were held, and 
providing for the issuance of a certificate 
showing the amount of each owner's inter- 
est in the stock so held in trust. This 
agreement did not in any essential manner 
change the character of the association 
previously existing. Its essential charac- 
ter was simply a common ownership of 
stock in various corporations. If they 
had so preferred, the owners of these sev- 
eral associated companies could have or- 
ganized — in the State of New York, for 
example — with any capitalization desired. 
Each could then have lawfully combined 
with all the other companies, forming one 
corporation to transact business wherever 

78 



The Standard Oil Company 

desired. But it seemed preferable, instead 
of organizing one corporation in New York, 
to organize a corporation in each vState 
where business was being carried on, so 
that the business transacted in each State 
might be conducted by a home corpora- 
tion, subject in all respects to the law of 
the State where located. Accordingly, we 
organized a Standard Oil Company in New 
York, in New Jersey, in Kentucky, in 
Iowa, in Minnesota; and similar corpora- 
tions already existed in Ohio and Pennsyl- 
vania." ^ 

As the first ''trust" form of combina- 
tion, the agreement under which this union 
was brought about deserves attention. 
There were three classes of parties to the 
contract: first, all the stockholders and 
members of the Standard ** alliance," to- 
gether with members of some other com- 
panies; second, all the more important 
officers and stockholders of these several 

* S. C. T. Dodd, quoted in Trusts or Competition, 
edited by A. B. Nettleton, Chicago, 1900, p. 197. 

79 



The Rise and Progress of 

companies; and, third, a portion of the 
stockholders and members of some ad- 
ditional corporations and limited partner- 
ships. Provision was made for the ad- 
mission of new companies and individuals, 
and for the formation, whenever advisable, 
of a Standard Oil Company in any State 
or Territory in the Union. The parties of 
the several classes were to transfer all their 
property to the Standard Oil Companies 
in their several States, in consideration of 
which they should receive stock equal at 
par value to the appraised value of the 
property so transferred.* This stock — 
and here is the significant feature of the 
new organization — was to be delivered to 
trustees, and held by them and their suc- 

* The thirty-nine companies who signed the agree- 
ment were subsequently merged into twenty. The 
hst of the original thirty-nine is given in Investiga- 
tion of Trusts, 1888, Congress, p. 350. The list of the 
resulting twenty, with the appraisal of their prop- 
erty, is given in Report of the Industrial Commission, 
1900, i., p. 301. The capitalization of these com- 
panies is $102,233,700: the excess of the appraisal 
over the capitalization is $19,397,612.63. 

80 



The Standard Oil Company 

cessors thereafter ; and no subsequent issue 
of stock should be made by the companies 
except to these trustees. In return for 
the stock intrusted to them, the trustees 
were to dehver trust certificates, equal to 
the par value of the stock of the several 
Standard Oil Companies to be established 
and to the appraised value of the stocks of 
other companies delivered to the trustees. 
The trustees provided for were nine in 
number. They were John D. Rockefeller, 
O. N. Payne, and William Rockefeller, 
elected to hold office till 1885 ; J. A. Bost- 
wick, H. M. Flagler, and W. G. Warden, to 
hold office till 1884; and Charles Pratt, 
Benjamin Brewster, and John D. Arch- 
bold, to hold office till 1883. At each 
annual meeting the certificate owners 
elected three trustees, for three years each, 
to fill vacancies due to expiration of term. 
Such was the *' trust" as formed by the 
agreement of January 2, 1882.^ 

* The trust agreement is given in full in Investiga- 
tion of Trusts, Congress, 1888, p. 307. 

81 



The Rise and Progress op 

By an amendment two days later this 
agreement was slightly changed, as it was 
deemed inexpedient that all the companies 
mentioned should transfer their property 
immediately to the several Standard Oil 
Companies. The trustees were given pow- 
er to decide what companies should con- 
vey their property and when the sale 
should take place. The powers of the 
trustees, then, as defined by the ** trust" 
agreement, were to collect on the stock 
which they held the dividends of the 
several constituent companies, and after- 
wards, upon the trust certificates out- 
standing, to disburse their receipts as 
dividends. 

Four years before the formation of the 
trust, two pipe-line companies — the Sea- 
board Pipe-Line Company and the Equi- 
table Petroleum Company — projected to 
afford an outlet to the seaboard, had been 
organized by oil producers.^ Upon their 

* Investigation of Trusts, Congress, 1888, p. 696. 

83 



The Standard Oil Company 

failure, the producers organized the Tide- 
water Pipe-Line Company, which ran from 
the Bradford region to Wilhamsport, a dis- 
tance of one hundred and ten miles; and 
thence, by a connection with the Philadel- 
phia and Reading Railroad, the oil was 
carried a distance of two hundred and 
fifty miles to Philadelphia/ On the ist of 
June, 1879, this company commenced the 
shipment of oil. The railroads were not 
content to see the oil traffic slip through 
their hands; and on the 5th of June, at a 
conference between the four trust lines 
at Niagara Falls, resolute measures were 
adopted to drive this rival transportation 
agent from the business. The rate on 
crude oil per barrel was lowered to 20 cents 
on all oil of the Standard "alliance" mov- 
ing from the oil regions to New York, Phil- 
adelphia, and Baltimore.^ A correspond- 



* ''Hepburn'' Report, 1879, p. 3493; Report of the 
Industrial Commission, 1900, i., p. 696. 

2 The rates are given in full in ''Hepburn'' Report, 
Exhibits, 1879, pp. 621, 622. 

83 



The Rise and Progress of 

ing reduction of the rate to the general 
public was made from $1.15 to 30 cents. 
These rates took effect at once;* and, as 
competition continued, a further reduc- 
tion was made on August ist to 15 cents 
per barrel.^ 

Throughout the period of the organi- 
zation of the trust, and for a full year 
after, this fierce contest between the rail- 
roads and the Tidewater Pipe-Line Com- 
pany continued. The immediate effect, of 
course, was to benefit the shippers, and 
particularly the largest shipper, which was 
the Standard. The ownership by the 
Standard of the terminal facilities and of 
the greater number of the oil-cars of the 
railroads now became a fact of importance. 
In consideration of its heavy investments 
in these interests, and of its agreement to 
ship and to unload its oil at its own risk, 
the Standard had already been allowed re- 
bates.^ But now the Standard began the 

^''Hepburn'* Report, 1879, p. 3688. 

' Ibid., p. 45. ^ Ibid., p. 1471. 

84 



The Standard Oil Company 

building of pipe-lines to the seaboard and 
the formation of the National Transit Com- 
pany. As pipe-lines were a cheaper mode 
of transportation than railways, the build- 
ing of these lines made necessary a read- 
justment of freight rates ; and, as the pipe- 
lines then building could not carry the oil 
the entire distance, contracts for joint car- 
rying had to be made with the railroads. 
The first contract — made between the Na- 
tional Transit Company and the Pennsyl- 
vania Railroad on May 6, 1881 — related 
to the apportionment of the freight when 
the haul was partly by pipe-line and partly 
by rail. The Pipe-Line Company guaran- 
teed the railroad one-third of the trans- 
portation of oil to the seaboard/ The 
Standard was to pay exactly the same 
rate as other shippers over the railroad. 
On such oil as was carried partly by pipe- 
line and partly by rail a through rate was 
made, of which the pipe-line naturally re- 

^ Report of the Industrial Commission, 1900, i., pp. 
760-763. 

8s 



The Rise and Progress of 

ceived a share ; and, finally, the Pipe-Line 
Company agreed to remit part of the 
charge of its local pipes to the railroad. 
Instead of a contract for rebates to the 
Standard, this was a contract for rebates 
to the railroad. The reason for this con- 
tract was that the seaboard pipe-line of 
the Standard did not extend beyond Ham- 
ilton, Pennsylvania; and to compensate 
the railroad for its low rate of freight and 
for its grants of rights of way — no free- 
pipe-line law then existing in New Jersey 
— these rebates were provided. 

