RISING IN THE OIL REGIONS AGAINST THE SOUTH IMPROVEMENT COMPANY -PETROLEUM PRODUCERS' UNION ORGANISED-OIL BLOCKADE AGAINST MEMBERS OF SOUTH IMPROVEMENT COMPANY AND AGAINST RAILROADS IMPLICATED-CONGRESSIONAL INVESTIGATION OF 1872 AND THE DOCUMENTS IT REVEALED-PUBLIC DISCUSSION AND GENERAL CONDEMNATION OF THE SOUTH IMPROVEMENT COMPANY-RAILROAD OFFICIALS CONFER WITH COMMITTEE FROM PETROLEUM PRODUCERS' UNION - WATSON AND ROCKEFELLER REFUSED ADMITTANCE TO CONFERENCE-RAILROADS REVOKE CONTRACTS WITH SOUTH IMPROVEMENT COMPANY AND MAKE CONTRACT WITH PETROLEUM PRODUCERS' UNION-BLOCKADE AGAINST SOUTH IMPROVEMENT COMPANY LIFTED-OIL WAR OFFICIALLY ENDED- ROCKEFELLER CONTINUES TO GET REBATES-HIS GREAT PLAN STILL A LIVING PURPOSE.
It was not until after the middle of February, 1872, that the people of the Oil Regions heard anything of the plan which was being worked out for their "good." Then an uneasy rumour began running up and down the creek. Freight rates were going up. Now an advance in a man's freight bill may ruin his business; more, it may mean the ruin of a region. Rumour said that the new rate meant just this; that is, that it more than covered the margin of profit in any branch of the oil business. The railroads were not going to apply the proposed tariffs to everybody. They had agreed to give to a company unheard of until now-the South Improvement Company-a special rate considerably lower than the new open rate. It was only a rumour and many people discredited it. Why should the railroads ruin the Oil Regions to build up a company of outsiders?
But facts began to be reported. Mr. Doane, the Cleveland
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THE OIL WAR OF 1872
shipper already quoted, told how suddenly on the 22d of February, without notice, his rate from the Oil Regions to Cleveland was put up from thirty-five cents a barrel to sixty-five cents, an advance of twenty-four dollars on a carload.* Mr. Josiah Lombard of the New York refining firm of Ayres, Lombard and Company was buying oil for his company at Oil City. Their refinery was running about 12,000 barrels a month. On the 19th of February the rate from Oil City to Buffalo, which had been forty cents a barrel, was raised to sixty-five cents, and a few days later the rate from Warren to New York was raised from eighty-seven cents to $2.14.. Mr. Lombard was not aware of this change until his house in New York reported to him that the bills for freight were so heavy that they could not afford to ship and wanted to know what was the matter.*
On the morning of February 26, 1872, the oil men read in their morning papers that the rise which had been threatening had come; moreover, that all members of the South Improvement Company were exempt from the advance. At the news all oildom rushed into the streets. Nobody waited to find out his neighbour's opinion. On every lip there was but one word, and that was "conspiracy.'' In the vernacular of the region, it was evident that "a torpedo was filling for that scheme."
In twenty-four hours after the announcement of the increase in freight rates a mass-meeting of 3,000 excited, gesticulating oil men was gathered in the opera house at Titusville. Producers, brokers, refiners, drillers, pumpers were in the crowd. Their temper was shown by the mottoes on the banners which they carried: "Down with the conspirators"- "No compromise"-"Don't give up the ship!" Three days
*A History of the Rise and Fall of the South Improvement Company. Testimony of W. H. Doane, page 45.
''A History of the Rise and Fall of the South Improvement Company. Testimony of Josiah Lombard, page 57.
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later as large a meeting was held at Oil City, its temper more warlike if possible; and so it went. They organised a Petroleum Producers' Union,* pledged themselves to reduce their production by starting no new wells for sixty days and by shutting down on Sundays, to sell no oil to any person known to be in the South Improvement Company, but to support the creek refiners and those elsewhere who had refused to go into the combination, to boycott the offending railroads, and to build lines which they would own and control themselves. They sent a committee to the Legislature asking that the charter of the South Improvement Company be repealed, and another to Congress demanding an investigation of the whole business on the ground that it was an interference with trade. They ordered that a history of the conspiracy, giving the names of the conspirators and the designs of the company, should be prepared, and 30,000 copies sent to "judges of all courts, senators of the United States, members of Congress and of State Legislatures, and to all railroad men and prominent business men of the country, to the end that enemies of the freedom of trade may be known and shunned by all honest men."
