Conspiracy Nation -- Vol. 11 Num. 18
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("Quid coniuratio est?")
Most of the independent oil producers in the Oil Region of west-central Pennsylvania were young, and they looked forward to the years ahead. They believed they would solve problems such as railroad discrimination. They would make their towns the most beautiful in the world. There was nothing they did not hope and dare.
But suddenly, at the very heyday of this confidence, a big hand reached out from nobody knew where, to steal their conquest and throttle their future. The suddenness and the wickedness of the assault on their business stirred to the bottom their manhood and their sense of fair play, and the whole region arose in a revolt which is scarcely paralleled in the commercial history of the United States.
In Cleveland, young John D. Rockefeller was also in the oil business, as a refiner. Young Rockefeller was a ruthless bargainer. Said one writer, "The only time I ever saw John Rockefeller enthusiastic was when a report came in from the [Oil Region] that his buyer had secured a cargo of oil at a figure much below the market price. He bounded from his chair with a shout of joy, danced up and down, hugged me, threw up his hat, acted so like a madman that I have never forgotten it."
Gradually, Rockefeller's competitors began to suspect he was somehow getting better shipping rates from the railroads than they were. Because there was fierce competition between the railroads at the time, other large oil shippers insisted on and got their own special rates. But crafty John Rockefeller seemed to be getting the best rates of all.
But the railroads were supposed to be COMMON CARRIERS, and had no right to discriminate between patrons. The railroads had also, as shown by Gustavus Myers in History of the Great American Fortunes, been built largely at the public's expense; huge land grants had been given to them under the premise that the railroads would be a benefit to the people of the United States. These land grants had not been merely narrow strips of land, but vast acreages filled with timber and valuable minerals. The railroad companies had already gulped down a vast fortune, courtesy of the American people via Congressional give-aways.
Rockefeller had the advantage of a complete, far-flung organization, even in those early days: buyers in the Oil Region, an exporting agent in New York, refineries in Cleveland, and transportation favoritism. Mr. Rockefeller should have been satisfied in 1870. But Mr. Rockefeller was far from satisfied. Those twenty-five Cleveland rivals of his -- how could he at once and forever put them out of the game? He and his partners had somehow conceived a great idea -- the advantages of COMBINATION. What might they not do if they could buy out and absorb the big refineries now competing with them in Cleveland? The Rockefeller corporation, Standard Oil, began to sound out some of its Cleveland rivals.
But there was still a problem: What about their rivals in the Oil Region of Pennsylvania? They could ship to refineries on the eastern sea-coast. And the Pennsylvania Railroad was helping them; they shipped in volume and the railroad gave them a discount.
Aligned with the Cleveland crowd were the Lake Shore and New York Central Railroads. If the Oil Region won the developing competition, these railroads would lose business.
All the competition was causing a problem for Rockefeller. The price of refined oil was steadily falling. This was good for the average American who bought the oil, but bad for these few wheeler-dealers. Mr. Rockefeller and friends looked with dismay on their decreasing profits.
In the fall of 1871, certain refiners brought to Rockefeller and friends a scheme, the gist of which was to bring together secretly a large enough body of refiners and shippers -- a SECRET COMBINATION -- to persuade all the railroads handling oil to give to the company formed special rebates on oil shipped, and drawbacks (raised rates) on that of other people. If they could get such rates it was evident that those outside of their combination could not compete with them long and that they would become, eventually, the dominant refiners. They could then limit their output to actual demand, and so keep up prices.
The railroads went along with the deal so they could stop having to cut each other's throats through their rate wars -- they would stop competing among themselves, keep their rates high, and thereby gouge the unsuspecting public. The railroads, it was agreed, were to receive a regular amount of freight: the Pennsylvania was to have 45 percent of the eastbound shipments, the Erie and the Central each 27.5 percent; the westbound freight was to be divided equally between them -- fixed rates, and freedom from competition amongst themselves.
The first thing was to get a CHARTER -- quietly. At a meeting held in Philadelphia in 1871 mention had been made that a certain estate then in liquidation had a charter for sale which gave its owners the right to carry on any kind of business in any country and in any way. This charter was promptly purchased. The name of the charter was the "South Improvement Company."
Under the threat of this SECRET COMBINE, known blandly as the "South Improvement Company," almost the entire independent oil interest of Cleveland collapsed. From a capacity of less than 1500 barrels of crude per day, the Standard Oil Company rose in three months' time to over 10,000 barrels per day. It had become master of more than one-fifth of the refining capacity of the United States. Its next individual competitor was Sone and Fleming, of New York, whose per day capacity was 1700 barrels. The transaction by which Standard Oil acquired this power was so stealthy that not even the best-informed newspaper men of Cleveland knew what went on. It had all been accomplished in accordance with one of Mr. Rockefeller's chief business principles -- "Silence is golden."
But one man had not been let in on the deal with the "South Improvement Company." He had been a past enemy of some of the Erie Railroad directors. In revenge, that man began telling people in the Oil Region what was going on. At first, people did not believe the rumors. But when independent oil producers there learned that their freight rates had suddenly gone up by nearly 100 percent, they believed. It was a conspiracy, and it worked against them.
The rise in freight rates promised to ruin the Oil Region. On the morning of February 26, 1872, the morning papers told how, somehow, all members of the "South Improvement Company" were exempted from the rise in freight rates. On every lip there was but one word, and that was "conspiracy." In fury, crowded meetings were held at Titusville, Pennsylvania and then at Oil City, Pennsylvania. The temper was war-like; banners proclaimed, "Down With the Conspirators!" A Petroleum Producers Union was organized. It was agreed that no new oil wells would be started, production would halt on Sundays, no oil was to be sold to anyone belonging to the "South Improvement Company," the offending railroads were to be boycotted, and new railroad lines would be built and controlled by the Petroleum Producers Union. A committee was sent to the U.S. Congress, demanding an investigation on the ground that the "South Improvement" scheme was an interference with trade. The whole body of Oil Region producers became intent on destroying the "Monster," the "Forty Thieves," the "Great Anaconda," as they called the mysterious "South Improvement Company."