Strengthened by these mutually helpful 
contracts, the National Transit Company 
and railroads were meanwhile wearing out 
the Tidewater Pipe -Line Company, and 
in 1883 forced it to cease its opposition. 
The company was never absorbed by the 
Standard Oil Trust; but on October 9th, 
by an agreement with the National Transit 
Company, it agreed to accept as its share 
of the oil traffic eleven and one-half per 
cent, of the total pipe-line transportation 

86 



The Standard Oil Company 

of petroleum to the seaboard, and was 
guaranteed $500,000 in annual profits for 
fifteen years.* With this settlement the 
war of the transportation agents ceased, 
and the Standard Oil Trust established 
itself in the strategic position which sub- 
stantially controlled the transportation of 
oil to the seaboard. By the early seven- 
ties the Standard had attained the pre- 
eminence in mechanical efficiency which it 
has ever since maintained; by the agree- 
ment with the Pennsylvania Railroad in 
1878 it had gained a dominance over 
transportation which it never since has 
lost ; and by its contract in 1881 it made 
possible the completion of its pipe-line to 
the seaboard and its independence of rail- 
roads. Such contracts as the Standard 
subsequently made with the Pennsylvania 
Railroad were agreements by which the 
railroad got some part of the freight, 
though it did no part of the carrying. 

^Report of the Industrial Commission, 1900, i., 
P- 738. 

87 



The Rise and Progress of 

The Standard Oil Trust now gave rebates 
instead of receiving them. Over every 
branch of the industry, in 1883, it was 
supreme. 

1883-92 

From the very beginning of the oil in- 
dustry in Pennsylvania, movements for 
the restriction of oil production had been 
frequent. Restriction had been the aim 
of the Petroleum Producers' Association 
at its organization in 1869. The associa- 
tion had maintained an agency to store all 
oil above a certain amount and keep it 
from the market. This early * ' shut-down ' * 
failed because of the enormous produc- 
tion in Butler County. Succeeding " shut- 
downs" in 1872, 1874, 1876, and 1878 met 
with similar fate. In 1884 there was an- 
other general movement among producers 
to restrict drilling ; but, through the refusal 
of the operators who were running large 
wells in the new Thorn Creek district, the 

88 



The Standard Oil Company 

movement was only partially successful. 
It led, however, to the organization of 
the Producers' Associated Oil Company, 
with a capital stock enabling it, when nec- 
essary, to purchase oil property in order 
to curtail production.* 

On the ist of October, 1887, this new 
organization, embracing eighty - five per 
cent, of the fourteen thousand producers 
in the oil regions, agreed with the Standard 
Oil Company to restrict production. From 
June to October the Producers' Protective 
Association, by various secret and public 
meetings, had encouraged the movement. 
The conditions of the industry favored the 
organization. The accumulated stock of 
oil was thirty -one million barrels, prices 
were below the remunerative point, and 
the Standard was losing by the deteriora- 
tion of oil in its store. After conference 
between the Standard and the associated 
producers, it was agreed that the producers 

* Report of the Industrial Commission, 1900, i., pp. 
426-430. 

89 



The Rise and Progress op 

should restrict their production one-third 
during the following year, in consideration 
for which the Standard turned over to the 
producers six million barrels of oil, at the 
market price at the time of the contract, 
and secured to the producers the profit 
from the anticipated rise in prices/ 

By this bargain the producers imme- 
diately profited. On the oil they received 
from the Standard they made 9 cents a 
gallon. Encouraged by their success, they 
made agreements during the next year with 
the Well - drillers' Union to equalize the 
amount of oil produced by each individ- 
ual.^ Although it was not possible to 
bring all the producers into the agree- 
ment, the price of crude oil was advanced 
by this restriction 29 cents per barrel. 
The price of refined oil to consumers was 
advanced about three-fourths of a cent — 

^Investigation of Trusts, Congress, 1888, p. 52, 
' An account of the negotiations and copies of the 
contracts are given in Investigation of Trusts, Con- 
gress, 1888, pp. 52-60, 69. See also Report of the 
Industrial Commission, i., pp. 429-432, 459-462. 

90 



The Standard Oil Company 

an increase somewhat less than the ad- 
vance in crude oil. Although the Stand- 
ard Oil Company had entered into the 
agreement only at the urgent request of 
the producers, as the chief refiner it bore 
the burden of the advance; and when the 
" shut-down" was found to be injuring the 
laborers employed in the drilling of wells, 
and the Producers' Association set aside 
one million barrels of oil for their relief, 
the Standard added another million for the 
same purpose. This philanthropy, in the 
end, proved not unprofitable. The Stand- 
ard benefited by the harmony it had es- 
tablished ; and the producers, by relieving 
the well - drillers, prevented them from 
working for producers outside the agree- 
ment. 

As was to be expected, the results of this 
movement were only temporary. In time 
the "shut-down" was abandoned, but not 
until it had gained a great though transient 
benefit, and had given the impulse to the 
building of several pipe-lines. 

91 



The Rise and Progress of 

To the producers the Standard had come 
as a pacificator, restoring harmony where 
before had been mutual suspicion and dis- 
tress. To the refiners, however, the Stand- 
ard had never appeared other than a com- 
petitor, enabled by its greater size to secure 
favors denied its smaller rivals. Freight 
discriminations, before the passage of the 
Industrial Commission Act in 1887, were 
common ; all oil shippers received some re- 
bate from the published rate, the amount 
varying roughly according to the favorable 
position of the refiner for making his bar- 
gains.* How completely proper this seem- 
ed to the railroad manager of that day, and 
how sound appeared the reasons on which 
it was based, is well illustrated by the 
decision of the Ohio court, in 1884, in a suit 
brought by a firm of independent refiners 
against the Lake Shore and Michigan 
Southern Railroad to prevent the grant- 
ing of rebates to the Standard Oil Com- 

* Report of the Industrial Commission. 1900, i., p. 
790. 

92 



The Standard Oil Company 

pany . * The rebates complained of, the court 
found, amounted to lo cents per barrel 
on all the oil the Standard shipped ; but 
the consideration for these rebates the 
court found in the following fact: 

" Prior to 1875 it was a question whether the 
Standard Oil Company would remain in Cleve- 
land or remove its works to the oil-producing 
country, and this question depended mainly 
upon rates of transportation from Cleveland to 
the market; prior thereto, the Standard Com- 
pany shipped large quantities of its products by 
water to Chicago and other lake points, and 
from thence distributed the same by rail to in- 
land markets; it then represented to the de- 
fendant the probability of such removal; water 
transportation was very low during the season 
of navigation; unless some arrangement was 
made for rates at which it could ship the year 
around as an inducement, it would ship by water 
and store for winter distribution; it owned its 
tank-cars and had tank stations and switches, 
or would have, at Chicago, Toledo, Detroit, and 

' Investigation of Trusts, Congress, 1888, p. 552. 
Schofield, Shurmer & Teagle v. Lake Shore and 
Michigan Southern Railroad. 

93 



The Rise and Progress of 

Grand Rapids, on and into which the cars and 
oil in bulk could be delivered and unloaded 
without expense and annoyance to defendant; 
it had switches at Cleveland leading to its works 
at which to load cars, and would load and unload 
all cars ; the quantity of the oil to be shipped by 
the company was very large, and amounted to 
ninety per cent, or more of all the oil manu- 
factured or shipped from Cleveland, and, if sat- 
isfactory rates could be agreed upon, it would 
ship over defendant's road all its oil products 
for territory and markets west and northwest of 
Cleveland, and agree that the quantity for each 
year should be equal to the amount shipped the 
preceding year; upon the faith of these repre- 
sentations the defendant entered into a contract ; 
the rates were not fixed rates, but depended 
upon the general card tariff rates as charged 
from time to time [by which its shipments were] 
substantially to be carried from time to time at 
about lo cents per barrel less than tariff rates; 
in consideration of such reduced rates as to bulk 
oil, the Standard Company agreed to furnish its 
own cars and tanks, load them on switches, and 
unload oil shipped in barrels without expense to 
defendant, and, by reason thereof, with less risk 
to defendant ; and was also to ship all its freight 
to points west and northwest of Cleveland (ex- 

94 



The Standard Oil Company 

cept small quantities) to lake ports not reached 
by rail, and so to manage the shipments as to 
cars and times as would be most favorable to 
defendant. . . . 