They prepared a petition ninety-three feet long praying for a free pipe-line bill, something which they had long wanted, but which, so far, the Pennsylvania Railroad had prevented their getting, and sent it by a committee to the Legislature; and for days they kept I .coo men ready to march on Harrisburg at a moment's notice if the Legislature showed signs of refusing their demands. In short, for weeks the whole body of oil men abandoned regular business and surged from town to town intent on destroying the "Monster," the "Forty Thieves," the "Great Anaconda," as they called the mysterious South Improvement Company. Curiously enough, it
*See Appendix, Number 8. Organisation of the Petroleum Producers' Union of 1872..
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THE OIL WAR OF 1872
was chiefly against the combination which had secured the discrimination from the railroads-not the railroads which had granted it-that their fury was directed. They expected nothing but robbery from the railroads, they said. They were used to that; but they would not endure it from men in their own business.
When they began the fight the mass of the oil men knew nothing more of the South Improvement Company than its name and the fact (Rat it had secured from the railroads advantages in rates which were bound to ruin all independent refiners of oil and to put all producers at its mercy. Their tempers were not improved by the discovery that it was a secret organisation, and that it had been at work under their very eyes for some weeks without their knowing it. At the first public meeting this fact came out, leading refiners of the region relating 'their experience with the "Anaconda." According to one of .these gentlemen, J. D. Archbold- the same who afterward became vice-president of the Stand ard Oil Company, which office he now holds-he and his partners had heard of the scheme some months before. Alarmed by the rumour, a committee of independent refiners had attempted to investigate, but could learn nothing until they had given a promise not to reveal what was told them. When convinced that a company had been formed actually strong enough to force or persuade the railroads to give it special rates and refuse them to all persons outside, Mr. Archbold said that he and his colleagues had gone to the rail way kings to remonstrate, but all to no effect. The South Improvement Company by some means had convinced the rail-roads that they owned the Oil Regions, producers and
refiners both, and that hereafter no oil of any account would be shipped except as they shipped it. Mr. Archbold and his partners had been asked to Join the company, but had refused, declaring that the whole business was iniquitous,
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THE HISTORY OF THE. STANDARD OIL COMPANY
that they would fight. It to the end, and that in their fight they would have the backing of the oil men as a whole. They excused their silence up to this time' by citing the pledge * exacted from them before they were informed of the extent and nature of the South Improvement Company.
Naturally the burning question throughout the Oil Regions, convinced as it was of the iniquity of the scheme, was. Who are the conspirators? Whether the gentlemen concerned regarded themselves in the light of "conspirators'' or not, they seem from the first to have realised that it would be discreet not to be identified publicly with the scheme, and to have allowed one name alone to appear in all signed negotiations. This was the name of the president. Peter H. Watson. However anxious the members of the South Improvement Company were that Mr. Watson should combine the honours of president with the trials of scapegoat, it was impossible to keep their names concealed. The Oil City Derrick, at that time one of the most vigorous, witty, and daring news papers in the country, began a black list at the head of its editorial columns the day after the raise in freight was announced, and it kept it there until it was believed complete. It stood finally as it appears on the opposite page.
This list was not exact, but it was enough to go on, and the oil blockade, to which the Petroleum Producers' Union had pledged itself, was now enforced against the firms listed, and as far as possible against the railroads. All of these refineries had their buyers on the creek, and although several of them were young men generally liked for their personal and business qualities, no mercy was shown them. They were refused oil by everybody, though they offered from seventy-five cents to a dollar more than the market price. They were ordered at one meeting "to desist from their nefarious business or leave the Oil Region," and when they
* See page 56.
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JOHN D. ARCHBOLD IN 1872
Now vice-president of the Standard Oil Company. Mr. Archbold, whose home, in 1872, was in Titusville, Pennsylvania, although one of the youngest refiners of the Creek, was one of the most active and efficient in breaking up the South Improvement Company.
THE OIL WAR OF 1872
declined they were invited to resign from the oil exchanges of which they were members. So strictly, indeed, was the blockade enforced that in Cleveland the refineries were closed and meetings for the relief of the workmen were held. In spite of the excitement there was little vandalism, the
only violence at the opening of the war being at Franklin, where a quantity of the oil belonging to Mr. Watson was run on the ground.
The sudden uprising of the Oil Regions against the South Improvement Company did not alarm its members at first. The excitement would die out, they told one another. All that they needed to do was to keep quiet and stay out of the oil country. But the excitement did not die out. Indeed, with every day it became more intense and more wide-spread. When Mr. Watson's tanks were tapped he began to protest
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THE HISTORY OF THE STANDARD OIL COMPANY
In letters to a friend, F. W. Mitchell, a prominent banker and oil man .of Franklin. The company was misunderstood, he complained. "Have a committee of leading producers appointed," he wrote, "and we will show that the contracts with the railroads are as favourable to the producing as to other interests; that the much-denounced rebate will enhance the price of oil at the wells, and that our entire plan in operation and effect will promote every legitimate American interest in the oil trade." Mr. Mitchell urged Mr. Watson to come openly to the Oil Regions and meet the producers as a body. A mass-meeting was never a "deliberative body," Mr. Watson replied, but if a few of the leading oil men would go to Albany or New York, or any place favourable to calm investigation and deliberation, and therefore outside of the atmosphere of excitement which enveloped the oil country, he would see them. These letters were read to the producers, and a motion to appoint a committee was made. It was received with protests and Jeers. Mr. Watson was afraid to come to the Oil Regions, they said. The letters were not addressed to the association, they were private-an insult to the body. "We are lowering our dignity to treat with this man Watson," declared one man. "He is free to come to these meetings if he wants to." "What is there to negotiate about?" asked another. "To open a negotiation is to concede that we are wrong. Can we go halves with these middlemen in their swindle?" "He has set a trap for us," declared another. "We cannot treat with him without guilt," and the motion was voted down.
The stopping of the oil supply finally forced the South Improvement Company to recognise the Producers' Union officially by asking that a committee of the body be appointed to confer with them on a compromise. The producers sent back a pertinent answer. They believed the South Improvement Company meant to monopolise the oil business. If that
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was so they could not consider a compromise with it. If they' were wrong, they would be glad to be enlightened, and they asked for information. First: the charter under which the South Improvement Company was organised. Second: the articles of association. Third: the officers' names. Fourth: the contracts with the railroads which signed them. Fifth: the general plan of management. Until we know these things, the oil men declared, we can no more negotiate with you than we could sit down to negotiate with a burglar as to his privileges in our house.
The Producers' Union did not get the information they asked from the company at that time, but it was not long before they had it, and much more. The committee which they had appointed to write a history of the South Improvement Company reported on March 20, and in April the Congressional Committee appointed at the insistence of the oil men made its investigation. The former report was published broadcast, and is readily accessible to-day. The Congressional Investigation was not published officially, and no trace of its work can now be found in Washington, but while it was going on reports were made in the newspapers of the Oil Regions, and at its close the Producers' Union published in Lancaster, Pennsylvania, a pamphlet called "A History of the Rise and Fall of the South Improvement Company," which contains the full testimony taken by the committee. This pamphlet is rare, the writer never having been able to find a copy save in three or four private collections. The most important part of it is the testimony of Peter H. Watson, the president, and W. G. Warden, the secretary of the South Improvement Company. It was in these documents that the oil men found full Justification for the war they were carrying on and for the losses they had caused themselves and others. Nothing, indeed, could have been more damaging to a corporation than the publication of the charter of the South lm-
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THE HISTORY OF THE STANDARD OIL COMPANY
provement Company. As Its president told the Congressional Investigating Committee, when he was under examination, "this charter was a sort of clothes-horse to hang a scheme upon." As a matter of fact it was a clothes-horse big enough to hang the earth upon. It granted powers practically unlimited. There really was no exaggeration in the summary of its powers made and scattered broadcast by the irate oil men in their "History of the Rise and Fall of the South Improvement Company" : *
The South lmprovement Company can own, contract, or operate any work, business, or traffic (save only banking); may hold and transfer any kind of property, real or personal; hold and operate on any leased property (oil territory, for instance); make any kind of contract; deal in stock, securities, and funds; loan its credit, guarantee any one's paper; manipulate any industry; may seize upon the lands of other parties for railroading or any other fur pole; may absorb the improvements, property or franchises of any other company, ad infinitum; may fix the fares, tolls, or freights to be charged on lines of transit operated by it, or on any business it gives to any other company or line, without limit.
