His evidence fills seventy-six pages, closely printed, in the report of testimony. It was clear, full, and candid; remarkably so, considering that it supplied officially from the company's own records the facts, item by item, which proved that the management of the Pennsylvania Railroad had violated the Constitution of Pennsylvania and the common law, and had taken many millions of dollars from the people and from the corporation which employed them, and secretly, and for no consideration, had given them to strangers.
This testimony is so important that it was reprinted substantially in full both by the "Hepburn" committee of the New York Legislature in 1879[152]and the Trust Investigating Committee of Congress in 1888.[153]As instances, it showed that in one case where the rate to the public was $1.15, this favored shipper was charged only 38 cents. In another case the trade generally had to pay $1.40 a barrel on crude petroleum, but the oil combination paid 88½ cents.
"And then the refined rate was 80 cents?"
"80 cents net to the Standard."
"And to all others?"
"$1.44½."
"But there were no other outside shippers," he pleaded—how could there be?
There was only one important member in Pennsylvania of the oil combination who could be caught with a subpœna. At his first appearance in court, on the witness stand, he took lofty ground.
"I decline to answer."[154]
Put on the stand again, he was asked:
"Were you allowed a rebate amounting to 64½ cents per barrel?"
"No, sir; not to my knowledge."[155]
Put on the third time and compelled to produce his books, he had to read aloud in court the entries showing the payment he had thus denied under oath.
"There was a total allowance of 64½ cents per barrel."[156]
And then he shut up again—but too late; and to all other questions about his rebates said, gloomily, "I decline to answer."
When the president of the oil trust was asked afterwards by the New York Legislature if some company or companies embraced within it had not enjoyed from railroads more favorable freight rates than outside refineries, he replied:
"I do not recall anything of that kind."
"You have heard of such things?"
"I have heard much in the papers about it."[157]
But at the time these rates were being made, one of his principal associates admitted that the president was the person who attended to the freight rates.[158]This was also put beyond a doubt in the Ohio investigation by the evidence of his first partner in the little oil refinery at Cleveland which had grown so great, he who had furnished the only mechanical and refining knowledge it had started with, and who had, until within a year, been a fellow-stockholder and director.
"Do these contracts contain anything of the nature that would discriminate against the small refiners of the State?"
"I think they did.... Up to the time I left the company the open rate was $1.40 to the seaboard. They"—the oil combination—"ship for 80 cents.... The president told me it was the rate at that time."[159]
With every known avenue to the sea thus closed to them it certainly looked as if all was up with the "outsiders." But the men, who had too much American spunk to buy peace with dishonor by consenting to a "fix-up" under compulsion, had the wit to find out a loop-hole of temporary escape. They built tank boats for the canal, and thus succeeded in getting 200,000 barrels of oil to New York that summer before the canal closed.[160]
Since then all chance of escape by the canal has been cut off. The railroads made a war of freight rates against it, and the only canal that connected the oil regions with the Erie canal route to the sea was dried up, and turned into a way for a railroad by a special act of the New York Legislature. The railroad so built has ever since been managed as one of the most diligent promoters of the policy of excluding the common people from the oil business.
According to the funeral notices given out by the railroad officials and the members of the South Improvement Company this concern was dead, but in the quaint phrase of the producers it was really alive and hard at work, but "with a new suit of clothes and no name." These interviews between the independent refiners and the railroad officials of the three trunk lines form one of the most extraordinary scenes which have taken place between a government and its subjects since the era of modern democratic liberty.
The railway officials are, in the world of the highway, the government. They hold their supreme power to tax commerce, and to open and close the highways, solely and altogether by grant of the State, and under the law of the common carrier. It is only by the exercise of the sovereign power of eminent domain to take the property of a private individual by force, without his consent, for public use—never for any other than public use—and only by the grant of the right to cross city streets and country roads that the railroads come into existence at all. This says nothing of the actual cash given to the railroad projectors by the government, which, in New York State alone, amounts to upwards of $40,000,000.[161]
The independent refiners represent the people, claiming of the highway department of their government those equal rights which all citizens have as a birthright, and the government informs these citizens that their rights on the highways have been given as a private estate to certain friends of theruling administration, much as William the Conqueror would give this rich abbey or that fertile manor to one of his pets.
