The History of the Standard Oil Company

by Ida M. Tarbell

This was the Tidewater’s first year’s experience. The second and third were not unlike it. But the company lived and expanded. It bought and built refineries, it sent its president to Europe to open markets, it extended its pipe-line still nearer to the seaboard, and it did this by a series of amazingly plucky and adroit financial moves—borrowing money, speculating in oil, exchanging credit, chasing checks from bank to bank, “hustling,” in short, as few men ever did to keep a business alive. And every move had to be made with caution, for the Standard’s eye was always on them, its hand always outstretched. Samuel Q. Brown, the present president of the organisation, when on the witness stand in December, 1882, said that so much did the Tidewater fear espionage that they were accustomed to keep their oil transactions as a private and not a general account, in order that they might not be reported to the Standard; that even matters which they believed they were keeping in an absolutely private way frequently leaked out, to the injury of the business.

Scale—3 miles to each division. CONDENSED PROFILE OF TIDEWATER PIPE LINE BETWEEN RIXFORD AND TAMANEND, PENNSYLVANIA
The pipe followed the jagged line representing surface of the ground. The numbers above the surface line show the location of the pumping stations from which the oil was forced. The pump at Station 1 lifted the oil over 600 feet. From here it flowed by gravitation until the gradient line—the sloping straight line above the surface line—touched the ground. A new station, No. 2, then lifted the oil to the next high point, the crest of the Alleghanies. As the gradient line shows, the oil now would flow to Station 4, making many steep ascents without further pumping. Station 3 was added to increase the speed of the flow.

By January, 1882, the Tidewater was in such a satisfactory condition that it decided to negotiate a loan of $2,000,000 to carry out plans for enlargement. The First National Bank of New York, after a thorough examination of the business, agreed to take the bonds at ninety cents on the dollar, but trouble began as soon as the probable success of the bond issue was known. The officials of the First National Bank were called upon by stockholders of the Tidewater, men holding nearly a third of the company’s stock, and assured that the company was insolvent, and that it would be unsafe for the bank to take the loan. The First National declined to be influenced by the information, on the ground that the disgruntled stockholders had sold themselves to the Standard Oil Company, and were trying to discredit the Tidewater, so that the Standard might buy it in. It had been planned to place some of these bonds in Europe, and Franklin B. Gowen was sent over for that purpose. Mr. Brown said on the witness stand, a few months later, that as soon as Mr. Gowen started from this side it was cabled to Europe that he was going over to place bonds which were not sound; that the stockholders were all of them wealthy men, and if the bonds had been good property they would have taken them themselves. Mr. Brown declared this report was spread so generally on the other side that it interfered seriously with Mr. Gowen’s attempt to place the loan.

These manœuvres failing to ruin the Tidewater’s credit, a more serious attack was made in the fall of 1882, by the filing of a long bill of complaint against the management of the company, followed by an appeal that a receiver be appointed and the business wound up. The appeal came from E. G. Patterson, a stockholder of the Tidewater, and a man who, up to this time, had been one of the most intelligent opponents of the Standard in the Oil Regions. Mr. Patterson was one of the few who had realised, from the first development of Mr. Rockefeller’s pretensions, that it was a question of transportation, and that, if the railroads could be forced by courts and legislatures to do their duty, the coal-oil business would not belong to Mr. Rockefeller. He had been one of the strongest factors in the great suits compromised in 1880, and his disgust at the outcome had been so great that he had washed his hands of the Producers’ Union. Later he had been engaged by the state of Pennsylvania to collect evidence on which to support a claim against the Standard Oil Company for some $3,000,000 of back taxes. The Standard had made Mr. Patterson’s services unnecessary by coming forward and giving the attorney-general all the information as to its financial condition which he desired. Exasperated at the result of all his efforts, and feeling that he had been deserted by the public he had tried to serve, Mr. Patterson sent word to the Standard that he proposed still further to attack them (just how he never explained) unless they would give him, not to attack, as much as there was in the contract from the state.[^[88]] They seem to have thought it worth while to buy peace, and agreed to give Mr. Patterson some $20,000 in all, and secure him a position for a term of years. The first payment was made at the end of April, 1882, and $5,000 of the money received Mr. Patterson paid to the Tidewater for stock he had taken at its organisation. No sooner was the stock in his hands than he began the preparation of the bill of complaint above referred to, and in December the case was heard.