The sudden uprising of the Oil Regions against the "South Improvement Company" did not alarm its members at first. The excitement would die out, they told one another. All that they needed was to keep quiet. But the excitement did not die out. Instead, it became more intense and more wide-spread.
The stopping of the oil supply finally forced the "South Improvement Company" to recognize the Producers Union. A compromise was sought. But the producers responded that they believed the "South Improvement Company" meant to monopolize the oil business. A compromise would not be considered. Said the Producers Union: We can no more negotiate with you than we could sit down to negotiate with a burglar.
The Congressional Investigation into all this was NOT PUBLISHED officially, and NO TRACE of its work can now be found in Washington. But the Petroleum Producers Union published their own report, called "A History of the Rise and Fall of the South Improvement Company." This report contained the full testimony taken by the Congressional Committee.
Nothing could have been more damaging than the publication of the charter of the "South Improvement Company." The charter was described by "South Improvement's" president, Peter H. Watson, as "a sort of clothes-horse to hang a scheme upon." As a matter of fact it was a clothes-horse big enough to hang the earth upon. It granted powers practically unlimited.
When the course of this charter through the Pennsylvania Legislature came to be traced, it was found to be devious and uncertain. The company had been incorporated in 1871, and vested with all the "powers, privileges, duties and obligations" of an earlier company -- incorporated in April, 1870 -- the Pennsylvania Company; both of them were children of that interesting body known as the "Tom Scott Legislature." The act incorporating the company was not published until after the oil war; its sponsor was never known. The origin of the "South Improvement Company" has always remained in darkness. It was one of several "improvement" companies chartered in Pennsylvania at about the same time, and enjoying the same commercial carte blanche.
The chairman of the Congressional Committee declared in disgust that the success of the members of the "South Improvement Company" meant "the destruction of every refiner who refused for any reason to join your company, or whom you did not care to have in, and it put the producers entirely in your power. It would make a monopoly such as no set of men are fit to handle."
The U.S. public became convinced that the Petroleum Producers were right in their opposition. The newspapers (not then under monopoly control themselves, as they are now; see The Media Monopoly by Ben Bagdikian) were in sympathy with the people. It was ROBBERY, cried newspapers throughout the U.S. Said the New York Tribune, "Under the guise of assisting in the development of oil-refining in Pittsburg and Cleveland, this corporation has simply laid its hand upon the throat of the oil traffic..." And if this could be done in the oil business, what was to prevent its being done in any other industry? Why should not a company be formed to control wheat or beef or iron or steel, as well as oil? The "South Improvement Company," it was agreed, was a menace to the free trade of the country.
It now began to be generally said, "This is a transportation question." The sentiment against discrimination on account of amount of freight or for any other reason had been strong in the country since its beginning, and it now crystalized. Nothing was more common than to hear on the passenger trains, within which occurred the real public forum of the time, conversations explaining that the railways derived their existence and power from the people, that their charters were contracts with the people, that a fundamental provision of these contracts was that there should be no discrimination in favor of anyone, that such a discrimination was a violation of charter, that therefore the "South Improvement Company" -- the "clothes-horse to hang a scheme upon" -- was founded on fraud, and the courts must dissolve it if the railways did not abandon it.
But the railways (for public consumption) did CLAIM to abandon the deal. Explained railroad king "Commodore" Vanderbilt: "I told Billy (son, W.H. Vanderbilt) not to have anything to do with that scheme." The Erie and the Atlantic and Great Western railroads privately offered the Petroleum Producers Union a special deal similar to that offered the "South Improvement Company," but the reaction was shocked outrage. It had seemed impossible to the railroad men that the oil producers really meant what they said about no discrimination in rates. But the Oil War of 1872 was an uprising against an injustice, and the moral wrong of the thing had taken a deep hold of the Oil Region and its people.
The railroads were finally obliged to consent to revoke the special contracts and to make new ones providing that all shipping of oil should be made on a fair and equitable basis. On March 28, 1872, the railroads officially annulled their contracts with the "South Improvement Company."
Now that the thing seemed settled, the question was, "Should we let bygones be bygones?" Would the oil producers sell to the Cleveland refiners? It happened that almost nothing could wipe out the memory of the recent excitement and loss which the Oil Region had suffered. No triumph could stifle suspicion. There henceforth could be no trust in those who had devised a scheme intended to rob the producers of their property. And it was the Standard Oil Company of Cleveland which was at the bottom of the business, and the "Mephistopheles of Standard Oil" was John D. Rockefeller. All who sold to Rockefeller were called "traitors."
And "Mephistopheles" Rockefeller was, even then, busy plotting his next move. The "South Improvement Company" would merely "shift gears" and work under the charter of the Standard Oil Company. Read a headline in the Cleveland Herald: "South Improvement Company alias Standard Oil Company."
Even as the railroad people were publicly saying they would not discriminate, privately they were giving Rockefeller the same special deals as before. Rockefeller said to Vanderbilt, I can make a contract to ship a great quantity of oil, every day, on your railroad -- BUT, not unless you give me a concession. And Mr. Vanderbilt made the concession even while he was publicly pretending otherwise. Says Rockefeller to Vanderbilt (and Vanderbilt nods, "yes"): "Remember: Silence (omerta) is golden."
[Synopsis of The History of the Standard Oil Company by Ida Tarbell]
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