"At a cost exceeding $100,000 the Standard 
Company had constructed the terminal facilities 
promised and herein found; in actual fact, the 
risk of danger from fire to defendant, the ex- 
pense of handling in loading and unloading, and 
in the use of the standard tank-cars is less than 
upon oil shipped without the use of such or 
similar facilities; the Standard Company com- 
menced by shipping about four hundred and 
fifty thousand barrels per year over defendant's 
road, which increased from year to year, until, 
in 1882, . . . the quantity so shipped on defend- 
ant's road amounted to seven hundred and 
forty-two thousand barrels, equal to two thou- 
sand barrels, or one full tank-load, per day. 

" Said arrangements are not exclusive, but are 
at all times open to others shipping a like quan- 
tity and furnishing like device and facilities." 

By successive contracts, the court found, 
this agreement was continued in 1880, 
1882, and 1883; and, in conclusion, the 
court declared that the evidence presented 

95 



The Rise and Progress of 

supported the contention of the Standard 
that the advantages secured to the Stand- 
ard by its contract with the railroad were 
not, in the accepted sense of the term, re- 
bates, but were an equivalent for the low- 
ered cost of freight. In so holding, the 
court was but following the current judg- 
ment of the time. 

But there were at that time other de- 
partures from the regular tariff rates which 
cannot so readily be explained. Through- 
out 1888 there were sudden and distressing 
increases in the tariff rates for oil, which 
seriously inconvenienced the inland re- 
finers.* A notorious example of such 
charges was found in the management of 
the Cleveland and Marietta Railroad by 
its receiver in 1885. The Standard, it 
appears, controlled most of the pipe-lines 
in the Macksburg field connecting with 
the several stations of the railway; and 
its local manager was desirous of deter- 

^ Report of the Industrial Commission, 1900, i., p. 
157. 

96 



The Standard Oil Company 

mining a through rate on oil from the 
well to Marietta. Accordingly, he ar- 
ranged with the receiver of the railroad 
that the rate be 35 cents per barrel, and 
that the railroad should collect this rate 
and pay over to the Standard 25 cents 
for pipeage. This agreement was put in 
writing, and forwarded for approval and 
execution to the Standard Oil Company. 
Meanwhile the receiver raised the tariff 
rate for oil from 17 J cents to 35 cents 
for all shipments made over this line, 
with the result that one refiner, carry- 
ing his crude oil from the well to the 
station by his own pipe-line, was forced 
to pay 35 cents freight, of which 25 
cents was at once to be turned over to 
his competitor, the Standard Oil Com- 
pany, for pipeage which it had never 
rendered. Whether the cost of pipeage 
warranted so large a proportion of the 
through rate going to the Standard is a 
question which cannot be answered off- 
hand. The indefensible method of col- 

97 



The Rise and Progress of 

lecting the combined pipeage and freight 
charges was more plain. The Standard 
Oil Company never carried this contract 
through, but sent it back to its manager 
with instructions to end the arrangement 
and refund to the shippers the amount of 
these wrongful rebates. This was done 
before suit was brought to remove the 
receiver/ 

A more typical example of the rebates 
of this period is the contract between the 
National Transit Company and the Penn- 
sylvania Railroad. According to this agree- 
ment the Transit Company, which was the 
transporting agent of the Standard Trust, 
agreed that, if out of the total amount of 
oil shipped to the seaboard the Pennsyl- 
vania Railroad should not have moved 
twenty-six per cent., the Transit Com- 
pany should ship by the Pennsylvania 
Railroad the amount required, and the 
railroad should be entitled to one-half the 

* Report of the Industrial Commission, 1900, i., pp. 

556-559- 

98 



The Standard Oil Company 

current rate thereon. By another con- 
tract of the same date it was provided 
that, if the railroad company preferred, 
the Transit Company itself would carry 
this extra quantity, and would then pay to 
the railway freight on the oil thus carried 
by itself, after deducting 6 or lo cents a 
barrel as compensation for pipeage. In 
return for these stipulations it was agreed 
that all joint rates from any delivery point 
of the local pipe-lines to any refining or 
terminal point should be fixed by the rail- 
road in concurrence with the Transit Com- 
pany; and at the time of the agreement 
this rate was fixed at 45 cents to the 
seaboard.^ 

The advantage to the railroad, under 
this agreement, is manifest. Throughout 
the continuance of this contract, which 
was the last one made and continued till 
1887, there was a regular deficiency in the 
share of the oil to be carried by the rail- 

* Report of the Industrial Commission, 1900, i. pp. 
663-666. 

99 



The Rise and Progress of 

road, amounting in some months to eighty 
thousand barrels, and settled by payments 
of the Transit Company to the railroad.^ 
Essentially it was a contract of rebate to 
the railways rather than of rebate to the 
Standard, the motives of which were sim- 
ilar to the contract of 1 88i . It was a pay- 
ment to the railroad in compensation for 
grants of rights of way. Other pipe-lines 
could not get through to the seaboard be- 
cause they could not make terms with the 
railroads. The advantage accruing to the 
Standard from such a contract as this was 
good- will, of which it stood at that time 
in great need. "The pipe-line was then 
completed to the seaboard," explains Mr. 
Dodd, solicitor of the Standard. " It could 
not have reached that point without the 
consent of the railway company, as no 
free-pipe-line law then existed in the State 
of Pennsylvania. It was still necessary 
to have a traffic contract with the railroad 

* Report of the Industrial Commission, 1900, i., 
p. 761. 

100 



The Standard Oil Company 

to deliver oil to the railroads at different 
points on the through line." Clearly the 
injustice of this contract, if any there be, 
should be laid at the door of the railways. 
To them rather than to the Standard did 
the greater benefit accrue. And if this 
contract, by providing that joint rates for 
the transportation of oil should be fixed 
by the railroad in concurrence with the 
Transit Company, opened the way to such 
abuses as the sudden and arbitrary raising 
of rates at less-important shipping points 
not used by the Standard, the blame be- 
longs rather with the railroad than with 
the Standard Oil Company. 

The passing of the Interstate Commerce 
Act, in 1887, makes a natural division in 
the record of the railroad arrangements 
made by the Standard. By the terms of 
that act discriminations were forbidden, 
and such contracts with shippers as had 
been the rule since the late sixties were 
made illegal. The Interstate Commerce 
Act seems to have been observed by the 

lOI 



The Rise and Progress op 

Standard Oil Company. "Little tes- 
timony," says the Industrial Commission 
of 1900, "was brought forward to prove 
that it still actually receives lower rates 
for shipment over the same tracks than 
its competitors."^ In the testimony be- 
fore the commission on this latter point 
the opinion was expressed by witnesses 
testifying in opposition to the Standard 
Oil Company that direct discriminations 
and rebates are still received by the Stand- 
ard; but the evidence adduced in proof 
of this opinion was unsatisfactory, and 
was considered entirely inconclusive by 
the commission.^ 

^Report of the Industrial Commission, 1900, i., p. 
158. 

2 Ibid., p. 159. 

Apart from hearsay the only evidence produced to 
prove the existence of discrimination in favor of the 
Standard were the letter of the receivers of the Balti- 
more and Ohio Railroad to the Interstate Commerce 
Commission, December 22, 1898, and the case of 
Logan, Emery, and Weaver v. the Pennsylvania 
Railroad Company. 

