CHAPTER X

CHEAPENING TRANSPORTATION

Through all the tangle of this piping and dancing one thread runs clear. The oil combination had up to this time been dependent on the railroads for transportation, but it emerged out of the fracas the principal transporter of oil, made so by the railroads. It now had two trunk pipe lines to the sea-coast--the one it had conquered and the one it had built--and the railroads had made it a present of both of them.

The Tidewater--the first seaboard pipe line--had been built only because the Pennsylvania and other trunk lines had said "no" to every entreaty and demand of the oil regions for a road to the sea. That line the railroads had conquered for the combination, as they conquered for it the pipe lines of the Pennsylvania Railroad in 1877. The second seaboard pipe line was built by the combination with the railroads' money to take away the railroads' business, and best--or worst--of all, while the railroads were hard at work driving the Tidewater into its net. Such is the business genius of our "railroad kings."

This campaign closed, the duty of the hour for the oil ring was to get rates advanced by rail as well as pipe.

"Then they"--the pipe lines--"were anxious to get good paying rates,"[206] so that they could make a good thing out of the business of their own pipe and of the Tidewater which they had guaranteed $500,000 a year. The advent of the independent Tidewater had brought rates down. The restoration of exclusive control by its capture put rates up. But it was not enough for the oil combination to advance their own rates. It must induce the railroads to do the same. The railroads had furnished the means for the acquisition of both pipes, and they must now be got to drive business away from themselves to these competing oil railways. This would seem to be a delicate matter to achieve, but there was no trouble about it.

"It is our pleasure to try to make oil cheap,"[207] the president of the oil trust told Congress, but it did not use its new facilities to take in hand at reduced cost the carriage of all oil, and give the industry the economic advantage of the pipe-line idea. Quite the contrary. It united with the railroads to increase the cost. Under this new blow the independent refiners and producers whom the Tidewater had been built to keep afloat grounded again. Then the railroads--the Pennsylvania especially--repented of what they had done to these their oldest customers, and sent ambassadors to them to renew the broken promises of 1872, that if they would rebuild they should forever have equal rates and fair treatment. One of the highest officials of the Pennsylvania was sent to them to say: We recognize our error in permitting your refineries to be abandoned and the traffic destroyed. We wish to build up and maintain independent refining in the oil regions. We will give you every encouragement. We will insure you equal rates, on which you can ship and live.[208]

These invitations and guarantees were repeated and pressed. They were renewed by the officials of the Erie also: "You need have no hesitation in building up your business," said the officials of the Erie; "You shall have living rates."[209]

The independents listened and believed. They rebuilt their works and prospered.[210] This meant the return of cheapness--cheapness of transportation over the railroads, to enable the refiners they had invited back to life to compete in the market--cheapness of light. Thereupon, incredible as it seems, the Pennsylvania and the other railroads were influenced to declare war again upon the men who had reinvested their money and their life energy in response to these solicitations. This new war began with a secret contract, in 1885, for an advance in rates against the independent refiners, who, in trustful reliance on the pledged faith of the railroads, had developed their capacity to 2,000,000 barrels a year.[211]

This campaign has lasted from 1885 until the present writing, 1894. In it the pipe lines, the oil combination, the Pennsylvania Railroad, and all the other great carriers between the independents and their markets in New England, Europe, and Asia, have been mobilized into a fighting corps for the annihilation of the independents. This case illustrates nearly every phase of the story of our great monopoly: dearness instead of cheapness; willingness of the managers of transportation to deny transportation to whole trades and sections; administration of great properties like the Pennsylvania Railroad in direct opposition to the interests of the owners--to their great loss--for the benefit of favorites of the officials; great wealth thereby procured by destruction, as if by physical force, of wealth of others, not at all by creation of new wealth to be added to the general store; impossibility of survival in modern business of men who are merely honest, hard-working, competent, even though they have skill, capital, and customers; subjection of the majority of citizens and dollars to a small minority in numbers and riches; subservience of rulers of the people to a faction; last and most disheartening, the impotence of the special tribunal created to enforce the rights of the people on their highways.

This secret contract of 1885 was thus described by the counsel of the refiners before the Interstate Commerce Commission: "It is a contract," he said, "so vicious and illegal that the Pennsylvania Railroad refuses to bring it into court for fear a disclosure of its terms might subject it to a criminal prosecution."

