And, finally, you must put your hand and seal to a statement that you do this to "reconcile interests that have seemed to conflict" and "equalize the business," and that this agreement gives you your "due proportion thereof."
This "free contract" two of the three men who were to make it knew nothing of until their consent was demanded.
One of the partners had secretly been won over. Through him all preliminary negotiations had been conducted.
"I was not consulted," testified one of the other two, until after the contract was "all drawn and prepared," and at first he refused to sign it. The plan was concocted "secretly and unknown to me."
"I was at first opposed to the arrangement," declared the other.[91]
But this was not all the contract. The President, who, ashe testified, "conducted most of the negotiations," and "had been familiar with the dealings thereunder," supplemented the written documents with oral instructions:[92]
You must not seem to be prosperous. You must not put on style,[93]he cautioned them; above all, you must not drive fast horses or have fine rigs; you must not even let your wives know of this arrangement.[94]
A false account was opened on the books to conceal the nature and origin of this transaction from their own book-keepers. In the name of that account false and fictitious checks were drawn, bills made out, balances struck. A box was taken out at the Cleveland post-office—box 125—in the name of an imaginary "Mr. G.A. Mason," and through this box the correspondence of the "adventure" was carried on. Each of the three parties to the "adventure" continued to march and fight under its own flag as before. All possible pains were taken to conceal the fact that they had ceased competition with each other. They kept up every appearance to the public of being actively engaged in competitive business. The inevitable spy appears in this scene as in every other in the play. The "reconciler," to enforce the provisions that the "reconcilees" should not engage in business elsewhere, extended a system of espionage over them, and followed their movements, and kept watch what they did with their money, and made oath to the courts of the results of these "inquiries and investigations." The espionage continued after this.
A year or two after this contract had been broken by the help of the courts, the then secretary of the great oil company, through an intermediary, approached the book-keeper of the firm which had been freed from the trust.
"Would you not like to make some money?"
"He inclined to let him believe he did want to make some money," his employer afterwards told Congress. "He came and told me about it. I requested that he continue and find out what information they wanted. He was to have had somuch per year, but he was to have been paid a down payment; he got $25."
"What service was he to render for that?"
"I have a memorandum. There were so many things he was to do that I cannot carry it in my head."
"One of the questions was, 'What was the result of last year's business?' The other was, 'A transcript of the daily shipments, with net prices received from the same; what is the cost for manufacturing outside of the crude; the kind of gasoline and naphtha made, and the net prices received for the same; what they do with tar and the percentages of the same; what per cent. of water white and what per cent. of Michigan water white; how much oil exported last year?' This information, as fast as received, to be mailed to Box 164, Cleveland post-office.... He (the book-keeper) made an affidavit of it, and I took the money back myself personally."[95]
When orders came in for more oil than the limit put upon them, the "reconcilees," asserting their commercial manhood, went on refining to supply the demands of the public instead of the commands of the clique. They contended that they were not bound by the limitation, and in this were afterwards upheld by the court; but, meanwhile, they were called to account and frightened into another "reconciliation." He was present, the chief reconciler told the court, at the interview in which they "agreed to diminish their manufacture ... to bring the entire amount within the terms" of the contract.
But again they began to refine to supply the needs of the people evidenced by the market demand. Then their supply of crude was shut off. Their suzerain owned the pipe line to Cleveland. When its escaping victims got around that difficulty, it took its "contract" to the courts.
To shut these competitors down to half their capacity, and to reconcile and equalize interests by taking half of all they made on that was merely an incident, collateral to the grander plan, the vaster "adventure," of getting all the profitsof that greater field out of which these competitors were barred altogether. Such contracts as these, its counsel said, were made with refiners all over the country. The chief profit of the adventure lay, not in the divided profits of the picayune business it let the vassals do, but in the undivided profits of the empire kept for itself. Why should the reconciler hurry with expensive lawyers into court for a summary injunction to prevent a "reconcilee" from making more oil, when the reconciler, who toiled not nor spun, was to get half of the gain of $2.05 on every barrel of it? Why, but that every "co-operative" barrel so made would displace in the markets a barrel, all the profits of which went to it.
The "reconcilees" were called into court. A judge was asked to issue an injunction forbidding them to depart from the strict letter of the contract.
They have been refining more than 85,000 barrels of oil a year, was the complaint.
They "threaten to distil crude petroleum without regard to quantity."[96]They are "parties in rebellion," said the lawyers. The judge said, No. This is a contract in restraint of trade, and released those who were in its toils.
The immediate effect of this "equalization" was an advance in the rates of profit. The year before the independent refiners had made a profit of only 34 cents a barrel.[97]
The first year of the "adventure" the profits jumped up to $2.52 a barrel. The dividends rose from $41,000 to $222,047, while the production fell from 120,000 to 88,085 barrels. For the four years the average profit was $2.05 a barrel, or 500 per cent. advance. The lowest profit was $1.37.
"Refined oil advanced to an average of $8 per barrel for that year" (1876), says the counsel of the trust.[98]
These great winnings were made in the depth of the depression following the panic of 1873.
While a world-compelling decline not only of prices butof profits, was in progress, the authors of this arrangement kept up kerosene to a point at which $630,691 was made in four years out of an investment of $81,000, half of which went to those who put in $10,000 and their power over freight agents.
This "adventure," as was said by the Hon. Stanley Matthews, who appeared as counsel for the victimized refiners, was better than a gold-mine. It was a mint. Without giving any personal supervision or any time, without any expenditure except the insignificant investment of $10,000, made as a mere stalking-horse, these men took a share of the profits of "the party of the second part," which is not to be calculated by ordinary percentage, but by multiplications, over and over again, every year, of the money they put in it.