The letter of receivers Cowen and Murray states: 

"Within the territory north of the Ohio River 

102 



The Standard Oil Company 

In other ways than by discriminations 
in actual rates the Standard Oil Company, 
after 1887, secured special advantages in 
transportation. The shipments of oil from 

and east of the Mississippi the railroad carriers are 
transporting the larger part of the interstate traffic 
at rates less than those shown in the published tariff 
filed with your commission, which are by statute 
the only lawful rates. 

"While this condition continues there will exist 
the unjust discriminations between persons, local- 
ities, and particular descriptions of traffic the pre- 
vention of which is the main object of the act of 
establishing your commission. Only by securing 
the uniform charging of the published rates can the 
just quality of service and of charge required by law 
be secured either between persons or between local- 
ities." (p. 637.) 

This letter doubtless sets forth a deplorable fact, 
but how it relates to the case of the Standard is not 
clear. 

The Logan, Emery, and Weaver case was brought 
in 1887 and continued until 1890. The president 
and the general freight agent of the Pennsylvania 
Railroad both testified in 1890 that positively no 
rebates had been paid since 1887. But the audi- 
tors and assistant auditors of the road testified 
that rebates from 8 to 28 cents per barrel had 
been granted since 1887. From the facts of the 
case it appears that the Standard Oil Company 
was in no way concerned. Indeed, in the evidence, 

103 



The Rise and Progress op 

those localities which it chose for distrib- 
uting points were so large that the freight 
rates for that locality were naturally most 
favorable to this chief commodity of ship- 
as cited by witnesses testifying in opposition to the 
Standard, the chief recipient of the rebates was the 
Bear Creek Oil Refining Company, with which B. B. 
Campbell, originator of the Petroleum Producers' 
Union, was associated. Mr. Campbell testified that 
from October i, 1884, until July i, 1888, his com- 
pany had received rebates on shipments from Cole- 
man Station to Philadelphia, Communipaw, and 
Bolivar amounting in all to $48,101. The case was 
settled out of court, as the plaintiffs were too poor 
to carry the suit further. A settlement was accept- 
ed according to which the railway paid $35,000 and 
the costs of the suit. (pp. 633, 635, 660,) 

This reported case, the only documentary evi- 
dence directly relating to discriminations in the oil 
traffic, explicitly excludes the Standard Oil Com- 
pany and incriminates only a leading independent 
refiner. 

Replying to these charges, Mr. Archbold, vice- 
president of the Standard Oil Company, submitted 
letters from officers of leading railways of the coun- 
try in reply to a circular inquiry sent out by the 
Standard Oil Company asking whether the respec- 
tive roads had granted any advantages to that com- 
pany "either by direct tariff, rebate, under-billing, 
or in any other way." These letters specifically 
deny that any such preferences have been given to 

104 



The Standard Oil Company 

ment. Competitive points, points where 
several railroads compete, or where water 
transportation competes with the railways, 
were generally fixed upon as distributing 
centres. Accordingly, lower freight rates 
prevailed at the large shipping points of the 
Standard than prevailed at places where 
its competitors made most of their ship- 
ments. The Standard Oil Company located 
its refineries at points nearer the place of 
consumption, and so economized in ship- 
ping distance. Thus it transferred most 
of its business from Cleveland to Whiting, 
Indiana, in order to be nearer the Southern 
market and to the West, and began to 
supply the Eastern market from its re- 
fineries at Bayonne, New Jersey. By wise 
distribution of its refineries the Standard 
became largely independent of the chang- 
ing freight rates that distressed those in- 

the Standard Oil Company, and many of them 
further state that the Standard Oil Company has 
used its influence with the railways to maintain 
agreed tariff rates and to support the Interstate 
Commerce Act. (pp. 515-528.) 

105 



The Rise and Progress op 

dependent refiners who shipped their oil 
long distances.^ A less honorable advan- 
tage, it has been alleged, accrued to the 
Standard by the practice, among the rail- 
roads, of under-billing the weight of the 
contents of the tank-car. As to interstate 
shipments, this has been specifically denied 
by representatives of the Standard Oil 
Company; and the instances where such 
under-billing has occurred are explained 
as occasional errors.^ 

Immediately after the passage of the 
Interstate Commerce Act and the creation 
of the Interstate Commerce Commission 
the relative charges and advantages of 
tank and barrel shipments were brought 
in issue. Prior to 1888 it was universal 
to charge lower rates per one hundred 
pounds for oil in tanks than for oil in 
barrels; but in 1888 the Interstate Com- 

1 A vast amount of evidence bearing on this point 
is summarized in Report of the Industrial Commis- 
sion, 1900, i., pp. 161-163. 

2 Evidence bearing on this point is digested in 
Report of the Industrial Commission, 1900, i., p. 165. 

106 



The Standard Oil Company 

merce Commission ordered that the rates 
on oil in tank-cars and in barrels should 
be the same, the weight of the barrels 
being included in the weight charged upon. 
The railways complied generally with the 
order of the Interstate Commerce Com- 
mission; but later, when the independent 
refiner secured an order from the com- 
mission that the weight of barrels should 
be disregarded in charging for shipments 
of oil, the railways refused to comply with 
this order or to pay the damages assessed 
in reimbursement of the charge made for 
the weight of the barrels/ As to the rel- 
ative advantages of tank-cars and barrels, 
and whether a relatively lower charge for 
oil in tank-cars than for oil in barrels is 
justifiable, there was much disagreement. 
The tank-car, it appears, is always un- 
loaded by the consignee and loaded by 
the shipper, while the contrary is usually 

* "A case raising this point is pending before the 
United States courts." — Report of the Industrial 
Commission, 1900, i., p. 788. 

107 



The Rise and Progress of 

true with barrels. The barrel, it was urged, 
should not be carried free of charge be- 
cause it is a merchantable article and its 
value is added to the price of the oil sold. 
On the other hand, the box-car in which 
the barrels are shipped can contain a 
return load, while the tank-cars must be 
returned empty. ^ The Standard is the 
largest shipper by tank - cars and owns 
most of the tank-cars in use. It gains 
not only such advantages as are given to 
shippers by tank-cars, but also the mileage 
of three-fourths of a cent per mile which 
is paid by the railways for the use of its 
cars.^ 

With nothing more exciting than an oc- 
casional case before the Interstate Com- 
merce Commission regarding shipments by 
tank-car, the Standard Oil Trust continued 

^ This question is discussed by the Interstate Com- 
merce Commission in the following cases: i., pp. 503, 
722 ; ii., p. 389 ; iii., p. 186 ; iv., p. 228 ; v., pp. 193, 
660. 

^ Report of the Industrial Commission, 1900, i., pp. 
167-170. 

108 



The Standard Oil Company 

from 1887 until 1892. Its growth and 
prosperity had been steady. The property 
of the various companies that entered the 
trust in 1882 was valued at $75,000,000. 
In 1892 the value was estimated at $121,- 
631,312 ; and fifty per cent, of this increase 
had come from profits invested and the 
remainder from additional capital sub- 
scribed.* The dividends meanwhile had 
risen from five and a quarter per cent, in 
1882 to twelve per cent in 1891. During 
the ten years following 1882 there had 
been a gentle decrease in the price of re- 
fined oil and a slight decrease in the dif- 
ference between the price of refined and 
the price of crude oil — a difference which 
measures the charge for refining.^ The 
attitude of the Standard Oil Trust during 
these years was one of quiet dominance. 
It was now to meet an unexpected dif- 

» Statement of Mr. S. C. T. Dodd, Report of the 
Industrial Commission, 1900, i., p. 799. 

^ Industrial Combinations and Prices, by J. W. 
Jenks, Report of the Industrial Commission, 1900, i., 

P- 52- 

109 



The Rise and Progress of 

ficulty in the courts, which rendered neces- 
sary a complete change of organization. 