"We have no franchise that is not open to all," say the "trustees." "It is a free open market." "There is nothing peculiar to our companies." "It is as free as air."
In truth they have had no less a franchise than, as in 1872, the excluding possession of all the great trunk-lines out of the oil country, and all their connections east and west, and this franchise has since widened until, in 1893, it reaches from ocean to ocean, and from gulf to gulf.
Their franchise was meant to be as exclusive as if they had had from the government letters-patent in the old royal fashion of close monopolies in East Indian trade, or salt, or tobacco at home, giving them by name the sole right to use the roads, and forbidding all others, under pain of business death, from setting their foot on the highway. But with this difference: the exclusive franchise in the latter case would exist by law; but in this case it was created in defiance of law, exists in contempt of the law, and in its living the law dies daily.
The refiners and producers who were pleading in this way with the railroads for a chance to live after May 1, never doubted but that, as they were told, and as their arrangements with the Pennsylvania road guaranteed, they were having and were to have at worst until that date, equal and impartial rates and facilities. Under this safe-conduct they parleyed for the future. But the Pennsylvania Railroad was at that moment negotiating with the oil combination to collect from the independents, under the guise of freight, 20 to 22½ cents a barrel on all they sent to market, and pay it over to the combination. The payments were made to one of the rings within the oil ring, called the American Transfer Company. "It is the same instrumentality under a different name," said the counsel of the New York Chamber of Commerce before the New York Legislature. The official of the Pennsylvania road who issued the order to take this money out of the treasury pleaded in excuse that proof had been given him thatother roads were doing the same thing.[162]Receipted bills were brought to him, showing that the New York Central and the Erie had been "for many months" paying these men who called themselves American Transfer Company for having "protected" their oil business, sums ranging from 20 cents to 35 cents a barrel on all the oil those roads transported.[163]So deeply was the watch-dog of the Pennsylvania road's treasury affected by the proof that his company was doing less than the other roads, that he instructed the comptroller to give these men three months' back pay, which was done. Twenty cents a barrel was sent them out of all the oil freights collected by the Pennsylvania for the three months preceding, and thereafter the tribute was paid them monthly. Then it was increased to 22½ cents a barrel. The same amount per barrel was refunded to them out of their own freight. They received this on all oil shipped by them, and also on all shipped by their competitors.[164]They who received this tribute pretended to the railroad officials that they "protected" the roads from losing business. The railroad men pretended to believe it.
The way in which this revenue was given and got shows what a simple and easy thing modern business really is—not in any way the brain-racker political economists have persuaded themselves and us. The representative of the oil combination writes a bright, cheery letter; the representative of the Pennsylvania answers it, and there you are; 22½ cents a barrel on millions of barrels flows out of the cash-box of the railroad into the cash-box of the combination. In one year, 1878, this tribute, at the rate of 22½ cents on the 13,750,000 barrels of oil shipped by the three trunk-lines, must have amounted to $3,093,750. The American Transfer Companyhad a little capital of $100,000, and its receipts from this rebate in this one year would amount to dividends of 3093 per cent. annually; the capital of the oil combination which owned this Transfer Company was at this time $3,500,000.
There are reasons to believe that some of the very railroad men who turned the money of the railroads over to the American Transfer Company were among its members. But if all the profit went to the combination, and none of it was for the railway officials through whom they got it, their revenue from that source alone would have paid in 1878 a dividend nearly equal to this capital of $3,500,000. In this device of the American Transfer Company we again see reappear in 1878, in high working vitality, the supposed corpse of the South Improvement Company of 1872. The American Transfer Company was ostensibly a pipe line, and the railroad officials met the exposure of their "nothing peculiar" dealings with it by asserting that the payment to it of 22½ cents a barrel and more was for its service in collecting oil and delivering it to them; but the Third Vice-President of the Pennsylvania Railroad admits that his road paid the money on oil which the American Transfer Company never handled.