The courts have never been allowed to see it, but its provisions are known. Some of them were admitted before the Interstate Commerce Commission to be what was charged, and others were described on the trial by the counsel of the independents from personal knowledge. By this contract the railroad and the oil combination bound themselves to advance rates, and to keep them the same by pipe and rail. In return for this pledge by the railroad not to compete it was guaranteed one-quarter--26 per cent.--of the oil business to the seaboard. The Pennsylvania Railroad made no attempt to deny that it had made this contract. It admitted that it had an arrangement "substantially the same as stated."[212]

The combination was the largest shipper of oil, and yet it wanted freight rates advanced. It had pipe lines which could easily take to the seaboard all the oil that went thither, and yet it gave up a large part of the business to the Pennsylvania Railroad. The Pennsylvania Railroad knew that the pipe line was a competitor for the carriage of oil, and yet allowed it to dictate an arrangement by which the railroad got only one-quarter of the business, and signed away its rights to win a larger share if it could.

The railroad had persuaded the independent refiners to settle along its line by solemnly promising them fair and living rates, and yet now put its corporate seal to an agreement to make those rates whatever their enemy wanted them to be. Such was its honor. As for its shrewdness, that had at last brought it to this humiliation in a business where it had once been chief, of confining itself to this insignificant quarter of a restricted traffic instead of a competitive share of a traffic enlarged by freedom to the widest correspondence to the wants of the people. The mastery of the railroad men by the oil people was thorough. The latter did not agree to give the railroad one-quarter of their business. Not at all. All the traffic that came of itself to the railroad, or which its freight solicitors drummed up, must be put to the credit of the guarantee. All that was promised the railroad was that its total should amount to one-quarter of the whole traffic. All the rest the oil combination kept for itself.

The contract went at once into vigorous operation. Freight rates to the seaboard, which had been 34 cents, and, as was proved before the Interstate Commerce Commission, were profitable, were advanced to 52 cents a barrel--an increase of one-half. The railroad and the pipe line made the raise in concert, as had been agreed, and when the rates were changed again it was to still higher figures. Why should the clique, which had its principal refineries at the seaboard--to which it had to transport large quantities of oil--scheme in this way to raise the rates of transportation? Because it paid this excessive rate on only a small part of its own shipments, and compelled its rivals to pay it on all of theirs. The independents had no pipe line of their own, but the combination sent its own oil east by its own pipe line, excepting only the quantity it needed to add to the shipments over the Pennsylvania to make good its guarantee to that railroad of one-quarter of the traffic.

The cost of the pipe-line service to its owners is very small. When the manager of the pipe lines was before the Interstate Commerce Commission the lawyers of the railroads, as zealous for the oil combination, though it was not a party in the case, as for their own clients, fought through eleven pages of argument against having him compelled to tell the cost of pumping oil through the pipe to the seaboard; and when the Commission finally said, "Go on," all the general manager of the pipe lines had to say was, "I do not believe that it is possible to know."[213]

Finally, he was cornered into an estimate that the cost of pumping was 6 or 7 cents a barrel. His questioner, who had been the organizer and manager of a great pipe line--the Tidewater--knew that oil had been pumped through for 4 cents a barrel, but he could not get his witness, who, no doubt, had done it still cheaper, to admit anything of the kind.

The net effect of this pool with the railroad was that the oil combination succeeded in making its rivals pay 64 cents a barrel to reach the East and the seaboard, while it paid only 16[214]--except on the traffic guaranteed the Pennsylvania Railroad--a difference against competition of 48 cents a barrel, a difference not for cheapness. "It only costs the pipe line 7 cents," the independents explained to the Interstate Commerce Commission, "and the published rate is 52. They are willing to pay 52 or even 70 cents on some of their product if they can make the other people pay 52 upon the whole of theirs."

So much of the contract as we have referred to was admitted. Why was it, then, the counsel for the railroad fought against showing it, even to the point of pleading that it might incriminate his client?[215] It was asserted, as of his personal knowledge, by the counsel of the independents that this was because another part of the bargain gave the proof that the rates which had been made under the agreement to put them up and keep them up were extortionate; that by a bargain within the bargain the oil combination carried oil for the railroad for the 280 miles for which they ran practically side by side, and for this charged it only 8 cents a barrel. The public, shipping either by the railroad or by the pipe line, had to pay 52 cents a barrel for 500 miles; but by this arrangement between themselves the two carriers would do business at 8 cents a barrel for 280 miles, at which rate the charge to the public to the seaboard should have been not quite 15 cents instead of 52 cents.

The statement was also made that the oil combination, instead of giving the railroads the business it has guaranteed them, makes its obligation good by turning over to them periodically a check for the profits they would have had on hauling that amount of traffic. As the guarantee was made as a consideration for the maintenance of high freight rates, such a payment by it would amount, in cold fact, to paying those in charge of the highways a large bribe to deny the use of them to the people.

This declaration of the provisions of the bargain was made by the counsel for the refiners seeking relief from the Interstate Commerce Commission. In his argument demanding the production of the document he said: "I have had it in my hand and read every word of it, and know exactly what it contains."[216]

The sharpest legal struggle of the case was made on the demand that this paper be produced. The Commission decided that it was "wholly immaterial," although the chairman had previously said: "It seems to us that we cannot exclude this evidence." It was a document establishing interstate rates, and these are required by law to be published, and the Commission had always before this been liberal in compelling the production of papers which related to the making of rates.[217] The Commission had shortly before been threatened in this case by the counsel for the Pennsylvania Railroad with extinction if it insisted upon evidence of the cost of piping oil which the oil combination refused to give.