By reducing the volume of business one-half, by increasing the profit from 34 cents a barrel to $2.05, the reconcilers pocketed $315,345.58 in four years, on an investment of $10,000, with no work. This was the fact. The theory with which the fact was hidden from the people is given to the New York Legislature in 1888. The principle on which the trust did business, its president said, was:
"At a limited profit; a very small profit on an extremely large volume of business."[99]
When its secretary was before Congress, he was asked about the operations of himself and his associates in these years, 1876, 1877, of wonderful profits. He had been participating during that time in not only this profit of $2.05 a barrel, but in divided profits rising to $3,000,000 in a year on $3,000,000 of capital, and in undivided profits which rolled up $3,500,000 of capital into $70,000,000 in five years. But he said:
"The business during those years was so very close as to leave scarcely any margin of profit under the most advantageous circumstances."[100]
The effect on the consumer appears from the statementin this case of one of the best-known producers and refiners in the oil regions, one intimately associated with the members of the combination. He showed that oil which was selling at twenty cents a gallon retail could be sold at a large profit at twelve cents a gallon.
As to the effect on the working-man, the demand for labor declined, wages went down, and the number of unemployed increased.
When there was competition in Cleveland the great company could not afford to have its skilled workmen idle, because they would seek employment with the other refineries; but now, having the refining business all in its own hands, when it was temporarily to its advantage to refine oil in Pittsburg, Oil City, or other points, in preference to Cleveland, it could with impunity let its hands remain idle in Cleveland, knowing that when it wanted them it could easily secure them, as there are no other refineries in Cleveland to employ them, and "that has been a very serious injury to working-men."[101]
There was no pretence that the design of this contract was not to make oil scarce—i.e., dear.
In the affidavit which was made in support of the injunction the principal reconciler showed that his company had restricted itself as much as it restricted these competitors. He urged as the reason why the contract had been made and why the courts should sustain it, that "the capacity of all the refineries in the United States is more than sufficient to supply the markets of the world, and if all the refineries were run to their full capacity they would refine at least twice as much oil as the markets of the world require; that this difference between the capacity of refineries and the demands of the market has existed for at least seven years past, and during that period the refineries" of his company "have not been run to ... exceed one-half of their capacity."
When these surviving independents of Cleveland were forced into this adventure, in 1876, the source of the powerwhich could compel "free" citizens in this age of individualism to execute such a bond was not known. The appalling mortality among the independents showed that something was seriously wrong. There was something, however, in this "Agreement for an Adventure" which pointed straight to it. That was a clause which guaranteed those who became vassals that they should have the same freight rates and get back the same rebates as the monopoly.[102]"Had the monopoly the power," said the Hon. Stanley Matthews, "to procure freights on better and more advantageous terms than the rest of the public engaged in the same business?... And if they had such power, how did it get it?... If this or any other corporation is allowed to exalt itself in this way and by these means above competition, it is also exalted above the law."
The great lawyer, who soon afterwards became a justice of the Supreme Court of the United States, could not answer the questions he raised. The facts were hidden in secret contracts with the railroads. As regards Cleveland, they did not come out until five years later, in 1885. It then became an adjudicated fact that in 1875, the year before this "Agreement for an Adventure," the Lake Shore Railroad had made a contract with the oil combination to drive these very competitors and all others out of business, just as the same road had done for the South Improvement Company in 1872. When they escaped from their "reconciler," they brought this railroad and the contract into court. The case was fought up to the Supreme Court.
That tribunal found that the Lake Shore road had contracted with this company to carry its products ten cents per barrel cheaper than for any other customers. It showed that this made a difference to the victims of the "Adventure" equal to more than 21 per cent. a year on their capital.
"The understanding," the court said, "was to keep the pricedownfor the favored customers, butupfor all the others, and the inevitable tendency and effect of this contract was toenable the Standard Oil Company to establish and maintain an overshadowing monopoly, to ruin all other operators, and drive them out of business." The course of the railroad the court declared to be one of "active participation in the unlawful purposes" of the oil company. The Lake Shore was to have all its business out of Cleveland, but, a competing railroad being built, the Lake Shore made a contract to give this new line a part of the plum, to induce it to unite in the policy of keeping freightsdownfor the favored customer, andupfor all others. When the President of the trust was asked afterwards by the New York Legislature if there had been no arrangement by which it got its transportation cheaper than others could, he replied, "No, sir." And later he reiterated that in their arrangements for freight there was "nothing peculiar."[103]
But the Supreme Court of Ohio, in describing this arrangement, diversify the staid rhetoric of their legal deliverance with the unaffected exclamation:
"How peculiar!"
They declared the contract between the two railroads "void," and "not only contrary to a sound public policy, but to the lax demands of the commercial honesty and ordinary methods of business." They also pronounced the contract between the railroad and the oil company as "made to build up a monopoly," and as "unlawful."[104]
The great lawyer, we have said, could not answer the questions he asked. The facts, we have said, were hidden in a secret contract. And yet the answers to the questions, the facts, had been all brought to the verge of disclosure by the investigation by Congress early in the same year, 1876.
Although the investigation, in consequence of the "I object" of the Hon. Henry B. Payne, of Cleveland,[105]had been referred to the Committee of Commerce, and though the railroad and oil clique men would not answer, and the committee would not press them, there was a volunteer witness fromCleveland, who began to upset all the plans to smother. This willing witness was a Cleveland refiner, a shrewd man, as would easily be believed by those who knew that he was the brother of an organizer of the oil combination. He, too, had been a member of it, but for some reasons was now "out," and was one of the swimmers who felt themselves being drawn down. He betook himself for relief to Congress. He dodged no subpœnas, but, going before the Committee of Commerce, he began to tell more fully than any other witness had ever done, or had ever been able to do, the story of the relations between the combination and the railroads, which he knew of his personal knowledge. When he began talking in this free way to the public authorities, his former associates saw that they had underestimated his abilities as a refiner. They began to feel that it might be well to make some concessions to this particular brother, though not to the Brotherhood of Man.
The investigation was summarily suspended,[106]and his testimony was spirited away. With the only power that could have interfered thus silenced, the surviving independents were corralled as we have described. This was done two short months after the first move was made, May 16th, for the investigation which might have saved the independents at Cleveland and elsewhere from the duress which drove men to death or adventures of reconciliation.
