CHAPTER IV

THE STANDARD OIL COMPANY

Although it sometimes happens that governments oppose each other openly in the struggle for oil, as in the case of Poland, Rumania, the Caucasus, and Turkey, they prefer, in general, to hide behind trusts.

There exist in the United States numerous oil concerns whose power is far from negligible, such as the _Sinclair Oil Company_, with a capital of 500 million dollars, and the _Texas_ and the Doheny interests, which together represent another 500 million dollars. But all these independent producers must bow before the unchallenged supremacy of the _Standard Oil_.

The _Standard Oil_, a purely American concern, preceded the _Royal Dutch_--a Dutch company with considerable British, and recently a little French, capital[9]--by twenty years.

As a matter of fact, there is no longer to-day one _Standard Oil_, but forty companies, all bearing this name followed by that of a town or State:

_The Standard Oil of New Jersey_, _The Standard Oil of Pennsylvania_, _The Standard Oil of Kansas_, _The Standard Oil of Ohio_.

The first is the most important. All are federated under one great administrative body.

The Chairman of the Board of Directors of _Standard Oil Companies_ is at the present time Mr. Bedford, formerly Chairman of the _Standard Oil of New Jersey_, where his place has been taken by Walter Teagle. This great Council is the real brain of the _Standard_, from which emanates the general policy of this federation of companies, as powerful as the Government of the United States--more powerful sometimes.

Its history, like that of all American trusts, has something of the marvellous. At the beginning of a great undertaking there is always a great man: the founder of the _Standard_ was John Rockefeller, a small dealer in oil, who, in 1865, conceived the idea of forming a federation of all American oil-dealers.

There were in 1870, in the United States, 250 refineries, which waged among themselves a merciless price-war.

It was to put an end to this struggle, which was so advantageous to the consumer, that the _Standard Oil Company_ was created, _a combine of refiners, not of producers_. Following a strict and constant principle, which it has always observed, the _Standard_ has refrained from seeking raw oil, leaving this task entirely to the prospectors and producers. But as soon as it reaches the surface, the oil, wherever it is found, becomes the exclusive property of the Company, to whose innumerable refineries it is conducted by pipe-lines. The original _Standard Oil Company_, that of Ohio, began humbly with a capital of a million dollars, and the small consumption of 600 barrels a day. Established in Cleveland, it grouped together all the interests in the refining and transport of oil acquired in Pennsylvania since 1865 by Rockefeller, Andrews, Harckess and Flager. Two years later, not only had it brought all the refineries in the neighbourhood of Cleveland under its own control, but it had built others at Baltimore, Philadelphia, New York, Boston, and Pittsburgh.

Six years after its inauguration, it already acquired the greater part of the crude oil produced in the United States. Moreover, its capital had been twice increased, in 1872 and 1874.

At the end of ten years, it transported and distributed 95 per cent. of the American output.

In 1881 it amalgamated thirty-nine oil companies. The trust was constituted and already disposed of a capital of 75 million dollars. The first cycle of its growth was finished. Supreme in the United States market and sure of its monopoly, it completed the laying of its first pipe-line to the Atlantic. The _Standard Oil_ was about to lay claim to Europe.

The Agreement of January 2, 1882

Such fortunes were not built up by entirely honourable methods. The directors of the _Standard Oil of Ohio_ had formed pools. They imposed buying and selling prices on every company which participated. This system, which in a dozen years gave such wonderful results, was not without its faults. There was friction between members of the pool. The need for establishing unity of direction was soon felt. It was with this object that the _Standard Oil Trust_ was founded in 1882.

It was the first time that the word "Trust" appeared in the name of a firm. A Committee of nine members, or trustees, was formed. It comprised all the Rockefeller family: John Rockefeller, Payne, William Rockefeller, Bestwick, Flager, Warden, Pratt, Brewster, Archbold. The nine trustees became the sole delegates and depositories of all the 39 companies conjointly engaged. They received from each concern the shares and the corresponding voting powers. Trust Certificates, of a nominal value of 100 dollars, were exchanged for shares only in the proportion of the value of each undertaking to the total value of all the undertakings constituting the Trust.

The Agreement of 1882 which sealed the pact, provided for the admission into the Trust of new companies and the eventual formation of a _Standard Oil Company_ in each State of the Union.

Companies of four kinds entered the combine of 1882:--

1. Fourteen companies in which _the whole_ of the shares were held by the trustees. Among these were the _Atlantic Refining Company_, the _Standard of Ohio_, and the _Standard of Pittsburgh_. The first of these companies succeeded in recovering its liberty in 1911.

2. Rich private individuals, having an interest in the oil industry and holders of large parcels of shares, such as W.C. Andrews and John Archbold.

3. Twenty-four companies in which the _majority_ of the shares were held by the trustees:--

_Central Refining Company of Pittsburgh_, _Germania Mining_, _Empire Refining_, _Keystone Refining_, _National Transit Company_, etc.