The Oil Regions watched it with keenest interest. That Mr. Patterson had made some settlement with the Standard was generally known, and the charge was freely circulated that they had bribed him to bring this suit in hopes of blasting the credit of the Tidewater and getting its stock for a song. The testimony brought out in the trial did not bear out this popular notion. The case was rather more complicated. That the suit was backed by the Standard, one would have to be very naïve to doubt, but they were using other and stronger parties than Mr. Patterson, and that was a faction of the company known as the “Taylor-Satterfield crowd.” These men, controlling some $200,000 worth of Tidewater stock, had been professing themselves dissatisfied with the management of the business for some months, though always refusing to sell their holdings at an advanced price. It was generally believed in the Oil Regions that their “dissatisfaction” was fictitious, that they were in reality in league with the Standard in an attempt to create a panic in Tidewater stock, a belief which was strengthened when it was learned that a big oil company, which the gentlemen controlled, the Union, had been sold about that time to the Standard Oil Trust for something like $500,000 in its stock. The first manœuvre of the Taylor-Satterfield faction had been the attempt to dissuade the First National Bank from taking the Tidewater loan referred to above. Failing in this, they seem to have imbued Mr. Patterson thoroughly with their pretended dissatisfaction and to have persuaded him to bring the suit. For some reason which is not clear they failed properly to support him in the suit, and when it came off they practically deserted him. The Tidewater had no trouble in proving that the complaints of insolvency and mismanagement were without foundation, and Judge Pierson Church, of Meadville, before whom the case was argued, refused to appoint the receiver, intimating strongly that, in his judgment, the case was an attempt to levy a species of blackmail, in which it must not be expected that his court would co-operate. Judge Church’s decision was given on January 15. Two days later a sensation came in Tidewater affairs, which quite knocked the Patterson suit out of the public mind; it was nothing less than a bold attempt by the Taylor party, or, as it was now known, “the Standard party,” to seize the reins of government. It was a very cleverly planned coup.

The yearly meeting for the election of officers in the company was fixed for a certain Wednesday in January. By verbal agreement it had been postponed, in 1882, to some time in February, the controller, D. B. Stewart, a member of the Taylor faction, representing that he could not have his statement ready earlier. No notices were sent out to this effect, although this should have been done. Taylor and his party, taking advantage of this fact perfectly well known to them, appeared at the Tidewater offices on January 17, and although one of the Benson faction, as the majority was known from the name of the company’s president, was present with sufficient proxies to vote nearly two-thirds of the stock, they overruled him and elected themselves to the control. They also elected to the Board of Managers, Franklin B. Gowen, the president of the Reading, and James R. Keene, the famous speculator, both large holders of Tidewater bonds. They followed their election immediately by sending out notices to the banks with which the company did business not to honour checks drawn by the Benson party, and to the post-office to deliver mail to no one but themselves.

The announcement caused a terrible commotion in oil circles. Both Mr. Keene and Mr. Gowen refused to recognise the new board, Mr. Gowen telegraphing in answer to the notification of his election:

John Satterfield,

Titusville.

At quarter of three o’clock to-day I received a despatch signed with your name as manager and chairman, stating that a meeting of the Board of Managers would be held at noon to-day. While the notice itself is sufficient to render invalid any action you may have attempted at such meeting as has been held, even if you had power to act at all, I deny your right to call any meeting or act in any manner as an officer of the company, and will hold you and all your associates responsible at law for the occurrences of yesterday, and for your subsequent action thereunder.

(Signed) F. B. Gowen.

The Benson party took immediate action, applying for an injunction restraining the new board from taking possession of the books and offices. This was granted and a date for a hearing appointed. Up to the hearing the old board did business behind barricaded doors! The case was heard in Meadville before Judge Pierson Church—the same who had heard the Patterson case. As it was a case to be decided on purely technical matters—the rules governing elections—no sensation was looked for, but one came immediately. It was a long affidavit from James R. Keene, even more notorious then than now—there were fewer of his kind—for deals and corners and devious stock tricks, declaring that both the Patterson case and this attempt to obtain control were dictated by the “malicious ingenuity” of the Standard for the purpose of destroying the Tidewater and getting hold of its property: