Wealth against commonwealth - Henry Demarest Lloyd

To prove that oil is cheaper than it was is not to prove that it is cheap.

Anything begins to be dear the moment the power to fix the price has been allowed to vest in one. The question whether our monopolies have made things cheap or dear in the past pales before the exciting query, What will they do in the future, when their power has become still greater, or has passed by death, descent, or sale into hands less shrewd and greedier? Such power never moves backward. Says President Andrews, of Brown University, in the article quoted below: "When a commodity is turned out under such conditions, cost no longer regulates the price. This is done quite arbitrarily for a time, the seller's whim being perhaps sobered a little by his memory of old competitive rates. Slowly caprice gives way to law; but it is a new law—that of man's need. Prices go higher and higher till demand, and hence profit, begins to fall off; and they then play about the line of what the market will bear, just as they used to about that of cost. The producer can be more or less exacting, according to the nature of the product. If it is a luxury, the new law may not greatly elevate prices above the old notch. If it is a necessity, he may bleed people to death."

"At any reasonable price, say three or four times the present selling price of refined oil, it is the cheapest light in the world, and if the prices were advanced to 20 cents a gallon the sales would be as large as they are now at 7½ cents," wrote Vice-president Cassatt, of the Pennsylvania Railroad, to the Pennsylvania Legislature, in 1881, opposing the Free Pipe Line bill. The possibilities here were touched upon by the New York committee of 1888: "What the trust's course would have been if, instead of increased production, it had been required to deal with the problem of a constantly diminishing or stationary volume of oil, is an interesting subject for speculation. Certain it is that the trust has the power to put up prices, even if it fails to exercise it. If, in the future, the field producing the commodity manufactured and sold by this combination of corporations shall fail to increase its present product, or shall return a diminished quantity, the oil trust will be able to fix the price of the product of its refineries in this country, if not in the world."[622]

It was not great capital which put this industry in the possession of these enthusiasts for "all the little economies." The same universal forces of cheapness which have been at work everywhere have been at work upon the cost of the instrumentalities of production, and put machinery, transportation, raw material, and market agencies within reach of moderate capital. Such great capital is wasteful capital. It operates through agents at great distances, attenuating incentives to energy and care. Many practical men, real refiners, who have been forced to give up their business to refiners of railroad privileges, have testified to the same effect as the manufacturer who said to Congress in 1872: "I believe a refinery of 100 barrels can be run cheaper than the larger establishments."[623]

If production on a natural scale, directed by the eye of the owner, were not more economical than production mobilized from the metropolis by salaried men hundreds of miles away, the independent refiners and producers of Pennsylvania, New York, and Ohio would not have been able to survive at all. It was said in one of the Buffalo papers by one of these independent refiners: "There are several well-equipped independent refineries in operation at the present time in Pennsylvania and Ohio oil-fields where the refiner has his own crude oil, his own pipe line, and produces his own natural gas for fuel purposes. It is needless to say that an experienced and skilful refiner operating under such favorable conditions can manufacture at less cost per barrel than any trust with a long list of pensioners and burdened with the control of two political parties and the maintenance of numerous city mansions, stock farms, and theological seminaries."

Note.—The claims of the oil combination to the credit of having cheapened oil have been subjected by competent men to statistical tests. President Andrews, of Brown University, shows that from 1861 to 1872, inclusive—i.e., before any combination whatever existed—the net annual percentage of decrease in the price of refining oil and carrying it to tide-water—that is, the difference between the cost of the petroleum at the wells and of the refined at New York—was 10-4332/10000 cents; from 1873 to 1881, inclusive, the trust's infirm and formative period, the decrease was 7-8897/10000 cents; from 1882 to 1887, inclusive, the years of its full maturity and vigor, the decrease was only 2-2879/10000 cents.[624]

The New York Daily Commercial Bulletin (April 4, 1892) made a similar study with similar results. It finds that under competition in the refining of oil the difference between crude at the wells and refined oil at New York was reduced from 13.45 cents per gallon in 1872 to 6.02 cents per gallon in 1881; under the reign of the trust the difference was 5.84 in 1891—greater than in 1882, when the trust began operations, when it was only 5.77. It concludes: "It has been claimed that the oil trust has been a benefit to this county; that the economies which it has introduced in the transportation and refining of oil have been shared with the consumer, and that the enormous wealth which it has accumulated during the past ten years has been widely distributed. Not one of these claims has any substantial basis in fact."