These twenty-four companies placed themselves under the control of the Trust from 1882 onward. Two others have come in under compulsion:--

(1) The _Tide-water Pipe-line Company_, having constructed pipe-lines itself, entered into fierce competition with the _Standard_. On October 9, 1883, it was compelled to negotiate with the _National Company_. Under the resulting contract, it agreed to provide 11-1/2 per cent. of the quantity sent to the ports by pipe-lines as its share of the traffic, and was guaranteed an annual profit of at least half a million dollars for fifteen years.

(2) _The Producers' Associated Oil Company_, born of a concerted effort of independent producers to fight the _Standard_, gave in in October, 1887.

4. One other company alone forms the fourth class. The Trust has an interest in this but has never been able, whatever its efforts, to obtain the majority of the shares and to control the company. This is the _United States Pipe-Line Company_. This company experienced many difficulties and mortifications. After having struggled against the inertia of the railways devoted to the _Standard Oil_, and spent more than 15,000 dollars on law costs alone, it succeeded in pushing its lines up to Washington, but could never get any further, nor reach the coast; the _Standard_ bought up the intervening territory.

At its zenith, in 1911, when it was declared illegal by the Supreme Court of the United States, the _Standard_ owned 90 per cent. of the pipe-lines and controlled 86-1/2 per cent. of the oil production of America. A single company, the _Pure Oil Company_, founded in 1895, whose field of exploitation was Germany, was able to maintain its independence. The seventy-five small refineries existing outside the Trust did not refine, all put together, a fifth as much as the _Standard_. The refinery which the latter possessed at Bayonne was by itself more important than ten of these competing refineries.

The European market was almost completely conquered. Everywhere the _Standard_ operated by means of its subsidiary companies:--

The _Anglo-American Oil Company_ in Great Britain. The _American Petroleum_ in Holland. The _Deutsche Amerikanische Petroleum Gesellschaft_ in Germany. The _Société pour la Vente du Pétrole_ in Belgium. The _Vacuum Oil_ in Austria-Hungary. The _Societa Italo-Americana per Petrollo_ in Italy. The _Romana-Americana_ in Rumania. The _Danske Petroleum Altieselskabet_ in Denmark. The _Swenska Petroleum Altiebolage_ in Sweden. The _International Oil_ in Japan.

In Galicia, the Trust held its own against all similar indigenous enterprises. The Rumanian refiners were obliged to come to an understanding with it; otherwise it would, with its powerful means of pressure, have created a monopoly for itself. And the _French Oil Cartel_ was at its mercy.

Causes of the Success of the Standard

The difficulty is not to produce oil, but to transport it, for it is generally found in more or less desert regions. Hence Rockefeller's brilliant idea, to construct pipe-lines bringing the oil direct to the great centres! Thenceforward, since the oil was transported almost automatically, its price dropped considerably. All the producers became tributaries of the pipe-lines, and the _Standard_ obtained practically complete control of the market.

This was the first cause of the success of the _Standard_. All the small producing companies became compulsorily its clients. As controller of the market, it fixed the price in draconian fashion.

There is a second cause: its alliance with the great railway companies, and the support which it received from the railway magnates--Scott of the _Pennsylvania Railroad_, Vanderbilt of the _New York Central_, Jewet of the _Erie Railroad_, Watson of the _Lake Shore_, and many others less well known.

Its subsidiary, the _South Improvement Company_, on January 18, 1872, made contracts with the railway companies, by which it fixed the proportionate shares in the transport of oil to the Atlantic seaboard as follows:--

27-1/2 per cent. to the _Erie_, 27-1/2 per cent. to the _New York Central_, 45 per cent. to the _Pennsylvania_.

The companies thus favoured by the _Standard_ made their competitors pay double rates. One of these latter produced before the Inter-State Commerce Commission the scandalous tariffs demanded of them:

On the _Louisville and Nashville Railroad_, increased rates to competitors of 87 to 333 per cent.;

On the _Cincinnati, New Orleans, and Texas Pacific_, from 63 to 267 per cent.;

On the _St. Louis, Iron Mountain and Southern_, from 82 to 257 per cent.

Systematic negligence in transport was proved with regard to competitors. The _Union Tank Line Company_, which owns tank-wagons as the _International Sleeping Car Company_ owns restaurant cars, would only put them at the disposal of the _Standard_, and compelled its adversaries to dispatch their oil in barrels, which is much more costly. The Trust alone was entitled to lay its pipe-lines beside the railway-lines or underneath the track. It possessed 35,000 miles of such lines at the end of last century--or rather the _National Transit Line_, which acts as its instrument, owned them. Such abuses could not be allowed to continue. The inquiry by the Hepburn Committee revealed a multitude of crying injustices. For example, it was enough for the _Standard_ or the _South Improvement_ to telegraph "_Wilkinson and Co._ have received a truck which only paid $41.50; screw them up to $57.50," and the order was executed.