All over the oil regions the combination has followed this policy of "not to exceed half."[107]
Nineteen pages of the testimony of a member in the suit begun by the Commonwealth of Pennsylvania are taken up with the operations of one of its constituent companies in the purchase or leasing of competing refineries, many of which were shut down or pulled down.
This witness could name only one refinery out of the score of independent concerns once flourishing in Pittsburg, which was not under its control.[108]
"Dismantled," was the monotonous refrain of many of his answers to the questions as to what had been done with the refineries thus got under control. Asked why these works had been thus dismantled or shut down, he explained it variously as due to unfavorable location or worn-out machinery or some such disadvantage.
If these works were so badly situated and so illy fitted for the business and so old, why did it purchase them? "Can you give good commercial reasons why it would buy all unprofitable junk?" he was asked.[109]
"I cannot give any reason why they bought the works," was the helpless answer.
From the beginning to the end the language used by the founders of the combination proves scarcity to have been their object. "There is a large number of refineries in the country—a great deal larger than is required for the manufacture of the oil produced in the country, or for the wants of the consumers in Europe and America," said one of the principal members in 1872.[110]
This is almost identical with the language used in 1880 in the effort to enjoin Cleveland refiners who "threatened to distil."
In 1887 we will see the same power putting its hand and seal to an agreement to enforce the doctrine that there was too much oil in the earth.
In 1872 there were more refineries than were needed for the oil; in 1887 there was too much oil. The progression is significant. And down to the present pool with the Scotch refiners we will see the same men enforcing abroad, year by year, the same gospel of want.[111]
"The producers in America are quite alive to the wisdom of not producing too much paraffine, and are already adopting measures to restrict it," said the chairman at the annual meeting of one of the principal Scotch companies.[112]
CHAPTER VII
"YOU ARE NOT TO REFINE"
Inthe obituary column of the ClevelandHerald, of June 6, 1874, was given the news of the death of one of the pioneer manufacturers of Cleveland. He began the refining of petroleum in that city in 1860, several years before any of those who afterwards became the sovereigns of the business had left their railroad platforms, book-keeping stools, and lawyers' desks. He was married in the same year, and from that time until his death, in 1874, gave his whole life to his refinery and his family, and was successful with both. TheHeraldsaid of him editorially:
"He was well known in Cleveland and elsewhere as a business man of high character. He was a prominent member of the First Presbyterian Church, was at one time President of the Young Men's Christian Association, and was active in all enterprises of a religious and benevolent character. He was about forty years of age, and leaves a wife and three children."
"He was well known in Cleveland and elsewhere as a business man of high character. He was a prominent member of the First Presbyterian Church, was at one time President of the Young Men's Christian Association, and was active in all enterprises of a religious and benevolent character. He was about forty years of age, and leaves a wife and three children."
His enterprise had been "very profitable," his wife said afterwards in court, in narrating how she and her children fared after the death of the husband, father, and bread-winner. "My husband devoted his entire energies and life to the business from about 1860 to the time of his death, and had acquired through his name a large patronage. My husband went into debt just before his death," she continued, "for the first time in his life. For the interest of my fatherless children, as well as myself, I thought it my duty to continue the business. I took $75,000 of the $100,000 of stock, and continued from that time, 1874, until November, 1878, making handsomeprofits, during perhaps the hardest business years of the time since my husband had begun."[113]
The business received from her the most thorough and faithful attention, and she maintained the prosperity her husband had founded by making a profit of about $25,000 a year.
A representative of one of the oil combination came to her, she continued, "with a proposition that I should sell to them." This agent was "a brother manufacturer," who, but a short time before in a conference with her, had agreed that in view of the dangers which seemed to threaten them, he and she should mutually watch out for each other, and that no arrangement should be made by either without letting the other know. The next she saw of her ally he pounced upon her in her office with the news that he was in the oil combination, that the head of it had told him he meant to have control of the refining business if it took him ten years, but he hoped to have it in two. He went on to warm the woman's heart by the declaration that since he had become acquainted with the secrets of the organization he wondered that he and she had been able to hold out so long. After which preliminaries he proposed that she, too, should sell to it. With sagacity and spirit she declined point-blank to have any negotiation with him.
She declined to deal with subordinates, and said she did not want to sell. The principal then called upon her at her residence. This was in 1878, and these were dark days for "outside" refiners. One by one they were sinking out of sight, and slipping under the yoke like the victims of the "reconciliation" and "equalization" described in the last chapter.
For six years word had been passing from one frightened lip to another that they were all destined for the maw or the morgue, and the fulfilment of the word had been appalling. He knew the members of the oil combination, one of the best-known veterans of the oil region testified in this case, naming them; "I have heard some of them say, in substance,'that they intended to wipe out all the refineries in the country except their own, and to control the entire refining business of the United States.'"
"The big fish are going to eat the little fish," one of the big fish told a neighbor and competitor. When one of the little fish said he "would not sell and was not afraid," he was told, "You may not be afraid to have your head cut off, but your body will suffer!"
The woman was brave with love and enthusiasm for the memory of her husband and the future of her children. She had had a great success, but she knew the sea she was swimming. She saw strong men going down on every side. She herself afterwards told in court of her great anxiety as she would hear of one refinery after another surrendering, feeling sure that that would eventually be the fate of her company.
All that the witnesses just quoted had reported, all that was said of the same tenor by the witnesses before Congress in 1876, and much more, had been filling the hearts of the business men of Cleveland, Pittsburg, Titusville, New York, with a reign of terror ever since 1872. It was with a full realization of all this that she went down to her parlor to receive the great man of commerce, who passes the contribution-box for widows' mites outside the church as well as within. This gentleman was in her house in pursuance, practically, of his own motion. She did not want to sell; the suggestion of a sale had come from the other side. "I told him," the widow said to the judge, "that I realized that my company was entirely in the power" of his company. "All I can do," I said to him, "is to appeal to your honor as a gentleman, and to your sympathy, to do the best with me that you can. I beg of you to consider your wife in my position, left with this business and with fatherless children, and with a large indebtedness that my husband had just contracted for the first time in his life. I felt that I could not do without the income arising from this business, and I have taken it up and gone on, and been successful in the hardest years since my husband commenced." "I am aware," he replied, "of whatyou have done. My wife could never have accomplished so much." She had become alarmed, the woman of business resumed, because his company was "getting control of all the refineries in the country."