Its capital stock can be expanded or "watered" at liberty; it can change its name and location at pleasure; can go anywhere and do almost anything. It is not a Pennsylvania corporation only; it can, so far as these enactments are valid, or are confirmed by other Legislatures, operate in any state or territory; its directors must be only citizens of the United States-not necessarily of Pennsylvania. It is responsible to no one; its stockholders are only liable to the amount of their stock in it; its directors, when wielding all the princely powers of the corporation, are also responsible only to tile amount of their stock in it; it may control the business of the continent and hold and transfer millions of property, and yet be rotten to the core. It is responsible to no one; makes no reports of its acts or financial condition; its records and deliberations are secret; its capital illimitable; its object unknown. It can be here to-day, to-morrow away. Its domain is the whole country; its business everything. Now it is petroleum it grasps and monopolises; next year it may be iron, coal, cotton, or breadstuffs. They are landsmen granted perpetual letters of marque to prey upon all commerce everywhere.
When the course of this charter through the Pennsylvania Legislature came to be traced. It was found to be devious
* See Appendix, Number 9. Charter of the South Improvement Company.
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THE OIL WAR OF 1872
and uncertain. The company had been incorporated in 1870, and vested with all the "powers, privileges, duties and obligations" of two earlier companies-the Continental Improvement Company and the Pennsylvania Company, both of which were children of that interesting body known as the "Tom Scott Legislature." The act incorporating the company was never published, the name of the member introducing it was never known, and no votes on it are recorded. The origin of the South Improvement Company has always remained in darkness. It was one of thirteen "improvement" companies chartered in Pennsylvania at about the same time, and enjoying the same commercial carte blanche.
Bad as the charter was in appearance, the oil men found that the contracts which the new company had made with the railroads were worse. These contracts advanced the rates of freight from the Oil Regions over 100 per cent.-an advance which more than covered the margin of profit on their business-but it was not the railroad that got the greater part of this advance; it was the South Improvement Company. Not only did it ship its own oil at fully a dollar a barrel cheaper on an average than anybody else could, but it received fully a dollar a barrel "rake-off" on every barrel its competitors shipped. It was computed and admitted by the members of the company who appeared before the investigating committee of Congress that this discrimination would have turned over to them fully $6,000,000 annually on the carrying trade. The railroads expected to receive about one and a half millions more than from the existing rates. That is, an additional cost of about $l.25 a barrel was added to crude oil, and it was computed that this would enable the refiners to advance their wholesale price at least four cents a gallon. It is hardly to be wondered at that when the oil men had before them the full text of these contracts they refused absolutely to accept the repeated assertions of the
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members of the South Improvement Company that their scheme was intended only for "the good of the oil business." The committee of Congress could not be persuaded to believe it either. "Your success meant the destruction of every refiner who refused for any reason to join your company, or whom you did not care to have in, and it put the producers entirely in your power. It would make a, monopoly such as no set of men are fit to handle," the chairman of the committee declared. Of course Mr. Warden, the secretary of the company, protested again and again that they meant to take in all the refiners, but when he had to admit that the contracts with the railroads were not made on this condition, his protestations met with little credence. Besides, there was the damning fact that no refiners had come in except those in Cleveland, and that they with one accord testified that they had yielded to force. Not a single factory in either New York or the Oil Regions was in the combination. The fact that the producers had never been approached in any way looked very bad for the company, too. Mr. Watson affirmed and reaffirmed before the committee that it was the intention of the company to take care of the producers. "It was an essential part of this contract that the producers should join it," he declared. But no such condition was embodied in the contract. It was verbal only, and, besides, it had never been submitted to the producers themselves in any form until after the trouble in the Oil Regions began. The committee, like the oil men, insisted that under the circumstances no such verbal understanding was to be trusted.*
No part of the testimony before the committee made a worse impression than that showing that the chief object of the combination was to put up the price of refined oil to
*See Appendix, Number 10. Draft of contract between the South Improvement Company and producers of petroleum in the valley of the Allegheny and its tributaries. Dated January, 1872.