The Charter of the _South Improvement_, which had even succeeded in acquiring the right of expropriation in order to construct its pipe-lines, was withdrawn under the pressure of indignant oil-producers. But the Federal Government of the United States will never succeed in crushing the _Standard Oil_.

Its Two Dissolutions--Roosevelt's Fight against the Standard Oil

Twice over, in 1892 and 1911, its constitution was judged illegal, but in vain.

In 1892 the system of nine trustees was declared illegal by the Supreme Court of Ohio. The trustees voted the dissolution of the Trust, but continued to administer all the corporations in the same way until 1899. The Trust was apparently divided into twenty distinct companies; the nine old trustees distributed the shares in such a way as to possess the majority in each one. Thus they made sure, as before, of unity of direction. Rockefeller had reversed the judgment of the court.

Here is the legal formula, which is dignified in its simplicity: "John Rockefeller has placed in the hands of the said attorney 256,854/292,500 of the total shares held by the said trustees on July 1, 1892, in each of the companies whose shares were deposited."

Still better, after receiving the shares which were granted them in each company, the old trustees took them and sold them to the _Standard Oil Company of New Jersey_, which has a capital of 100 million dollars of common stock, and only ten million dollars of preferred stock. For the _Standard_ has a monarchical constitution. All power to the holders of preferred stock! The holders of common stock have none but that of drawing dividends. Though they may be in an enormous majority, they count for nothing in the direction of the enterprise.

About 1900 Rockefeller went still further. He increased the number of ordinary shares, and reduced that of the privileged shares. A memorandum of the Industrial Commission drew attention to this. "During the year 1900, the common stock has been increased by 38,550,700 dollars and the preferred stock has been reduced by 3,968,400 dollars."

In short, Rockefeller makes the concern more and more autocratic. The _Standard_ forms a veritable State within a State, which nothing can bend. The Trust was reconstituted, with a holding company, the _Standard Oil Company of New Jersey_, holding the title-deeds of all the other companies.

It was then that Roosevelt undertook to destroy a power before which everything bowed down. The Federal Government brought an action before the Court of St. Louis, under the Sherman Anti-Trust Law. The _Standard Oil_ and the seventy companies dependent on it were accused of "conspiracy, coercion, intimidation, rebating and other illegal acts in restraint of trade." The Federal Court of St. Louis ordered the dissolution of the Trust in 1909. The _Standard_ entered an appeal before the Supreme Court of the United States, which confirmed the dissolution in 1911, after five years of inquiries, prosecutions, judgments and appeals. The struggle had been going on since 1906. Many judgments had to be reversed. Thus, the _Standard Oil Company of Indiana_, with a capital of only a million dollars, was ordered to pay a fine of 29 million dollars for an illicit understanding with the _Chicago and Alton Railway_. It was paying only six cents a hundredweight for transport, while its competitors paid eighteen. This judgment was reversed in July 1908 by the Court of Appeal of Chicago. "It is strange," ran the decision "that a company with a capital of a million dollars should be fined a sum representing twenty-nine times this capital." The first tribunal had found 1,462 infringements proved, and had zealously applied the maximum for each case; that is how it had arrived at the incredible figure of 29 million dollars.

The _Standard Oil_ was given six months to dissolve. The result was the same as in 1892. There were simply thirty-four companies apparently independent. In the midst of this new constellation, the _Standard Oil Company of New Jersey_, whose capital has risen to 600 million dollars, merely shines with a greater brilliance than its satellites. And the _Standard_ has no longer to fear attack from the Government of the United States, which bows obediently to its will. Even better, the late President Harding energetically supported its claims throughout the world. Whoever attacks the _Standard_ attacks the Federal Government itself.

To think of Rockefeller's modest company in 1870, with its 600 barrels a day and its small capital of a million dollars, and to see what it has become to-day, is to be lost in amazement. In 1920, the Great Council of the _Standard_ controlled a capital of a thousand million dollars; representing almost equal profits, and a daily consumption of two hundred million barrels, which it even hopes to see presently increased to three hundred million. Here are the original and the present positions; they are widely different:--

Capital has increased from 1 to 1,000. Profits have increased from 1 to 100,000. Production has increased from 1 to 300,000.

The _Standard_ has soared so high because it was a national enterprise. Every bank, every shipping company, every railway in the United States, was interested in the success of the Trust, for this great corporation exported to the four corners of the world a commodity drawn from the soil of the Union, and brought into the country, one year with another, more than a hundred million dollars. It looked as though all competition was impossible, and yet a European company has been found bold enough to attack, not only in Europe and Asia, but on its own ground of the United States, this financial power, whose turn-over must be estimated at twelve thousand million francs at least, or more than twice the pre-War budget of a nation like France.

FOOTNOTES:

[Footnote 9: Forty per cent. of the capital of the _Royal Dutch_ is in French hands, but France unfortunately has no voice in the direction of this undertaking.]