He promised, with tears in his eyes, that he would stand by her. It should never be said, he cried, that he had wronged the widow of his fellow-refiner. "He agreed that I might retain whatever amount of stock I desired. He seemed to want only the control. I thought his feelings were such that I could trust him, and that he would deal honorably with me." This was the last she saw of him. He promised to come to see her during the negotiations, but did not do so. He promised to assist and advise her, but did not do so. He declined to conduct the negotiations with her in person as she requested, "stating to her," he said, in giving his version of the affair to the court, "that I knew nothing about her business or the mechanical appliances used in the same, and that I could not pursue any negotiations with her with reference to the same; but that if, after reflection, she desired to do so, some of our people familiar with the lubricating-oil business would take up the question with her.... When she responded, expressing her fears about the future of the business, stating that she could not get cars to transport sufficient oil, and other similar remarks, I stated to her that though we were using our cars, and required them in our own business, yet we would loan her any number she required, or do anything else in reason to assist her, and I saw no reason why she could not prosecute her business just as successfully in the future as in the past." This assurance to his widow-competitor that he would let her have cars was, of itself, enough to justify all her alarm, and show that there was no hope for her but in making the best surrender possible. It was proof positive that he did control the transportation, that the well-defined report that no one but he and his could get their business done by the railroad was true. Permission to go upon the highways by the favor of a competitor is too thin a plank for even a woman to be got to walk. Withdrawing fromdirect connection, but managing the affair to the end as he testifies, he sent back to her the agent she had refused to talk with.
Negotiations were accordingly resumed perforce with this agent. He submitted to his principals a statement in her behalf of the value of the property, but did not waste time over the form of letting her see it, or consulting with her before submitting it in her name.
This statement she never authorized, never heard of, and never read until it was produced in court against her.[114]
One interesting feature of the contract which was the subject of the "adventure" described in the chapter "Not to Exceed Half" was repeated here. The representative who "took up this matter" with the widow carried on his bargaining in great part with the minor stockholders, one of whom claimed afterwards that all he had done was under her directions, and "to her entire satisfaction." But she was entirely unaware of either her "directions" or her "satisfaction." "He never had the slightest authority from me to represent me in any way in the sale."[115]
Another of the minor stockholders also busied himself in representing her without her knowledge. On behalf of the widow agents were making figures, though she knew nothing of their agency or the figures. By these combined efforts a sale was finally concluded at figures which, though she owned seven-tenths of the property, she had never authorized, and were far below the only figures she had given as those she was willing to take.
Compelled to deal with a subordinate against her will, fearing to remain in so hazardous an occupation, and yet needing for her children the income it brought her, this woman manufacturer's position was most harassing. All through, as her cashier and treasurer told the court, she was dissatisfied, felt that she was compelled to sell though she wanted to retain her property.
"In my hearing," her confidential clerk said, "she declared she sold because she was compelled to do so."
She told her fellow-stockholders that she had been informed by the agent who was dealing with her, that if they did not sell out it would only be a question of time before they would be forced to sell out, as he intended to place oil like that made by her company in the hands of all their agents, to undersell them and close them out. This decided them to sell.
"Inasmuch as the managers of the Standard Oil Company appeared to have made up their minds to obtain this property, and not to give them the chance they had before in competition," the stockholders, as one of them testified, "concluded it better to sell the property at such price as they could then get, rather than to run the risk of a still greater loss in the future, not one of the stockholders desiring to part with the property at all, but rather choosing with fair competition to retain their interest in the property."[116]
She had made 15 per cent. in the last six months, and, aside from these threats, the business looked prosperous, for the orders were becoming more numerous every day. But the widow could refuse to sell only by braving threats which had broken more than two out of three of all the men about her. She put upon the property a price warranted by its income, $200,000, which was adopted by the directors of the company in a formal motion authorizing a sale at that figure. But in her name a proposition was made by the agent to sell for $71,000. "I never heard of the figure of $71,000," she says, "and cannot imagine where it originated. The only proposition that was ever made was that of $200,000." What the stock was worth in her estimation and that of her employés who had inside knowledge is seen in the evidence of her confidential clerk. Though he was her nephew also, he had with difficulty, he says, bought stock at par.
She had refused to sell at par to others. Now the only offer she could get was $60,000 for the works and good-will, thepurchasers paying in addition the cash value of the material in stock, and at that price she had to let them go. She asked to be allowed to remain an owner to the extent of $15,000 in the business into which she and her husband had built their lives. "No outsider can have any interest in this concern," was the reply. The combination "has dallied as long as it will over this matter," its agent continued. "It must be settled up to-day or go."
The power of this business to produce a profit of $25,000 a year was worth almost $400,000, according to the valuations maintained for the stock of the oil trust on the New York Stock Exchange by the men who bought out the widow. One hundred dollars in oil trust stock producing $12 a year has sold as high as $185. If $12 a year was worth $185, $25,000 a year was worth nearly $400,000. It was part of the agreement that the oil company should go on as before. "It was particularly enjoined," testified the cashier and treasurer, "that the sale should be kept a profound secret."[117]It was intended that the company should go on as before as far as the public was concerned. The purchasers agreed to continue to employ the hands already at work, but stipulated that not a word should be said to any one of them to reveal that the company was not as independent as it had been.[118]
"And you are not to engage in the refining business," is the concluding phrase of an agreement between the oil combination and a once competitor whom it had forced to sell out in 1876.[119]
"You are not to engage in refining," the same power said in 1877 to the Pennsylvania Railroad, and now to this widow: You must sign this bond not to go into business again for ten years.