1892-1903 

In 1 89 1 the State of Ohio, by its at- 
torney-general, began action to oust the 
Standard Oil Company of its corporate 
rights, on the ground that it had abused its 
corporate franchises in becoming a party 
to an agreement against public policy. The 
petition averred that in ** violation of law 
and in abuse of its corporate powers, and 
in the exercise of privileges, rights, and 
franchises not conferred upon it," the de- 
fendant company had become a party to 
the trust agreements of 1882. *'A11 the 
owners and holders of its capital stock, 
including all the officers and directors of 
said defendant company, signed said agree- 
ments without attaching the corporate 
name and seal." Prior to the dates of the 
trust agreement aforesaid, the petition con- 
tinued, the defendant's capital stock con- 
no 



The Standard Oil Company 

sis ted of thirty-five thousand shares. Upon 
the signing of said agreements thirty-four 
thousand nine hundred and ninety-three 
shares of said stock, belonging to the per- 
sons who signed the agreement, were trans- 
ferred upon the defendant's books to the 
nine trustees appointed and named in the 
agreement, by virtue of which ''the nine 
trustees have been, ever since the signing 
of said agreements, and still are, able to 
choose and have chosen annually such 
boards of directors of said defendant com- 
pany as they (said nine trustees) have 
seen fit, and are able to and do control 
the action of the defendant in the conduct 
and management of its business."* 

In answer to this petition the Standard 
Oil Company denied that it had become 
a party to either of the agreements in said 
petition set forth, or that it had at any 
time observed or carried out those agree- 
ments. ' ' Said agreements , ' ' continued the 

* " State ex rel. v. Standard Oil Company, 49 Ohio 
St.," pp. 138-155. 

Ill 



The Rise and Progress of 

answer, "were agreements of individuals 
in their individual capacity and with ref- 
erence to their individual property, and 
were not nor were they designed to be 
corporate agreements, and defendant de- 
nies that said agreements have illegally 
affected its corporate capacity or that 
defendant has permitted its corporate 
powers, business, and property to be ex- 
ercised, conducted, and controlled in an 
illegal manner." * 

By a demurrer to the defendant's plea 
the issue was squarely raised whether the 
act of all the stockholders, officers, and 
directors of a corporation may rightly be 
called the act of the corporation. " It 
seems to us," the plaintiff argued, "im- 
possible to read the agreement and con- 
sider the proceedings which confessedly 
have taken place under it without reach- 
ing the conclusion that there has been a 
studious design and effort on the part of 

* " State ex rel. v. Standard Oil Company, 49 Ohio 

St.," pp. 155-158. 

112 



The Standard Oil Company 

the promoters of the trust scheme to obtain 
all the advantages of the actual presence 
and participation of the defendant cor- 
poration in the objects and purposes of 
the agreement without formally making 
it a party to it. But is substance to be 
sacrificed to shadow ? Have we not shown 
sufficient actual corporate conduct to ob- 
viate the necessity for formal corporate 
action, such as the adoption of resolutions 
or the signing of a name?" ^ 

The court adopted the argument of the 
plaintiff, and in its decision handed down 
March 2, 1892, based its rule on substan- 
tially the following reasons : 

"A corporation, apart from the persons who 
compose it, is, by the fiction of the law, to be 
regarded as a legal entity only for convenience 
in the transaction of its business. When all or 
a majority of the stockholders' corporation do 
an act which affects the property and business 
of the company, and which, through the control 

^ " State ex rel. v. Standard Oil Company, 49 Ohio 
St.," p. 163. 

113 



The Rise and Progress of 

their numbers give them over the selection and 
conduct of the corporate agencies, does affect 
the property and business of the company in 
the same manner as if it had been a formal reso- 
lution of its board of directors, and the act so 
done is ultra vires of the corporation and against 
public policy, the act should be regarded as the 
act of the corporation, and, to prevent the abuse 
of the corporate power, may be challenged by 
the State. The trust agreements in question 
are acts which must be regarded as the acts of 
the corporations, and, as such, ultra vires; and, 
tending as they do to the creation of a monopo- 
ly, to the control of prices as well as of produc- 
tion, these acts are also against public policy, 
and accordingly contrary to law." ^ 

The place this case occupies in the law 
of corporations is of the first importance. 
A previous case, in which the Sugar Trust 
was defendant,^ had decided that an 
agreement of associations to which the 
corporations were party was ultra vires. 
Further than declaring partnership of cor- 

» "49 Ohio St.," pp. 176-189. 
2 " People V. North River Sugar Refining Com- 
pany, 121 N. Y.," p. 582. 

114 



The Standard Oil Company 

porations illegal, however, the law had not 
yet gone; and upon the question whether 
such combination was illegal, because in 
restraint of trade and opposed to public 
policy, the court had declined to express 
an opinion. In the instance of the Stand- 
ard Oil Company the court made a bold 
advance: it not only forbade members of 
several corporations to combine as such 
and merge their interests in a trust, but 
it also declared such combination a re- 
straint of trade, illegal, and quite opposed 
to public policy, and by the force of its 
decision put an end to the trust as a form 
of business combination.* 

Accordingly, in 1892, the Standard Oil 
Trust was dissolved and the separate es- 
tablishments and plants reorganized into 
twenty constituent companies. The trust 
certificates, when surrendered, were re- 
placed by a proportion of the shares of 
each company, properly divided. By the 

»S. C. T. Dodd, "The Present Legal Status of 
Trusts," 7 Harvard Law Review, p. 157. 

115 



The Rise and Progress of 

form of transfer adopted the trustees 
placed in the hands of their attorney the 
amount of shares held by the trustees in 
the several companies of the trust, and 
authorized the attorney to secure from 
each of these companies transfer upon 
their corporate books of stock certificates 
•for whole shares and scrip for fractional 
shares thereof. Although the trust was 
formally dissolved, the men who were the 
trustees hold a majority of the stock in 
all the different companies which composed 
the trust, so that they work together as 
harmoniously as before. The replacement 
of trust certificates by proportional shares 
of stock in the separate companies con- 
tinued slowly and is not yet complete. 
Substantial unity of action among the 
several companies was not changed.^ 

* Precisely what may be called a "monopoly in 
restraint of trade" the courts have not clearly de- 
cided. Indefinite increase of business, the fixing of 
arbitrary prices, and the agreement not to trade 
with any one that trades with others than the cove- 
nantors have all been held not to be "monopoly" 

ii6 



The Standard Oil Company 

Since the agreement between the Tide- 
water Pipe-Line Company and the Na- 
tional Transit Company, 1883, by which 
the Standard ''alHance" had attained the 
dominant position in the transportation 
situation, there had been few attempts on 
the part of the independent producers to 
build pipe-lines. Under the impulse of the 
agreement among the producers and the 
Standard, in 1887, to restrict the pro- 
duction of oil, the Producers' Oil Com- 
pany, Limited, had been organized and a 
pipe-line built from Titus ville and Oil City 
to the new McDonald oil-field. But this 

under the federal anti-trust act. On the other hand, 
American courts have held that the fact that "mo- 
nopoly" has cheapened prices will not be considered, 
and that it makes no difference whether the monop- 
oly be created by "contract" or "patent"; the peo- 
ple, they declare, ought not as a body to be em- 
ployees and servants. A "monopoly" need not be 
"permanent" or "complete"; it may exist even if 
the article be susceptible of "indefinite production," 
and occurs when there is a "limitation" of "com- 
petition" and "production" with a view to "ad- 
vance prices." (Cases are collected in 7 Harvard 
Law Review, pp. 348-355.) 

117 



The Rise and Progress ob* 

was a local pipe -line, and was speedily 
absorbed by another company, the Pro- 
ducers' and Refiners' Oil Company, in 
which independent refiners as well as pro- 
ducers were interested. In 1890 occurred 
the first attempt on the part of the inde- 
pendent refiners to build to the seaboard 
a pipe -line which should afford them 
transportation facilities equal to those of 
the Standard. With this aim in view the 
United States Pipe-Line was projected. 