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the consumer, though nobody had denied from the first that) this was the purpose. In a circular, intended for private circulation, which appeared in the newspapers about this time explaining the objects of the South Improvement Company, this was made clear:
"The object of this combination of interests," ran the circular, "is understood to be twofold: firstly, to do away, at least in a great measure, with the excessive and undue competition now existing between the refining interest, by reason of there being a far greater refining capacity than is called for or justified by the existing petroleum-consuming requirements of the world; secondly, to avoid the heretofore undue competition between the various railroad companies transporting oil to the seaboard, by fixing a uniform rate of freight, which it is thought can be adhered to by some such arrangement as guaranteeing to each road some such percentages of the profit of the aggregate amount of oil transported, whether the particular line carries it or not. It is also asserted that a prominent feature of the combination will be to limit the production of refined petroleum to such amounts as may serve, in a great measure, to do away with the serious periodical depressions in the article. Is it also to be expected that, desiring to curtail the production of refined petroleum in this country, the railroads will not offer any additional facilities for exportation of the crude article."
A writer in the Oil City Derrick, quoted in the Cleveland Herald, March 2, 1872, said: "The ring pretend that they will make their margin out of the consumers. That is, that they will put refined up to a figure that will enable them to pay well for crude... The consumers are the avowed victims, since they must pay a price which will warrant the ring in going on with their operations. And the producers' security for the price is a mere matter of discretion.
" Wherever the members of the company discussed the sub-
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THE HISTORY OF THE STANDARD OIL COMPANY
ject they put forward this object as one sufficient to justify the combination. If refined oil was put up everybody in the trade would make more money. To this end the public ought to be willing to pay more.
When Mr. Warden was under examination by the committee the chairman said to him: "Under your arrangement, the public would have been put to an additional expense of $7,500,000 a year." "What public?" said Mr. Warden. "They would have had to pay it in Europe." "But to keep up the price abroad you would have to keep up the price at home," said the chairman. Mr. Warden conceded the point: "You could not geta better price for that exported without having a better price here," he said.*
Mr. Watson contended that the price could be put up with benefit to the consumer. And when he was asked how, he replied: "By steadying the trade. You will notice what all those familiar with this trade know, that there are very rapid and excessive fluctuations in the oil market; that when these fluctuations take place the retail dealers are always quick to note a rise in price, but very slow to note a fall. Even if two dollars a barrel had been added to the price of oil under a steady trade, I think the price of the retail purchaser would not have been increased. That increased price would only amount to one cent a quart (four cents a gallon), and I think the price would not have been increased to the retail dealer because the fluctuations would have been avoided. That was one object to be accomplished." '^
'
The committee were not convinced, however, that a scheme which began by adding four cents to the price of a gallon of oil could be to the good of the consumer. Nor did anything appear in the contracts which showed how the fluctuations in the price of oil were to be avoided. These fluctuations
*See Appendix, Number 11. Extracts from the testimony of W. G. Warden.
^See Appendix, Number 12. Extracts from the testimony of Peter H. Watson.