The bond is given in full in the record of the case. It put the widow under a forfeit of five thousand dollars for ten years, that—
"I will not directly, or indirectly, in any way, either alone or in company with any person, or as a share-holder in any corporation, engage in or in any way concern myself or allow knowingly any capital or moneys to be employed in the business or trade of refining, manufacturing, producing, piping, or dealing in petroleum, or any of its products, within the county of Cuyahoga, and State of Ohio, nor at any other place whatsoever."[120]
"I will not directly, or indirectly, in any way, either alone or in company with any person, or as a share-holder in any corporation, engage in or in any way concern myself or allow knowingly any capital or moneys to be employed in the business or trade of refining, manufacturing, producing, piping, or dealing in petroleum, or any of its products, within the county of Cuyahoga, and State of Ohio, nor at any other place whatsoever."[120]
Their secret of success, the president swore in this very case, is "the very large volume" of purchases, "long continuance in the business," "experience," "knowledge of all the avenues of trade," "skill of experienced employés," and so forth. But with all this they did not dare leave this middle-aged woman free to challenge them again on the field of competition. The purchase was made in the name of three members of the great oil company, and it was paid for by the check of that concern.
Of these men one was among the "trustees" indicted and tried in 1885 for complicity in the plot to blow up a rival refinery, but let go by the judge.
At the time the sale was concluded the widow refiner declared, "The obtaining of her stock was no better than stealing." When the papers were brought to her to sign she "hesitated," and said, "It is like signing my death-warrant. I believe it will prove my death-warrant." "The promises made by the president," she testifies, "were none of them fulfilled."
Being only a woman, and not understanding "business," for all her brilliant success in stepping into her husband's place, and doing the double work of home-maker and bread-winner, the widow could not restrain herself from giving a most uncommercial piece of her mind to those who had got possession of her property for a sum which they would recover out of its profits in two or three years. She sent the following letter:
"November 11, 1878, Monday Morning."Sir,—When you left me at the time of our interview the other morning, after promising me so much, you said you had simply dropped the remarks you had for my thought. I can assure you I have thought much and long as I have waited and watched daily to see you fulfil those promises, and it is impossible for me to tell you how utterly astonished I am at thecourse you have pursued with me. Were it not for the knowledge I have that there is a God in heaven, and that you will be compelled to give an account for all the deeds done here, and there, in the presence of my husband, will have to confess whether you have wronged me and his fatherless children or not—were it not for this knowledge I could not endure it for a moment, the fact that a man, possessed of the millions that you are, will permit to be taken from a widow a business that had been the hard life work and pride of herself and husband, one that was paying the handsome profit of nearly twenty-five thousand dollars per annum, and give me in return what a paltry sum, that will net me less than three thousand dollars; and it is done in a manner that says, Take this or we will crush you out. And when, on account of the sacred associations connected with the business, and also the family name it bears, I plead that I may be permitted to retain a slight interest (you having promised the same at our interview), you then, in your cold, heartless manner, send me word that no outsider can hold a dollar's worth of stock in that concern. It seems strange to be called an outsider in a business that has been almost entirely our own and built up at thecostit has to ourselves. It is impossible for us to find language to express our perfect indignation at such proceedings. We do not envy you in the least when this is made known in all its detail to the public. One of your own number admits that it is a greatmoralwrong, but says as long as you can cover the points legally you think you are all right. I doubt, myself, very much the legality of all these things. But do not forget, my dear sir, that God will judge us morally, not legally, and should you offer him your entire monopoly, it will not make it any easier for you. I should not feel that I had done my entire duty unless, before I close, I drop a remark for your thoughts. In my poor way I have tried, by my life and example, with all those I have come in contact with in a business way, to persuade them to a higher, purer, and better life. I think there is no place in the world that one has such opportunities to work for good or evil as in a business life. I cannot tell you the sorrow it has caused me to have one of those in whom I have had the greatest hopes tell me, within the last few days, that it was enough to drivehonestmen away from the Church of God, when professing Christians do as you have done by me."
"November 11, 1878, Monday Morning.
"Sir,—When you left me at the time of our interview the other morning, after promising me so much, you said you had simply dropped the remarks you had for my thought. I can assure you I have thought much and long as I have waited and watched daily to see you fulfil those promises, and it is impossible for me to tell you how utterly astonished I am at thecourse you have pursued with me. Were it not for the knowledge I have that there is a God in heaven, and that you will be compelled to give an account for all the deeds done here, and there, in the presence of my husband, will have to confess whether you have wronged me and his fatherless children or not—were it not for this knowledge I could not endure it for a moment, the fact that a man, possessed of the millions that you are, will permit to be taken from a widow a business that had been the hard life work and pride of herself and husband, one that was paying the handsome profit of nearly twenty-five thousand dollars per annum, and give me in return what a paltry sum, that will net me less than three thousand dollars; and it is done in a manner that says, Take this or we will crush you out. And when, on account of the sacred associations connected with the business, and also the family name it bears, I plead that I may be permitted to retain a slight interest (you having promised the same at our interview), you then, in your cold, heartless manner, send me word that no outsider can hold a dollar's worth of stock in that concern. It seems strange to be called an outsider in a business that has been almost entirely our own and built up at thecostit has to ourselves. It is impossible for us to find language to express our perfect indignation at such proceedings. We do not envy you in the least when this is made known in all its detail to the public. One of your own number admits that it is a greatmoralwrong, but says as long as you can cover the points legally you think you are all right. I doubt, myself, very much the legality of all these things. But do not forget, my dear sir, that God will judge us morally, not legally, and should you offer him your entire monopoly, it will not make it any easier for you. I should not feel that I had done my entire duty unless, before I close, I drop a remark for your thoughts. In my poor way I have tried, by my life and example, with all those I have come in contact with in a business way, to persuade them to a higher, purer, and better life. I think there is no place in the world that one has such opportunities to work for good or evil as in a business life. I cannot tell you the sorrow it has caused me to have one of those in whom I have had the greatest hopes tell me, within the last few days, that it was enough to drivehonestmen away from the Church of God, when professing Christians do as you have done by me."
In reply to this she received a letter in which her charge that her business had been taken from her was repelled as "a most grievous wrong," and "a great injustice." She was reminded that two years before she had consulted with the writer and another member of the oil combination "as to selling out your interest, at which time you were desirous of selling atconsiderably less price, and upon time, than you have now received in cash, and which sale you would have been glad to have closed if you could have obtained satisfactorysecurity for the deferred payments. As to the price paid for the property, it is certainly three times greater than the cost at which we could now construct equal or better facilities."