"This 22½ cents (a barrel) paid the American Transfer Company is not restricted to oil that passed through their lines?"
"No, sir; it is paid on all oil received and transported by us."[165]
The American Transfer Company was not even a pipe line. By the Pennsylvania laws all incorporated pipe lines must report their operations and condition monthly to the State. But the publisher of the petroleum trade reports, and organizer of a bureau of information about petroleum, with offices in Oil City, London, and New York, issuing daily reports, testified that the American Transfer Company was not known in the oil regions at all as a pipe line. It published none of the statements required by law. "They do not," he said, "make any runs from the oil-wells." It had once been a pipe line,but "years ago it was merged in with other lines," and consolidated into the United Pipe Line, owned and operated by the combination.[166]
When this arrangement was exposed to public view by the New York legislative investigation, the "expert" who appeared to explain it away in behalf of the railroads and their beneficiaries, paraded a false map of the pipe-line system, drawn and colored to make it seem that the American Transfer Company was a very important pipe-line.[167]This was the same "expert" who, as we saw, defended the pipe-line holocaust of 1874 by asserting that "all were to be taken in alike."
There are three kinds of liars, an eminent judge of New York is fond of saying—liars, damned liars, and experts.
When the assistant secretary of the oil combination was asked about this "transfer" company, he replied, "I don't know anything about the organization."[168]He had described himself to the committee as "a clamorer for dividends"; but he declared he knew nothing about an organization which was "transferring" him dividends at the rate of $3,093,750 a year on $100,000 of capital. Almost at the very moment of this denial, receipts were being produced in court in Pennsylvania which had been given by the cashier of himself and his associates to the railroads for this money.[169]
Even if the independents succeeded in saving their oil from wasting on the ground, and got it into pipe lines, and had it refined, and were lucky enough to be given cars to carry it to the seaboard, they found that in leaving the oil regions they had not left behind the "no." Up to the very edge of the sea were the nets spread for them.
Part of the bargain of 1872 had been that the brothers of the South Improvement Company should provide the terminal facilities at the seaboard.[170]Railroad companies are usually supposed to have their own yards, storehouses, wharves, and the like, and, as a matter of fact, the railroads had these. The agreement of 1872 that the South Improvement Company should furnish the terminal facilities meant—it was discovered by the New York Legislature in 1879—that such terminals as the road already had should be turned over to that concern, and that thereafter nobody should be allowed to build or use terminals except as it permitted.
The New York Legislature found, in 1879, that the oil combination thus owned and controlled the oil terminal facilities of the four trunk-lines at New York, Philadelphia, and Baltimore.
"They can use the power here given, and have used it to crush out opposition."[171]
"Of course, there is in the Erie contract a statement that every shipper of oil over the road shall be treated with 'fairness' by the Standard Oil Company, and our attention was drawn to that," the counsel of the Chamber of Commerce said.... "In the first place, they have the exclusive shipment of oil, and therefore nobody could ship oil, and there was no oil handled for anybody else; but if the Erie Company should send some for somebody else, why, the sloop could not get to the dock, and the machinery at the dock would not and could not work by any possibility so as to get that oil out of that dock and into a ship (except at the end of a lawsuit)."[172]
Evidently the "cancellation" of 1872 had not cancelled anything of substance. Indeed, the "no" of 1878 was wider than the embargo of 1872, for the fourth great trunk-line, the Baltimore and Ohio, was not one of the signatories then; but by 1878 it had, like all the others, closed its port to the people—farming it out as the old régime farmed out the right to tax provinces.
