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THE RISE AND PROGRESS

OF THE

STANDARD OIL COMPANY

GILBERT HOLLAND MONTAGUE

NEW YORK AND

LONDON

HARPER &

BROTHERS

PUBLISHERS

M C M I V

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

1'Ttilit:

dfro^

hihtmr

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-

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.

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

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

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-

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

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 &

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-

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

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

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-

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

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.

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

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

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

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.

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

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-

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.

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-

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.

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.

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-

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.

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

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,

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.

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.

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,

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."

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

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."

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

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

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

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.

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.

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.

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,

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.

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

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-

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.

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,

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.

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.

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.

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.

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.

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.

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.

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,^

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.

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-

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

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.

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

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-

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.

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.

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-

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

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

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.

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.

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

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.

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-

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.

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

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.

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

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.

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,

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.

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

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.

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.

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.

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.

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.

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.

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.

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

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.

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

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.

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.

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.

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.

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.

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-

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

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.

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-

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-

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.

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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