The letter concluded with an offer to return the works upon the return of the money, or, if she preferred, to sell her one hundred, or two hundred, or three hundred shares of the stock at the price that had been paid her. These propositions were left open to her for three days.
The "cost of the works" is not the standard of value in such transactions. Six millions of dollars, according to a member of the committee of Congress which investigated the oil trust in 1888, is the value of the "works" on which they issued $90,000,000 of stock, which sold in the stock market at a valuation of $160,000,000.
The offer to sell back the refinery was like the offer to let her have cars. To accept it was to pass openly and consciously into slavery. Two years before, when she was weak with grief, inexperience, and the fear that she might not succeed in her gallant task of paying her husband's debts and saving the livelihood of the children, she had thought of selling out at a sacrifice. They knew this because she had asked their advice, and now cheapened her down by reference to the valuation of that moment of despair. All the life energies of herself and her husband, the various advantages of position, the benefit of their pioneership since 1860, and of having established a place in so lucrative a business, all the good-will of customers, all the elements that contributed to the ability to earn the nearly $25,000 a year she was making, were brushed out of the bargain by the mere assertion of a figure at which it was alleged better works could be built. By the time the offer was made she had, moreover, put the sum she had received into such investments, she told the court, as she had been able to find, and the money to accept the offer was no longer in her hands. Indignant with these thoughts, and the massacred troop of hopes and ambitions that her brave heart had given birth to, she threw the letter into the fire, where it curled up into flames like those from whicha Dives once begged for a drop of water. She never reappeared in the world of business, where she had found no chivalry to help a woman save her home, her husband's life-work, and her children. But when the men who had divided her property among them invoked the assistance of the law to complete the "equalization" told of in the previous chapter, she went into court and told her story to save her friends from ruin. There, under the gathering dust of years, this incident has remained buried in the document-room of the Court of Common Pleas of Cuyahoga County, until now brought forth to give the people a glimpse into what the real things are which our professors of market philosophy cover with their glittering generalities about the cost of production and the survival of the fittest.
This episode and that of the "Agreement for an Adventure" in the preceding chapter have been written up by the author from the original papers on file in the Court of Common Pleas at Cleveland, which he visited for that purpose in 1891. Certified copies of the documents were procured from the clerk of the court. Lately, the astounding fact was ascertained that all the documents except two or three formal pleadings were gone from the records of the court. But for these certified copies there would now be no authentic record of these cases. This disappearance bears a strong likeness to the suppression of the investigation by the Committee of Commerce of Congress in 1872, and the theft of the testimony taken by the House Committee of Commerce[121]in 1876, and the mutilation of the transcript submitted to Congress in 1888 of the evidence taken in the Buffalo Explosion Case.[122]
CHAPTER VIII
"NO!"
Therehas never been any real break in the plans revealed, "partly born," "and buried" in 1872. From then till now, in 1893, every fact that has come to the surface has shown them in full career. If they were buried, it was as seed is—for a larger crop of the same thing.
The people had made peace, in 1872, on the pledge of "perfect equality" on the highways. Hardly had they got back to their work when they began to feel the pinch of privilege again. The Pennsylvania road alone is credited with any attempt to keep faith, and that only "for some months." "Gradually," as a committee of the people wrote to the managers of the Pennsylvania Railroad, "the persons constituting the South Improvement Company were placed by the roads in as favorable a position as to rates and facilities as had been stipulated in the original contract with that company."[123]
As soon as pipe lines were proved practicable they were built as rapidly as pipes and men to put them in the ground could be had, but there was some lubricant by which they kept constantly slipping into bankruptcy.
They were "frozen out," as one of their builders said, "summer as well as winter."
By 1874, twenty pipe lines had been laid in the oil country. Eighty per cent. of them died off in that and the following year.[124]The mere pipes did not die, they are there yet; but the ownership of the many who had built them died.
There were conservatives in the field to whom competitionwas as distasteful as to the socialists. To "overcome such competition," and to insure them "a full and regular" and "remunerative business" in pipe lines, in the language of the South Improvement Company contract, all that was needed was to put into operation the machinery of that contract which no longer existed—in name. The decease of the name was not an insuperable obstacle.
In exact reproduction of the plan of 1872, the railroads, in October, 1874, advanced rates to the general ruin, but to the pool of lines owned by their old friends of the South Improvement Company they paid back a large rebate. That those who had such a railroad Lord Bountiful to fill their pockets should grow rich fast was a matter of course.[125]
Getting this refund they got all the business. Oil, like other things, follows the line of least resistance, and will not flow through pipes where it has to pay when it can run free and get something to boot. Nobody could afford to buy oil except those who were in this deal. They could go into the market, and out of these bonuses could bid higher than any one else. They "could overbid in the producing regions, and undersell in the markets of the world."[126]
This was not all. In the circular which announced the bounty to the pet pipes there was another surprise. It showed that the roads had agreed to carry crude oil to their friends' refineries at Pittsburg and Cleveland without charge from the wells, and to charge them no more for carrying back refined oil to the seaboard for export than was charged to refineries next door to the wells and hundreds of miles nearer the market. "Outside" refiners who had put themselves near the wells and the seaboard were to be denied the benefit of their business sagacity. The Cleveland refiners, whose location was superior only for the Western trade, were to be forced into a position of unnatural equality in the foreign trade. In short, the railroads undertook to pay, instead of being paid, for what they carried for these friends, andforce them into an equality with manufacturers who had builded better than they.
Evidently they who had contrived all this had their despondent moments, when they feared that its full beneficence would not be understood by a public unfamiliar with the "science of transportation."
To the new rules was attached an explanation which asserted the right of the railroads to prevent persons and localities from enjoying the advantage of any facility they may possess, no matter how "real."
