A high quality of organization, however, does not completely explain the growth of this monopoly. The Standard Oil Company was the beneficiary of methods that have deservedly received great public opprobrium. Of these the one that stands forth most conspicuously is the railroad rebate. Those who have attempted to trace the very origin of the Rockefeller preeminence to railroad discrimination have not entirely succeeded. Only the most hazy evidence exists that the firm of Rockefeller, Andrews, and Flagler greatly profited from rebates. In fact, refined oil was not transported from Cleveland to the seaboard by railroad until 1870, the year that this firm dissolved; practically all of the product then went by way of the Great Lakes and the Erie Canal. Possibly the Rockefeller firm did get occasional rebates on crude oil from the oil regions to the refineries, but so did their competitors. It is therefore not likely that such favors had great influence in making this single firm the most successful in the largest refining center. With the organization of the Standard Oil Company, however, rebates became a more important consideration.
The turning-point in the history of the oil industry came when the Rockefeller interests acquired the Cleveland refineries. The details concerning this act of generalship are fairly well known. The South Improvement Company is a corporation that necessarily bulks large in the history of the Standard Oil. Mr. Rockefeller and his associates have always disclaimed the parentage of this organization. They assert—and their assertion is doubtless true—that the only responsible begetters were Thomas A. Scott, President of the Pennsylvania Railroad, and certain refineries in Pittsburgh and Philadelphia which, though they were afterwards absorbed by the Standard, were at that time their competitors. These refiners and the Pennsylvania, over which the Standard Oil then was making no shipments, thus represented a group, composed of railroads and refiners, which was antagonistic to the Rockefeller interests. The South Improvement Company was an association of refiners with which the railroads, chiefly the Pennsylvania, the New York Central, and the Erie, made exclusive contracts for shipping oil. Under these contracts rates to the seaboard were to be generally raised, though the members of the South Improvement Company were to receive liberal rebates. The refiners of Cleveland and Pittsburgh were to get lower rates than the refiners located in the oil regions. But the clause in these contracts that caused the greatest amazement and indignation was one which gave the inside group rebates on every barrel of oil shipped by its competitors.
It would be difficult to imagine any transaction more wicked than these contracts. Carried into execution they inevitably meant the extinction of every refiner who had not been admitted into the inside ring. Of the two thousand shares of the South Improvement Company, the gentlemen who were at that time most conspicuously identified with the Standard Oil Company subscribed to five hundred and forty. Mr. Rockefeller has always protested that he did not favor the scheme and that he became a party to it simply because he could not afford to antagonize the powerful Pennsylvania Railroad, which had originated it. When the details became public property, a wave of indignation swept from the Atlantic to the Pacific; the oil regions, which would have been the heaviest sufferers, shut down their wells and so cut off the supply of crude oil; the New York newspapers started a "crusade" against the South Improvement group and Congress ordered an investigation. So fiercely was the public wrath aroused that the railroads ran to cover, abrogated the contracts, signed an agreement promising never more to grant rebates to any one, while the Pennsylvania Legislature repealed the charter of the South Improvement Company. This particular scheme, therefore, never came to maturity. Before the South Improvement Company ended its corporate existence, however, a great change had taken place in the oil situation. Practically all the refineries in Cleveland had passed into the control of the Standard Oil Company. The Standard has always denied that there was any connection between the purchase of these great refineries and the organization of the South Improvement Company. But there is much evidence sustaining a contrary view, for many of these refiners afterward went on the witness stand and told circumstantial stories, all of which made precisely the same point. This was that the Standard men had come to them, shown the contracts which had been made by the South Improvement Company, and argued that, under these new conditions, the refineries left outside the combination could not long survive. The Standard's rivals were therefore urged to "come in," to take Standard stock in return for their refineries, or, if they preferred, to sell outright. Practically all saw the force in this argument and sold—in most cases taking cash.
The acquisition of these Cleveland refineries made inevitable the Rockefeller conquest of the oil industry. Up to that time the Standard had refined about fifteen hundred barrels a day, and now suddenly its capacity jumped to more than twelve thousand barrels. This one strategic move had made Rockefeller master of about one-third of all the oil business in the United States, and this fact explains the rapidity with which the other citadels fell. There is no evidence that the Standard exercised any pressure upon the great refineries in New York, Pittsburgh, and Philadelphia. Indeed these concerns manifested an eagerness to join. The fact that, unlike the Cleveland refiners, many of the firms in these other cities took Standard stock, and so became parts of the new organization, is in itself significant. They evidently realized that they were casting their fortunes with the winning side. The huge shipments which the Standard now controlled explain this change in front. Every day Mr. Rockefeller could send from Cleveland to the seaboard a train, sixty cars long, loaded with the blue barrels containing his celebrated liquid. That was a consideration for which any railroad would at that time sell its soul. And the New York Central road promptly made this sacrifice. Hardly had the ink dried on its written promise not to grant any rebates when it began granting them to the Standard Oil Company.