"It is possible that the powers of this Commission may be tested,"[218] bullied the counsel of the railroad. The members of the Commission laughed ostentatiously, but, for whatever reason, they gave the powerful corporations on trial no cause thereafter to "test their powers," which have slept while justice tarried, and the victims of this "contract" were kept under its harrow for three long years more, where they still lie.

The tax levied upon the consumers of oil by this agreement for high freights amounts to millions a year. This agreement is at this writing still in force. There is reason to believe that similar arrangements exist with the other trunk-lines. The result is the surprising fact that "oil rates are very much higher than they were twelve years ago, and when there was no pipe-line competition!"[219] This is true also in the field of local pipeage--the transportation of the oil from the wells to refineries and railroads. Under the caption of "cheapening transportation" the counsel of the oil trust said, before the New York Legislature in 1888: "In 1872 the pipe-line system was in its infancy. A number of local lines existed. Their service was inefficient and expensive. There was no uniform rate. The united refiners undertook to unite and systemize this business. They purchased and consolidated the various little companies into what was long known as the United Pipe Line System. The first effect of this combination was a reduction of price of all local transportation to a uniform rate of at first 30, and soon after 20 cents per barrel."[220]

"The united refiners" and "to unite and systemize" are smooth phrases, full of the unction of good-fellowship and political economy. When the "united refiners" took possession of the pipe lines which had been forced into bankruptcy or "co-operation," they did not reduce rates--they advanced them. "The uniform rate of 20 cents," for instance, is an advance of 300 per cent. on the rate of 5 cents made by the trust's pipe-line system during the war with the Tidewater, and over the similar rates made during the earlier pipe-line competition.[221] The nominal rate, Congress learned from one of the oil-country men, was 30 cents for that service, but by competition the actual rate was down to 5 or 10 cents. "They consolidated and placed it at 20 cents, and it has remained at 20 cents, I think, since the year 1876.... The whole process of transportation has been cheapened. Pipe that cost 45 cents a foot has in that time been got for 10 cents. The quality of the pipe was improved, so that there is not the leakage or the wastage. There are all those improvements and inventions that have cheapened it. We pay the same now as we did fifteen years ago. We have reduced the cost of our wells at least 50 per cent. They have reduced nothing."[222] From other sources, once in a while, facts have come to light showing how much less than cheap the local charge of 20 cents a barrel is. For instance, it was shown before Congress that a line which, with its feeders, had fifty miles of pipe, and cost $70,000, made a clear profit in its first six months of $40,000, charging sometimes less than this rate of 20 cents a barrel.[223]

It is impossible to compute how much the defeat of legislation to regulate charges, or to allow the construction of competing lines, has cost the people. The Burdick Bill alone, to regulate prices of pipeage and storage in Pennsylvania, it was calculated by conservative men, would have saved at least $4,000,000 a year. The killing of it was in the interest of keeping up the high prices of the pipe lines, which finally rest in the price of oil.

When the combination got possession of the pipe line to Buffalo, which others had built in spite of every obstacle it could interpose, it raised the rates of pipeage to 25 cents a barrel from 10 cents,[224] and as happened in Pennsylvania in 1885, the railroads to Buffalo in 1882 raised their rates simultaneously with the pipe line. Pittsburg had the same experience. When its independent pipe line was "united and systemized" by being torn up and converted into "old iron," as the Vice-President of the Pennsylvania Railroad had told its projectors it would be, the rates of transportation for oil went up.[225] The same thing happened at Cleveland. At the rate at which the Lake Shore road carries oil from Cleveland to Chicago--357 miles for 38 cents a barrel--it should charge less than 15 cents for the 140 miles between Oil City and Cleveland; but as late as 1888 it charged 25 cents. Why? The effect of the railroad charge is that little oil comes by rail to Cleveland from the oil regions; it goes by the pipe line of those whom the Lake Shore has been "protecting" ever since the South Improvement contract of 1872. There have been 3,000,000 barrels of this business yearly. The railroad officials exercise their powers to drive traffic from the railroad to a competing line. Why? We can see why the combination, which, by the possession of this pipe line, is a competitor of the Lake Shore, should desire such an arrangement; but it exists by the act of the Lake Shore Railroad. Why? The theories of self-interest would lead one to expect that the stockholders of the road would find out why.[226]

The pipe lines are the largest single item in the property of the oil combination. Here its control has been the most complete; and here the reduction of price has been least. This is a telltale fact, soon told and soon understood.