"You will observe that under this system the rate is even and fair to all parties, preventing one locality taking advantage of its neighbor by reason of some alleged or real facility it may possess."[127]
Meanwhile good society was shuddering at its reformers, and declaring that they meant to stop competition and "divide up property."
"Do you do that in any business except oil?" the most distinguished railroad man of that day was asked. "Do you carry a raw product to a place 150 miles distant and back again to another point like that without charge, so as to put them on an equality?"
To which he replied—it was he who could not remember that he had ever seen the South Improvement Company contract he signed in 1872—"I don't know."[128]
"Could any more flagrant violation of every principle of railroad economy and natural justice be imagined than this?" the report of the New York Legislature asks.[129]
An expert introduced by the railroads defended this arrangement. He insisted that all pipe lines had a chance to enter the pool and get the same refund.[130]But a witness from the pipe-line country, who was brought to New York to testify to the relations of the railroads and the oil combination, let out the truth.
"Why didn't they go into the pool?" he was asked, in reference to one of the most important pipe lines.
"Because they were not allowed to. They wanted to freeze them out. They were shut out from the market practically."[131]
For these enterprises, as they failed one after the other, there was but one buyer—the group of gentlemen who called themselves the South Improvement Company in 1872, but now in the field of pipe-line activity had taken the name of United Pipe Line, since known as the National Transit Company, and then and now a part of the oil trust.
"The United Pipe Line bought up the pipes as they became bankrupt one after another," testified the same friendly witness.[132]
Then came a great railroad war in 1877. A fierce onslaught was made on the Pennsylvania Railroad by all the other trunk lines.
In this affair, as in all dynastic wars, the public knew really nothing about what was being done or why. The newspapers were filled with the smoke of the battles of the railroad kings; but the newspapers did not tell, for they did not then know, that the railroads were but tools of conquest in the hands of greater men.
The cause of the trouble was that the managers of the Pennsylvania Railroad had begun to reach out for the control of the oil trade. They had joined in the agreement in 1872 to give it to the oil combination, but now they wanted it for themselves. Through a mistletoe corporation—the Empire Transportation Company—they set to work building up a great business in oil cars, pipe lines, refineries.
"We like competition; we like our competitors; we are neighbors and friends, and have been all these years," the president of the oil trust testified to the New York Legislature,[133]but he served notice upon this competitor to abandon the field.[134]He and his associates determined to do more than compel the great railroad to cease its competition. Theydetermined to possess themselves of its entire oil outfit, though it was the greatest corporation then in America. This, the boldest stroke yet attempted, could be done only with the help of the other trunk lines, and that was got.
The ruling officials of the New York Central, the Erie, the Baltimore and Ohio, the Lehigh Valley, the Reading, the Atlantic and Great Western, the Lake Shore railroads, and their connections, were made to believe, or pretended to believe, that it was their duty to make an attack upon the Pennsylvania Railroad to force it to surrender.[135]"A demand," says the New York Legislative Committee of 1879, "which they"—the railroads—"joined hands with the Standard Oil Company and proceeded to enforce by a war of rates, which terminated successfully in October of that year" (1877).[136]
The war was very bitter. Oil was carried at eight cents a barrel less than nothing by the Pennsylvania.[137]How low the rates were made by the railroads on the other side is not known. The Pennsylvania was the first to sue for peace. Twice its vice-president "went to Canossa," which was Cleveland. It got peace and absolution only by selling its refineries and pipe lines and mortgaging its oil cars to the oil combination. It "was left without the control of a foot of pipe line to gather, a tank to receive, or a still to refine a barrel of petroleum, and without the ability to secure the transportation of one, except at the will of men who live and whose interests lie in Ohio and New York."[138]
It was only seven years since the buyers had organized with a capital of $1,000,000. Now they were able to give their check for over $3,000,000 for this one purchase. "I was surprised," said Mr. Vanderbilt to the New York Legislative Committee of 1878, speaking of this transaction, "at the amount of ready cash they were able to provide." Theysecured, in addition to the valuable pipe lines, oil cars, and refineries in New York and Pennsylvania, the more valuable pledge given by the Pennsylvania Railroad that it would never again enter the field of competition in refining, and also a contract giving the oil combination one-tenth of all the oil freights received by the Pennsylvania Railroad, whether from the combination or its competitors—an arrangement it succeeded in making as well with the New York Central, Lake Shore, and other railroads.[139]
One of the earliest members of the oil combination was present at the meeting to consummate this purchase. Something over $3,000,000 of his and his associates' cash changed hands. The meeting was important enough to command the presence of a brigade of lawyers for the great corporations, and of the president, vice-president, and several directors of the Pennsylvania Railroad, and, representing the Poor Man's Light, the vice-president, the secretary, and five of the leading members of the combination, besides himself.[140]
But when asked in court about it he could not remember any such meeting. Finally, he recalled "being at a meeting," but he could not remember when it was, or who was there, or what it was for, or whether any money was paid.[141]
Three years later this transaction having been quoted against the combination in a way likely to affect the decision of a case in court,[142]the treasurer denied it likewise. "It is not true as stated ... directly or indirectly...."[143]
Eight years later, when the exigencies of this suit of 1880, in Cleveland, had passed away, and a new exigency demanded a "revised version," the secretary of the combination told Congress that it was true.[144]
"The pleasures of memory" are evidently for poets, not for such millionaires. That appears to be the only indulgence they cannot afford.
The managers of the Pennsylvania road went back with the zeal of backsliders reconverted to their yoke in the service of the men who had given them this terrific whipping. They sent word to the independent refiners, whom they had secured as shippers by the pledge of 1872 of equal treatment, that equal rates and facilities could be given no longer. The producers and refiners did not sit down dumb under the death sentence. They begged for audience of their masters, masters of them because masters of the highway.
The third vice-president, the official in charge of the freight business, was sent to meet them.
"As you know," they began by reminding him, "we have been for the past year the largest shippers of petroleum the Pennsylvania Railroad has had."
He acknowledged it.
"Shall we, after the 1st of May, have as low a rate of freight as anybody else?" they then asked.
"No," he said; "after the 1st of May we shall give the Standard Oil Company lower rates than to you."