The prime -mover and first president 
of this company was Mr. Lewis Emery, 
an independent refiner in Bradford, Penn- 
sylvania. To avoid heavy transportation 
charges, he had determined in 1890 to build 
a pipe-line to the coast; and, pending the 
farther extension of his line, he had gone 
to the president of the Reading Railroad 
to secure a contract for transporting oil by 
that railroad from Williamsport, Pennsyl- 
vania. He was unable to make satisfac- 
tory terms, and accordingly determined 
to lay a pipe-line along the boundary of 

118 



The Standard Oil Company 

New York and Pennsylvania to Hancock, 
New York, and to secure a contract with 
the New York, Ontario and Western Rail- 
road for transporting oil to the Hudson, 
with a right to construct a pipe-line later 
along its tracks. This contract was se- 
cured, and straightway the task of getting 
right of way for the pipe-line was begun. 
Immediately the usual obstacle ap- 
peared.^ The opponents of the new com- 
pany began to seek the right of way over 
the same route. They bought mortgages 
against pieces of land along the route, to 
induce the owners to give them another 
right of way. They bought strips of land 
crossing the projected route. The rail- 
roads also proved unsympathetic. When 
an attempt was made to lay the pipe-line 
under the Erie Railroad at Bradford, it 
was opposed by force, and later prevented 
by injunction from the courts. Another 
attempt to cross the Erie at Hancock met 

* Report of the Industrial Commission, 1900, i., pp. 
445, 486. 

JI9 



The Rise and Progress of 

with similar fate. As a result, the pipe- 
line had to be constructed back seventy 
miles to the Susquehanna River, and built 
from Athens to Wilkesbarre. The cross- 
ing of every railroad brought on a legal 
contest, and before Wilkesbarre was 
reached $150,000 had been spent in liti- 
gation/ 

These vexatious delays were not differ- 
ent in degree or kind from those met by 
any railroad or pipe-line in the securing 
of its right of way. In almost every case 
they were due to the desire of land-owners 
and speculators to extort from the con- 
structing company a high price for what 
the company absolutely needed. The 
National Transit Company, no less than 
the United States Pipe-Line, had met these 
difficulties.^ In the instance of the United 
States Pipe-Line Company the motive for 

* Testimony of Mr. Emery, Report of the Industrial 
Commission, 1900, i., pp. 650-655. 

2 Report of the Industrial Commission, 1900, i., pp. 
445, 486. 

120 



The Standard Oil Company 

the opposition of the railroads was clearly 
the desire to preserve the great advantages 
in the oil traffic which their contract with 
the National Transit Company had secured 
them. The Standard Oil Company, it ap- 
pears, was not engaged in these obstruc- 
tionary tactics — for the very sufficient rea- 
son, indeed, that the projected pipe -line 
much more vitally concerned the interests 
of the railroads than it did those of the 
Standard. 

For some time the pipe-line transported 
oil from Wilkesbarre by rail over the New 
Jersey Central Railroad. It then sought 
to continue its course to the seaboard. It 
crossed the Pennsylvania Railroad by pur- 
chasing an acre of land. When it reached 
the Delaware, Lackawanna and Western 
Railroad it bought a farm in Washington, 
New Jersey, over which the railroad cross- 
ed, hoping that it might lay a pipe-line 
under the culvert. One Saturday night it 
laid its pipes and stationed an armed force 
of fifty men to protect them. Next Mon- 

121 



The Rise and Progress op 

day two wrecking-cars of the railroad, with 
two hundred and fifty men, rode in from 
Hoboken, and attempted to oust the em- 
ployees of the pipe-line company. Resist- 
ance was made, and, to compromise the 
matter, it was arranged that men on each 
side should be arrested in order to make a 
peaceable legal fight in the courts. But 
while these proceedings were going on a 
couple of locomotives were brought up 
by the railroad, and hot coals, hot water, 
and stones were thrown into the culvert. 
Finally the railroad employees were driven 
away, and the pipe-line employees secured 
rifles and held possession of the field for 
seven months. The lower courts decided 
in favor of the pipe -line, but after four 
years of litigation the Supreme Court of 
New Jersey decided that the pipe-line must 
be removed. 

Eventually the United States Pipe-Line 
will build to Philadelphia. Meanwhile it 
transports its oil from Washington, New 
Jersey, fifty miles over the New Jersey 

122 



The Standard Oil Company 

Central Railroad to New York,' at a rate 
much lower than the Standard has ever 
received for like distances. According to 
the contract between the railroad and the 
Pipe-Line Company, crude oil is carried 
fifty -two and one-half miles at the rate of 
$7.93 per tank-car, containing twenty tons ; 
and the railroad returns the empty cars 
free. The contract is for one hundred 
years, and may be abrogated by the pipe- 
line upon five years' notice, the railroad 
having no right to abrogate it.^ 

Meantime the Standard Oil Company 
bought a large proportion of the stock of 
the Producers' Oil Company, with a view, 
as it would appear, to securing a control- 
ling voice in its management ; but it was so 
opposed in its ownership that it transferred 
its shares to a certain Mr, John J. Carter. 
Mr. Carter brought suit to be allowed to 
vote his stock, but, as the organization was 
a limited partnership, the courts upheld 

^Report of the Industrial Commission, 1900 i., 
pp. 650-655. 2 Ibid., pp. 513, 529. 

123 



The Rise and Progress of 

the company in denying him admission.* 
With the United States Pipe-Line Com- 
pany the National Transit Company was 
more successful. It secured $383,000 out 
of a total of $1,119,000 of stock, and, after 
permission to attend the meetings of the 
company and to vote the stock had been 
refused by unaminous vote of the other 
stockholders, the courts decided in favor 
of the National Transit Company. The 
purchase of stock was made, says Mr. 
Archbold, "with a view to having such 
knowledge as we could have rightfully 
through such ownership — as we should ac- 
quire in the progress of the affair" ;^ and this 
information the National Transit Company 
gets from its one director upon the board 
of the United States Pipe-Line Company.^ 
To prevent the Standard Oil Company 
from obtaining control of these indepen- 
dent organizations, the Pure Oil Company 
was projected in June, 1895, to secure con- 

^ Report of the Industrial Commission, 1900, i., 
270.577- 2ibi(j p^77 3 Ibid., p. 656. 

124 



The Standard Oil Company 

trol of the other independent companies. 
In 1897 the Pure Oil Company was or- 
ganized as a New Jersey corporation with 
authorized capital stock of $1,000,000, of 
which $377,000 has been paid in. The 
business of the company has been market- 
ing refined oil, especially in Germany, and 
it has proposed to increase its capital to 
$10,000,000.^ In its structure this com- 
pany is curiously like the former Standard 
Oil Trust. The holders of sixty-six thou- 
sand shares in the company, being more 
than a majority, vest the voting power of 
such shares in fifteen persons for twenty 
years ; and it is agreed that one-half of all 
shares hereafter subscribed shall similarly 
be transferred to the trustees. The owner- 
ship of the shares may be transferred, but 
purchasers have no rights other than those 
provided by the trust agreement. The 
trustees are to vote as a unit, to the full 
number of the shares they hold, at the elec- 

^ Report of the Industrial Commission^ 1900, i., 
p. 261. 

125 



The Rise and Progress of 

tion of directors. One-third of the trus- 
tees retire annually, and their successors 
are elected by the general stockholders. 
By a vote of three-fifths of both classes of 
stockholders, on the redemption of the 
preferred shares at $iio, the trust may be 
cancelled.^ The formation of the voting 
trust, it was claimed, was made necessary 
by the attempt of the National Transit 
Company to secure control through the 
purchase of shares of the Producers' Oil 
Company and the United States Pipe-Line 
Company. In order to keep the control of 
the latter company in hands friendly to 
the independent interests, there was de- 
vised a voting-trust agreement, according 
to which the signers vested their interests 
in the stock in a certain Mr. A. D. Wood as 
trustee for five years from the ist of April, 
1893, unless sooner terminated by a vote 
of three-fourths of the stock so held in 

* A copy of the trust agreement of the Pure Oil 
Company is given in Report of the Industrial Com- 
mission, 1900, i., pp. 466-470. 