THE OIL WAR OF 1872
were due to the rise and fall in the crude market, and that depended on the amount of crude coming from the ground. The South Improvement Company might assert that they meant to bring the producers into their scheme and persuade them to keep down the amount of production in the same way they meant to keep down refined, so that the price could be kept steadily high, but they had nothing to prove that they were sincere in the intention, nothing to prove that they had thought of the producer seriously until the trouble in the Oil Regions began. It looked very much to the committee as if the real intention of the company was to keep up the price of refined to a certain figure by limiting the output, and that there was nothing to show that it would not go up with crude though it might not go down with it! Under these circumstances it seemed as if a fluctuating market which gave a moderate average was better for the consumer than the steady high price which Mr. Watson thought so good for the public. Thirty-two cents a gallon was the ideal price they had in view, though refined had not sold for that since 1869, the average price in 1870 being 26 3/8 and in 1871 24. 1/4. The refiner who in 1871 sold his oil at 24.1/4 cents a gallon cleared easily fifty-two cents a barrel-a large profit on his investment, -but the refiners in the early stages of this new industry had made much larger profits. It was to perpetuate these early profits that they had gone into the South Improvement Company.
It, did not take the full exposition of the objects of the South Improvement Company, brought out by the Congressional Investigating Committee, with the publication of charters and contracts, to convince the country at large that the Oil Regions were right in their opposition. From the first the sympathy of the press and the people were with the oil men. It was evident to everybody that if the railroads had made the contracts as charged (and it daily became more
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evident they had done so), nothing but an absolute monopoly of the whole oil business by this combination could result. It was robbery, cried the newspapers all over the land. "Under the thin guise of assisting in the development of oil- refining in Pittsburg and Cleveland," said the New York Tribune, "this corporation has simply laid its hand upon the throat of the oil traffic with a demand to 'stand and deliver.' " And if this could be done in the oil business, what was to prevent its being done in any other industry? Why should not a company be formed to control wheat or beef or iron or steel, as well as oil ? If the railroads would do this for one company, why not for another? The South Improvement Company, men agreed, was a menace to the free trade of the country. If the oil men yielded now, all industries must suffer from their weakness. The railroads must be taught a lesson as well as would-be monopolists.
The oil men had no thought of yielding. With every day of the war their backbone grew stiffer. The men were calmer, too, for their resistance had found a ground which seemed Impregnable to them, and arguments against the South Improvement Company now took the place of denunciations. On all sides men said. This is a transportation question, and now is the time to put an end once and forever to the rebates. The sentiment against discrimination on account of amount of freight or for any other reason had been strong in the country since its beginning, and it now crystallised immediately. The country so buzzed with discussion on the duties of the railroads that reporters sent from the Eastern news papers commented on it. Nothing was commoner, indeed, on the trains which ran the length of the region and were its real forums, than to hear a man explaining that the railways derived their existence and power from the people, that their charters were contracts with the people, that a fundamental provision of these contracts was that there should be no dis-
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THE OIL WAR OF 1872
criminating in favour of one person or one town, that such a discrimination was a violation of charter, that therefore the South Improvement Company was founded on fraud, and the courts must dissolve it if the railways did not abandon it. The Petroleum Producers' Union which had been formed to grapple with the "Monster" actually demanded interstate regulation, for in a circular sent out to newspapers and boards of trade asking their aid against the conspiracy they included this paragraph: "We urge you to exert all your influence with your representatives in Congress to support such measures offered there as will prohibit for all future time any monopoly of railroads or other transportation com panies from laying embargoes upon the trade between states by a system of excessive freights or unjust discrimination against buyers or shippers in any trade by the allowance of rebates or drawbacks to any persons whatever. This is a matter of national importance, and only the most decided action can protect you and us from the scheming strength of these monopolies."
How the whole question appeared to an intelligent oil man, one, too, who had had the courage to resist in the attack on the trade in Cleveland, and who still was master of his own refinery, is shown by the following letter to the Cleveland Herald:
Eds. HERALD: As I understand, the financial success of this South Improvement Company is based upon contracts made with the officers (either Individually or other- wise) of all the railroads leading out of the Oil Region, by which they (the South lm-' provement Company) receive as a draw-back certain excess of freights, not only on every barrel of oil shipped out of the Oil Regions by or to themselves, but also on every barrel of oil shipped out of the Oil Regions by or to other refiners, or dealers, or consumers.
The first advance in freights to Cleveland has already been made, viz.: on crude oil, from forty cents to sixty-five cents per barrel. This seemingly slight advance has already caused one party that I know of to pay an excess of over $2,000. Other firms have paid larger or smaller sums, according to the quantity of oil they were compelled
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