"How much discrimination will we have to submit to?" the poor "outsiders" asked.
"I decline to tell you," was the reply.
"How much business must we bring your road to get as good rates as the combination?" they then asked, and again—
"I decline to tell you," was the only answer they got.
"If we will ship as much, will you give us as low freight rates?"
"No."
"We have been shipping over the Pennsylvania Railroad a year," they persisted, "why can we not continue?"
"It would make them mad; they are the only people who can make peace between the railroads."
"I think," said he, "you ought to fix it up with them. I am going over there this afternoon to talk with those people about this matter, and," he continued, "you will all be happy, and everything will work along very smoothly."
"We gave him very distinctly to understand that we didnot propose to enter into any 'fix up' where we would lose our identity, or sell out, or be under anybody else's thumb; we are willing to pay as high a rate of freight as anybody, and we want it as low as anybody has it," they told him.
But the reply to all of it was, "You cannot have the same rate of freight."
As the magnate of the railroad seemed to be determined not to permit them to move to market along his rails, one of the independents referred to a plan for a new pipe line then under consideration by them, the Equitable, as perhaps promising them the relief he refused.
"Lay all the pipe lines you like," the vice-president retorted, with feeling, "and we will buy them up for old iron."
The independents appealed from the third vice-president to the president; they had to beg repeatedly for a hearing before they got it. They came together in the June following, the independents coming on from New York for the purpose. Since their interview with the third vice-president rates had been advanced upon them, and not only that, but when they had oil ready to ship at those high freight rates, the railroad on one pretext or another refused them cars. One of them had contracts to deliver oil from his refinery in New York to go abroad. When he ordered the cars that were needed to take the crude oil to New York to be refined they were refused him. The ships lay idle at the docks, charging him heavy damages for every day of delay; at the wells his oil was running on the ground.
"You had better go and arrange with the Standard Oil Company; I don't want to get into any trouble with them," the president said. "If you are business men, you will make an arrangement with them. I will do all in my power to bring it about."
"We will never take our freight rates from them," they replied; "we are not willing to enter into any such arrangement."
"Why don't you go to the other roads?" the president asked his suppliants.
"We have done so. It's of no use. On the New York Central the cars are owned by the combination, and the Erie is in a like position. We have been shippers on the Pennsylvania Railroad a long, long while, and you ought to take care of us and give us all the cars we need. We are suffering very greatly for the want of them. Can we have the same rate that other shippers get?"
"No."
"If we ship the same amount of oil?"
"No."
"If you have not cars enough, will you, if we build cars, haul them?"
"No. You will not have any peace or prosperity," continued the president, "until you make terms with the combination."
Like the third vice-president he offered to intercede with them to get transportation over his own road for his own customers. Like men they refused the offer.
"We were, of course, very indignant," one of them said, in relating this experience in court.[145]
A little later a rich and expert refiner, who had sold out in 1876, made up his mind to try again. The Pennsylvania road had a new president by this time, but the old "no" was still in force.
"When I was compelled to succumb I thought it was only temporarily, that the time would come when I could go into the business I was devoted to. I was in love with the business. I took a run across the water; I was tired and discouraged and used up in 1878, and was gone three or four months. I came back ready for work, and had the plan, specifications and estimates made for a refinery that would handle ten thousand barrels of oil in a day. I selected a site near three railroads and a river; I would have spent about five hundred thousanddollars, and probably a couple of hundred thousand more. I believed the time had arrived when the Pennsylvania Railroad would see their true interest as common carriers, and the interest of their stockholders, and the business interest of the City of Philadelphia. I called on the President of the Pennsylvania Railroad; I laid the plans before him, and told him I wanted to build a refinery of ten thousand barrels' capacity a day. I was almost on my knees begging him to allow me to do that.
"'What is it you want?' he said.
"'Simply to be put upon an equality with everybody else—especially the Standard Oil Company. I want you to agree with me that you will give me transportation of crude oil as low as you give it to anybody else for ten years, and then I will give you a written assurance that I will do this refining of ten thousand barrels of oil a day for ten years. Is not that an honest position for us to be in? I as a manufacturer, you the president of a railroad.'
"'I cannot go into any such agreement.'
"I saw the third vice-president. He said, in his frank way, 'That is not practicable, and you know the reason why.'"[146]
After their interviews with the President and Vice-President of the Pennsylvania Railroad, these outsiders went to the officials of the other roads, only to hear the same "No!" from all.[147]
At one time, to get oil to carry out their contracts and fill the vessels which were waiting at the docks and charging them damages for the delay, these refiners telegraphed to the oil regions offering the producers there ten cents above the market price if they could get oil to them over any of the roads to New York. They answered they could not get the cars, and none of them accepted the offer.[148]
All the roads—as in 1872—were in league to "overcome" them.
Thus, at a time when the entire movement of oil was at the rate of only 25,000 or 30,000 barrels a day, and the roads had cars enough to move 60,000 barrels a day, these independent refiners found themselves shut completely off from the highway.[149]The Pennsylvania Railroad, the New York Central, the Erie, and their branches and connections in and out of the oil regions, east and west, were as entirely closed to them as if a foreign enemy had seized the country and laid an embargo on their business—which was, indeed, just what had happened. The only difference between that kind of invasion and what had really come was, that "the dear people," as the president of the trust called them,[150]would have known they were in the hands of an enemy if he had come beating his drums loud enough, and firing off his two-thousand pounders often enough, and pricking them deep enough with his bayonets; but their wits are not yet up to knowing him when he comes among them disguised as an American citizen, although they see property destroyed and life lost and liberty thrown wherever he moves.
There was enough virtue in Pennsylvania to begin a suit in the name of the State against the men who were using its franchises for such purposes, though there was not enough to push it to a decision. The Third Vice-President of the Pennsylvania Railroad, when examined as a witness in this suit, confirmed these statements about the interviews with himself and the president of the road in every particular about which he was questioned.
"We stated to the outside refiners that we would make lower rates to the Standard Oil Company than they got; we declined to allow them to put cars of their own on the road."[151]