126 



The Standard Oil Company 

trust. Mr. Wood was allowed full power 
to elect officers, but was bound to vote for 
persons interested in the business as in- 
dependent refiners.* It is the purpose of 
the Pure Oil Company, at the expiration 
of this trust agreement, to anticipate any 
attempt of the Standard Oil Company to 
control the company. 

While the independent refiners have 
been seeking security in the trust form of 
organization, the Standard Oil Company 
has adopted the contrary policy. In 1892 
the trust dissolved into its constituent 
companies, the former trustees holding a 
majority of the stock in each corporation 
and the holders of trust certificates ex- 
changing them for the stock of the several 
companies in agreed proportion. By pure- 
ly informal harmony, a unity of action 
among these corporations was maintained. 
A large quantity of trust certificates were 
still outstanding ; and the dividends, when 

^Report of the Industrial Commission, 1900, i., p. 
no. 

127 



The Rise and Progress op 

declared, were at a certain percentage upon 
these outstanding certificates and at a 
properly adjusted rate upon the capital 
stock of the different companies, so that 
the rate of dividends might be considered 
as if it were entirely on the trust certificates 
at their former full amount. In order to 
secure more complete unity and to provide 
for the claims of smaller holders of trust 
certificates, the Standard Oil Company 
was organized under the laws of New 
Jersey in 1899. This corporation, though 
practically a new organization, was in form 
a continuation of the old Standard Oil 
Company of New Jersey, with an amended 
charter and capital increased from $1,000,- 
000 "to $1 10,000,000. This corporation was 
authorized to own the stock of any of 
the different corporations connected with 
the Standard Oil Company, and to buy 
from all parties who own such stock when- 
ever they desired to sell.^ "The new 

' A copy of the charter of the company is given in 
Report of the Industrial Commission, 1900,1., p. 1228. 

128 



The Standard Oil Company 

Standard Oil Company of New Jersey," 
said the Industrial Commission in 1900, 
*'has recently been formed with the in- 
tention of transferring the stock of the dif- 
ferent corporations into the stock of the 
new company, so that, when the transfer 
is finally made, one single corporation, the 
Standard Oil Company of New Jersey, will 
own outright the property now owned by 
the separate companies which are com- 
monly known and mentioned together un- 
der the name of the Standard Oil Com- 
pany. This combination at present has 
no formal unity. It has a practical unity 
as great as it will have probably after the 
complete change into the New Jersey com- 
pany is affected."^ Since 1900 about $97,- 
000,000 of the capital stock of this com- 
pany has been used to purchase at par the 
stocks and properties of the other Stand- 
ard companies, the capitalization of which 
was approximately $97,000,000, but whose 

* Report of the Industrial Commission, 1900, i., p. 11. 

129 



The Rise and Progress of 

good -will and earning power, as repre- 
sented by the market value of the stock, 
aggregates $650,000,000. 

Interesting as they are, the particular 
forms which the corporate organization of 
the Standard and of its competitors assume 
are the least important phase of their com- 
petition. The progress of both the Stand- 
ard and the independent companies has 
been most marked in recent years in for- 
eign countries. To place American oils in 
Eastern markets has required constant 
cheapening of production and transporta- 
tion. An immense outlay for additional 
pipe-lines, more and larger steamers for 
ocean transportation, and the adoption of 
the tank-car and tank-wagon system of 
delivery have been made necessary, so that 
to-day crude oil is carried almost exclu- 
sively by pipe -lines, railroad transporta- 
tion is confined to the products of crude oil, 
and the Standard has no arrangements ap- 
portioning to the railroads any share of the 
crude-oil traffic. At present it is in its 

130 



The Standard Oil Company 

methods of marketing, by which it meets 
competition at home and abroad, that the 
real interest lies. 

Until 1895 the sale of crude oil by the 
producers had been on the exchange at Oil 
City. Throughout the eighties the mar- 
ket in the exchange had been wildly spec- 
ulative, but, gradually, less and less oil 
came to be sold on exchange ; and, finally, 
on January 23, 1895, the Seep Purchasing 
Agency of Oil City, on behalf of the Stand- 
ard Oil Company, posted a notice that 
thereafter the prices paid by it to oil pro- 
ducers "will be as high as the market of 
the world will justify, but will not neces- 
sarily be the price bill on the exchange 
for certificate oil." The Seep Purchasing 
Agency purchases for the Standard Oil 
Company eighty per cent, of the crude oil 
produced in Pennsylvania and Ohio, and 
by its action it fixes the price of crude oil 
in the oil regions. "We have before us," 
says Mr. Archbold, "daily the best in- 
formation obtainable from all the world's 

131 



The Rise and Progress of 

markets as to what the offerings are, and 
as to what it is possible to sell for ; and we 
make from that the best possible consensus 
of prices, and that is our basis for arriving 
at the current price," ^ In the period from 
1895 to the present, it may be added, the 
difference between the price of crude oil 
and the price of refined oil has remained 
almost constant,^ which shows that this 
power of fixing the price of crude oil has 
not been abused, in spite of the fact that 
the Standard Oil Company during these 
years refined over eighty per cent, of the 
output of oil.^ 

By its control of the pipe-line systems 
the Standard Oil Company maintains its 
advantage over the independent refiners 
of the oil regions. The practice of the 

^Report of the Industrial Commission, 1900, i., 
p. 571. See also pp. 142, 143. 

2 "Industrial Combinations and Prices," by J. W. 
Jenks, in Report of the Industrial Commission, 1900, 

i-. P- 53- 

^Report of the Industrial Commission, 1900, i., p. 

560. 

132 



The Standard Oil Company 

pipe-line companies is to receive all oil 
produced in the wells with which their 
pipes are connected, gauging the amount 
and recording the quantity received from 
each producer. The producer may then 
receive from the company at any time the 
value of his oil in store at the price for 
that day, or, instead, may receive pipe- 
line certificates which are negotiable in 
the open market. The company lays pipes 
without extra charge to new wells, though 
they be fifteen or twenty miles distant. 
In the proper management and extension 
of the pipe-lines, more than in any other 
branch of the business, is the necessity 
for large investments of capital apparent.' 
In the early days of the industry the 
absence of these facilities completely de- 
moralized the business; and for the ade- 
quate management of the lines no com- 
pany except the Standard has been ready 
and able to make the necessarily enormous 

* Report of the Industrial Commission, i., pp. 285, 
SS3» 799. 

^33 



The Rise and Progress of 

investment of capital. With their scant 
resources the smaller companies were un- 
able to respond to the slightest sudden 
demand for new facilities. The superior- 
ity of the Standard Oil Company, in this 
particular, was clearly shown in the sudden 
development of the McDonald field in 189 1. 
In July of that year the output of the 
McDonald field was three thousand barrels 
daily. By the middle of August it had 
reached fifteen thousand barrels. By the 
first of September the Standard Oil Com- 
pany, through its ally, the National Transit 
Company, was able to handle twenty-six 
thousand barrels a day; by the first of 
October it could handle forty thousand 
barrels a day; and when, in November, 
the production of oil reached nearly eighty 
thousand barrels per day, the capacity of 
the pipe-lines had risen above that figure. 
Iron tankage of the capacity of three 
million barrels was erected during these 
months, and fifty -three miles of pipe 
laid in a territory of twelve square 

134 



The Standard Oil Company 

miles.* Had the National Transit Company, 
with its $30,000,000 of invested capital, not 
been in control, it may be seriously doubted 
whether local enterprise could ever have 
effected so remarkable an extension of 
pipe-lines in so short a time. 