The comparisons of cheapness are made on the wholesale price at New York of "export oil"—an inferior, almost a refuse product. Its price must meet that made by the Russians. These comparisons, therefore, really shed no light on the price movements of oil going into consumption throughout the country. But the trust really gets the retail price on all its domestic output. A full statistical statement of the price movement in retail markets cannot be had; nor even of the wholesale, for the combination has lately adopted a policy of suppressing the wholesale quotations of the higher grades of oil for domestic consumption. Comparisons, therefore, built on the export price of this poor oil at New York, though good as far as they go, are of oils of a low illuminating power. Comparisons that would really show the part played by the combination as a true merchant—one who discovers and distributes abundance for all at a fair price for his service—can only be made by such illustrations as we have been giving from its utterances, plans, and actions. But for monopoly an average price of 5 cents a gallon could prevail throughout the United States, with a saving of hundreds of millions to the people.

Trust prices are artificial prices, independent of supply and demand, and in their perfection superior even to panic. This is illustrated by the comparison below, made by Mr. Byron W. Holt:

COMPARATIVE PRICES OF STAPLES DURING THE CURRENT DEPRESSION

April 28, 1893 July 20, 1894 Per cent. of
Decline since
April 28, 1893

Wheat, No. 2, red $ 0.76-³/₈ $ 0.56½ 26

Corn, No. 2, mixed .50 .47½ 5

Cotton, middling upland .07-¹³/₁₆ .07-¹/₁₆ 10

Wool, Ohio and Pennsylvania, X. .28 .18 36

Pork, mess, new 21.00 14.00 @ 14.25 33

Butter, creamery .30 @ 33 .17 45

Sugar, raw, 96° .03-¹⁵/₁₆ @ 4 .03-³/₁₆ 18

Sugar, granulated .05-¹/₁₆ .04-⁵/₁₆ 15

Petroleum, refined, gal. .0555 .0515 7

Pig Iron, Bessemer, Chicago 14.50 @ 15.00 11.25 @ 11.50 23

Steel Rails, Chicago 30.00 @ 32.00 25.00 @ 27.00 16

Steel Beams, Chicago .02 .01½ 25

June 30, 1892 June 30, 1894 June 30, 1892

Coal, Bituminous, Pittsburg $ 1.07 $ 0.86 20

Coal, Anthracite, New York 4.15 4.15 00

The prices of four of these products—granulated sugar, petroleum, steel rails, and anthracite coal—are controlled by strong trusts. These prices have declined, since the beginning of the depression—about May 1, 1893—not quite 10 per cent. Prices of the other ten products have declined 24 per cent.

Under free conditions prices of manufactured articles would decline faster than prices of farm products. Cost of production can be lowered faster in machine or factory products than in farm products. Under the influence of trusts the natural order is not only reversed, but prices of farm products have declined more than twice as fast as prices of factory or trust products. Trust influence is conspicuous in the cases of sugar and coal. The price of raw sugar, in which there is no trust, has declined 5 per cent. since June 30, 1891. The price of granulated has advanced 4 per cent. The president of the trust admitted to Congress in 1894 that it had advanced the price 3/8 of a cent a pound. Cost of refining has declined since 1891. There being no well-defined trust in bituminous coal, its price has declined 30 per cent. since 1891. The price of anthracite coal has advanced 2 per cent. in the same time, because the producers have "regulated" production.

	April 28, 1893	July 20, 1894	Per cent. of Decline since April 28, 1893
Wheat, No. 2, red	$ 0.76-³/₈	$ 0.56½	26
Corn, No. 2, mixed	.50	.47½	5
Cotton, middling upland	.07-¹³/₁₆	.07-¹/₁₆	10
Wool, Ohio and Pennsylvania, X.	.28	.18	36
Pork, mess, new	21.00	14.00 @ 14.25	33
Butter, creamery	.30 @ 33	.17	45
Sugar, raw, 96°	.03-¹⁵/₁₆ @ 4	.03-³/₁₆	18
Sugar, granulated	.05-¹/₁₆	.04-⁵/₁₆	15
Petroleum, refined, gal.	.0555	.0515	7
Pig Iron, Bessemer, Chicago	14.50 @ 15.00	11.25 @ 11.50	23
Steel Rails, Chicago	30.00 @ 32.00	25.00 @ 27.00	16
Steel Beams, Chicago	.02	.01½	25
	June 30, 1892	June 30, 1894	June 30, 1892
Coal, Bituminous, Pittsburg	$ 1.07	$ 0.86	20
Coal, Anthracite, New York	4.15	4.15	00

[CHAPTER XXXI]