In those days the railroad rate was not the sacred, immutable thing which it subsequently became, although the argument for equal treatment of shippers existed theoretically just as strongly forty years ago as it does today. The rebate was just as illegal then as it is at present; there was no precise statute, it is true, which made it unlawful until the Interstate Commerce Act was passed in 1887; but the common law had always prohibited such discriminations. In the seventies and eighties, however, railroad men like Cornelius Vanderbilt and Thomas A. Scott were less interested in legal formalities than in getting freight. They regarded transportation as a commodity to be bought and sold, like so much sugar or wheat or coal, and they believed that the ordinary principles which regulated private bargaining should also regulate the sale of the article in which they dealt. According to this reasoning, which was utterly false and iniquitous, but generally prevalent at the time, the man who shipped the largest quantities of oil should get the lowest rate.
The purchase of the Cleveland refineries made the Standard Oil group the largest shippers and therefore they obtained the most advantageous terms for transporting their product. Under these conditions they naturally obtained the monopoly, the extent of which has been already described. Their competitors could rage, hold public meetings, start riots, threaten to lynch Mr. Rockefeller and all his associates, but they could not long survive in face of these advantages. The only way in which the smaller shippers could overcome this handicap was by acquiring new methods of transportation. It was this necessity that inspired the construction of pipe lines; but the Standard, as already described, succeeded in absorbing these just about as rapidly as they were constructed.
Not only did the Standard obtain railroad rebates but it developed the most death-dealing methods in its system of marketing its oil. In these campaigns it certainly overstepped the boundaries of legitimate business, even according to the prevailing morals of its own or of any other time. While it probably did not set fire to rival refineries, as it has sometimes been accused of doing, it undoubtedly did resort to somewhat Prussian methods of destroying the foe. This great corporation divided the United States into several sections, over each of which it appointed an agent, who in turn subdivided his territory into smaller divisions, each one of which likewise had its captain. The order imperatively issued to each agent was, "Sell all the oil that is sold in your district." To these instructions he was rigidly held; success in accomplishing his task meant advancement and an increased salary, with a liberal pension in his old age, whereas failure meant a pitiless dismissal. He was expected to supervise not only his own business, but that of his rivals as well, to obtain access to their accounts, their shipments, and their customers. It has been asserted, and the assertion has been supported by considerable evidence, that these agents did not hesitate to bribe railroad employees and in this way get access to their competitors' bills of lading and records of their shipments, and that they would even bribe dealers to cancel such orders and take the oil from them at a lower price. This information laid the foundation for those price-cutting campaigns that have brought the name of the Standard Oil into such disfavor. And when the Standard cut, it cut to kill; the only purpose was to drive the competitor from the field, and, when this had been accomplished, the price of oil would promptly go up again. The organization of "bogus companies," started purely for the purpose of eliminating competitors, seems to have been a not infrequent practice. This latter method emphasizes another quality that accompanied the Standard's operations and so largely explains its unpopularity—the secrecy with which it so commonly worked. Though the independent oil refiners were combating the most powerful financial power of the time, they were frequently fighting in the dark, never knowing where to deliver their blows.
This same characteristic was manifested in the form of corporate existence which the Standard adopted. The first great "trust" was a trust not only in name but in fact. The Standard introduced not only a new economic development into our national organization; it introduced a new word into our language and an issue into American politics that provided sustenance for the presidential campaigns of twenty-five years. From the beginning the Standard Oil had always been a close corporation. Originally it had had only ten stockholders, and this number had gradually grown until, in 1881, there were forty-one. These men had adopted a new and secretive method of combining their increasing possessions into a single ownership. In 1873 the Standard Company had increased its capital stock (originally $1,000,000) to $3,500,000, the new certificates being exchanged for interests in the great New York and Philadelphia refineries The Standard Oil Company of Ohio never had a larger capital stock than that. As additional properties were acquired, the interests were placed in the hands of trustees, who held them for the joint benefit of the stockholders in the original company. In 1882 this idea was carried further, for then the Standard Oil Trust was organized. The fact that the properties lay in so many different States, many of which had laws intended to curb corporations, was evidently what led to this form of consolidation. A trust was formed, consisting of nine trustees, who held, for the benefit of the Standard Oil stockholders, all the stock in the Standard and in the subsidiary companies. Instead of certificates of stock the trustees issued certificates of trust amounting to $70,000,000. Each Standard stockholder received twenty of these certificates for each share which he held of Standard stock. These certificates could be bought and sold and passed on by inheritance precisely the same as stocks.