Associated with its advantages in trans- 
portation is the advantage the Standard 
Oil Company has in distributing its re- 
fineries in strategic locations. Not only 
is a saving in transportation charges thus 
effected, but advantages accruing from 
cheaper land, labor, and fuel are also se- 
cured. To gain this economy, the Stand- 
ard Oil Company spent millions in new 
plants near New York and Philadelphia.^ 
It bought the entire output of the refin- 
eries in the newly discovered oil region 
in Colorado,^ and secured control in 1898 
of seventy-five per cent, of the refining 
business in Canada ;* and for the same pur- 

^ Report of the Industrial Commission, 1900, i., pp. 
471-475. 2 Ibid., p. 649. 

2 Ibid., p. 384. ^ Ibid., p. 673. 



The Rise and Progress of 

pose it has recently rebuilt refineries in 
Pennsylvania, in order to profit by the 
cheapened fuel.^ 

The vexed question of the effect of the 
Standard Oil combination on the price of 
refined oil will probably never be settled. 
Opponents of the Standard Oil Company 
declare that the Standard has not reduced 
the price of refined oil as compared with 
crude oil to any such degree as would be 
the case under open competition. The 
effect of the combination, they point out, 
is to be gauged only from the margin be- 
tween the prices of refined and crude oil; 
and the reduction of this margin, though 
steady, is, in their opinion, by no means 
commensurate with the improvements in 
the processes of refining.^ In reply, Mr. 
Archbold, of the Standard Oil Company, has 

^Report of the Industrial Commission, 1900, i., 
p. 649. 

2 In the chart accompanying Professor Jenks's 
report on "Industrial Combinations and Prices," 
this margin is graphically shown. Report of the In- 
dustrial Commission, 1900, i. 

136 



The Standard Oil Company 

declared that his company is unable per- 
manently to exact excessive prices. Tem- 
porarily, it might have such power; but, 
if it used this power arbitrarily, it would 
provoke heavier competition. There is, 
he admits, a certain amount of monopolis- 
tic power, coming from the aggregation of 
capital itself, which keeps prices higher 
than they would be under severe compe- 
tition; but at present this power and its 
effect upon prices are very slight, and the 
lessened cost of doing business on a large 
scale more than compensates in lowered 
prices for the slight monopolistic power 
of getting higher prices.* Perhaps the 
most significant criticism which the in- 
dependent refiners pass upon the price 
which the Standard Oil Company gets for 
its oil is that the improved methods of 
utilizing by-products in recent years have 
made by-products as remunerative as the 
refined oil itself; and yet the margin of 

^Report of the Industrial Commission, 1900, i., 
PP- 569* 570. 



The Rise and Progress of 

price between refined oil and crude oil 
during this period has only slightly de- 
creased. The statement has frequently 
been made that the Standard has reduced 
its prices in the territory of its com- 
petitors, and maintained prices at more 
profitable rates at non-competitive points.* 
Such a practice, as an instance of ordinary 
business competition, is not extraordinary. 
A similar charge could be brought against 
most large businesses; and, as those who 
bring the charge seldom take into account 
the varying cost of transportation to 
markets of varying means of communi- 
cation, small probative value can be at- 
tached to their bare statement of dif- 
ference in price. Of more serious nature 
are the charges that the Standard Oil 
Company suborns the employees of its 
competitors to secure information as to 
their shipments and customers, and that 

* A mass of evidence bearing on this point is di- 
gested in Report of the Industrial Commission, 1900, 
i., pp. 112-117. 

138 



The Standard Oil Company 

it resorts to unfair tests and adulteration 
of its oils and to the copying of brands 
with the design to deceive purchasers. On 
all these points the evidence is at best 
vague and inconclusive. The officials of 
the Standard Oil Company testify that it 
is their practice to ask their salesmen to 
keep their eyes open, and to inform the 
company as to those from whom different 
dealers are buying; but they flatly deny 
the charge of suborning the employees of 
their rivals, and very conclusively ex- 
plain away the charge of fraud in the 
copying of brands and in the tests and 
adulteration of their products.^ The en- 
ergy of the Standard Oil Company, in 
developing new departments of the in- 
dustry, and its enterprise in undertaking 
the production of all the chemicals and 
materials incidental to the process of re- 
fining, has been recognized, even by in- 
dependent refiners, as truly great, and 

* Report of the Industrial Commission, 1900, i., 
pp. 118-127. 

139 



The Rise and Progress of 

quite beyond what smaller competitors 
could have attempted/ The leading by- 
products are gasoline, naphtha, paraffine, 
lubricating oils, and vaseline products. In 
addition to these, fully two hundred other 
by-products are extracted and used for 
medical purposes and for aniline dyes. 
To utilize all these by-products requires 
the greatest specialization of methods, en- 
couragement of invention, investment of 
capital, and extension of plant. A refin- 
ery of a capitalization of $500,000 cannot 
realize such economies.^ The undoubt- 
edly large profit accruing to the Standard 
Oil Company from the utilization of by- 
products is owing entirely to its superior 
mechanical efficiency and organization. 

Aggregation of capital has brought to 
the Standard Oil Company its greatest 
advantage in the development of foreign 

* Lewis Emery, Report of the Industrial CommiS' 
sion, 1900, i., p. 627. 

^Report of the Industrial Commission, 1900, i., p. 

570. 

140 



The Standard Oil Company 

trade. In its contest on the Continent, 
and especially in Russia, with the great 
oil interests of the Rothschilds, of the No- 
bel Brothers, and of prominent English 
capitalists, its success has been entirely 
due to its great capitalization. Since 1871 
the export of petroleum products has in- 
creased seven times, and of the present 
exports the Standard Oil Company ships 
ninety per cent.* In Russia the competi- 
tion between the Standard and the Nobel 
Brothers is keen. The price of Russian 
crude oil is lower than that of American 
oil ; and the Nobels are at present shipping 
it in tank steamers to India, China, and 
Japan. To meet this competition, the 
Standard Oil Company has established 
agencies all over the world, and has built 
bulk-tank-ships for transporting its prod- 
uct. With the exception of the trade in 
the Far East, where Russian competition 
is especially keen, the export price of oil 

^Report of the Industrial Commission, 1900, i., 
p. 568. 

141 



The Rise and Progress of 

has always been kept above the American 
price/ 

The present position of the Standard 
Oil Company is one of abundant prosperity 
and power. It is opposed by a combi- 
nation — the Pure Oil Company — which 
works in harmony with an independent sea- 
board pipe-line — the United States Pipe- 
Line — and with sixty -six independent 
refineries. The Standard controls ninety 
per cent, of the export trade and eighty 
per cent, of the domestic trade. By its 
control of the pipe-line situation it has be- 
come quite independent of the railroads. 
By its preponderant purchases of crude oil 
it has been able to steady and roughly di- 
rect the course of prices of petroleum. By 
its advantages in locating its refineries near 
their several markets and in utilizing by- 
products it has effected enormous econo- 
mies in transportation and manufacture, 
and increased its dividend from twelve 

^Report of the Industrial Commission, 1900, i., 
p. 791. 

142 



The Standard Oil Company 

per cent, in 1892/ when the Standard Oil 
Trust was dissolved, to forty -eight per 
cent, in 1901. The power of the Standard 
Oil Company is tremendous, but it is only 
such power as naturally accrues to so large 
an aggregation of capital; and in the per- 
sistence with which competition against it 
has continued, in the quickness with which 
that competition increases when oppor- 
tunity for profit under existing prices ap- 
pears, and in the ever-present possibility 
of competition which meets the Standard 
Oil Company in the direction of every part 
of its policy, lie the safeguards against the 
abuse of this great power. 

* Report of the Industrial Commission, 1900, i., p. 
799- 



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