Ingenious as was this legal device, it did not stand the test of the courts. In 1892 the Ohio Supreme Court declared the Standard Oil Trust a violation of the law and demanded its dissolution. The persistent attempts of the Standard to disregard this order increased its reputation for lawlessness. Finally, in 1899, after Ohio had brought another action, the trust was dissolved. The Standard interests now reorganized all their holdings under the name of the Standard Oil Company of New Jersey. Again, in 1911, the United States Supreme Court declared this combination a violation of the Sherman Anti-Trust Act, and ordered its dissolution. By this time the Standard capitalists had learned the value of public opinion as a corporate asset, and made no attempt to evade the order of the court. The Standard Oil Company of New Jersey proceeded to apportion among its stockholders the stock which it held in thirty-seven other companies—refineries, pipe lines, producing companies, marketing companies, and the like. Chief Justice White, in rendering his decision, specifically ordered that, in dissolving their combination, the Standard should make no agreement, contractual or implied, which was intended still to retain their properties in one ownership. As less than a dozen men owned a majority interest in the Standard Oil Company of New Jersey, these same men naturally continued to own a majority interest in the subsidiary companies. Though the immediate effect of this famous decision therefore was not to cause a separation in fact, this does not signify that, as time goes on, such a real dissolution will not take place. It is not unlikely that, in a few years, the transfers of the stock by inheritance or sale will weaken the consolidated interest to a point where the companies that made up the Standard Company will be distinct and competitive.
This is more likely to be the case since, long before the decision of 1911, the Standard Oil Company had ceased to be a monopoly. In the early nineties there came to the front in the oil regions a man whose organizing ability and indomitable will suggested the Standard Oil leaders themselves. This man's soul burned with an intense hatred of the Rockefeller group, and this sentiment, as much as his love of success, inspired all his efforts. There is nothing finer in American business history than the fifteen years' battle which Lewis Emery, Jr., fought against the greatest financial power of the day. In 1901 this long struggle met with complete success. Its monuments were the two great trunk pipe lines which Emery had built from the Pennsylvania regions to Marcus Hook, near Philadelphia, one for pumping refined and one for pumping crude. The Pure Oil Company, Emery's creation, has survived all its trials and has done an excellent business. And meanwhile other independents sprang up with the discovery of oil in other parts of the country. This discovery first astonished the Standard Oil men themselves; when someone suggested to Archbold, thirty-five years ago, that the midcontinent field probably contained large oil supplies, he laughed, and said that he would drink all the oil ever discovered outside of Pennsylvania. In these days a haunting fear pursued the oil men that the Pennsylvania field would be exhausted and that their business would be ended. This fear, as developments showed, had a substantial basis; the Pennsylvania yield began to fail in the eighties and nineties, until now it is an inconsiderable element in this gigantic industry. Ohio, Indiana, Illinois, Kansas, Oklahoma, Texas, California, and other states in turn became the scene of the same exciting and adventurous events that had followed the discovery of oil in Pennsylvania. The Standard promptly extended its pipe lines into these new areas, but other great companies also took part in the development. These companies, such as the Gulf Refining Company and the Texas Refining Company, have their gathering pipe lines, their great trunk lines, their marketing stations, and their export trade, like the Standard; the Pure Oil Company has its tank cars, its tank ships, and its barges on the great rivers of Europe. The ending of the rebate system has stimulated the growth of independents, and the production of crude oil and the market demand in a thousand directions has increased the business to an extent which is now far beyond the ability of any one corporation to monopolize. The Standard interests refine perhaps something more than fifty per cent of the crude oil produced in this country. But in recent years, Standard Oil has meant more than a corporation dealing in this natural product. It has become the synonym of a vast financial power reaching in all directions. The enormous profits made by the Rockefeller group have found investments in other fields. The Rockefellers became the owners of the great Mesaba iron ore range in Minnesota and of the Colorado Fuel and Iron Company, the chief competitor of United States Steel. It is the largest factor in several of the greatest American banks. Above all, it is the single largest railroad power in America today.