He used to meet the president of the oil combination "frequently in the Erie office," a friend and subordinate hasrecalled.[173]Railroad offices are pleasant places to visit when such plums are to be gathered there as this of the sole right to the freedom of all ports and control of the commerce of three continents.
Down to this writing, when the little group of independents who remain masters of their own refineries along Oil Creek seek to send their oil in bulk abroad, or to transship it at any one of the principal ports for other points on the coast, the same power still says the same "no" as twenty years ago.[174]
CHAPTER IX
WHO PIPED AND WHO DANCED
Thus, by 1878, the independent producers and refiners found themselves caught in a battue like rabbits driven in for the sport of a Prince of Wales.
If the richest person then in America—that artificial but very real person the Pennsylvania Railroad—could not keep its pipe lines, nobody could. The war for the union, which ended with its surrender in 1877, closed the pipe-line industry to the people. The unanimous "no" of all the railroads which followed completed the corral.
Oil, when it got to market, found that those who had become the owners of the pipe lines were also the owners of most of the refineries, and so the only large buyers.[175]"Practically to-day there is but one buyer of crude oil for us.... We take our commodity to one buyer; we take the price he chooses to give us without redress, with no right of appeal."[176]
Then the sole carrier—the pipe-line company—refused to take the oil into its pipes—the oil as it came out of the wells—unless first sold to its other self, the oil combination. This was called "immediate shipment." Forced to waste or sell his oil, the producer, under this compulsion, had to take what he could get.[177]The Hon. Lewis Emery, Jr., a member of the State Senate of Pennsylvania, gave the authorities of the State an account of the "immediate shipment" evolutionof American market liberty. "We go down," he said, "to the office and stand in a line, sometimes half a day—people in a line reaching out into the street—sixty and seventy of us. When our turn comes we go in and ask them to buy, and they graciously will take it. I am an owner in six different companies, and we all suffer the same."
To educate the producer to sell "always below the market," the Pipe Line let his oil spill itself on the ground for a few days. "We lost a considerable amount of oil, probably several thousand barrels," another producer said.
"Will you state at what price as compared with the market price, whether above or below, you sold that oil?"
"It was always below."
Asked why he sold it below the market, he said:
"Because the line would not run it until it was sold."[178]
The hills of Pennsylvania began to growl and redden as in 1872.
The Secretary of Internal Affairs was hung in effigy. Mass meetings were held—some tumultuous, others quiet; processions of masked men marched the streets, and groaned and hooted in front of the newspaper offices and the business places of the combination. In the morning the streets and sidewalks were frequently found placarded with cabalistic signs and letters, and occasionally printed proclamations and warnings. Most of the lending newspapers of the region had been either absolutely purchased by the oil combination or paid to keep silence. Others occasionally broke forth in violent articles advising the use of force.[179]
In the McKean County field the people rose in rebellion. They got up a Phantom Party, in its provocation and spirit much like a phantom party which, contrary to law and order, boarded some ships in Boston harbor a century before. One thousand men, wrapped in white sheets, marched by nightfrom Tarport to Bradford, the headquarters in that province of the sole buyer. Not a word was spoken.
It was not enough to make the people sell under compulsion. A day came when the only buyer would not buy and the only piper would not pipe. This brought the Parker district to the verge of civil war. The citizens were in a state of terrible excitement; the pipe lines would not run oil unless it was sold; the only buyers—viz., the agents of the oil combination—would not buy oil, stating that they could not get cars; hundreds of wells were stopped to their great injury. Thousands more, whose owners were afraid to stop them for fear of damage by salt water, were pumping the oil on the ground. The leaders used all the influence they had to prevent an outbreak and destruction of railroad and pipe lines. The most important of them went over to the Allegheny Valley Railroad office and telegraphed to the president: "The refusal to run oil unless sold upon immediate shipment and of the railroad to furnish cars has created such a degree of excitement here that the most conservative part of the citizens will not be able to control the peace, and I fear that the scenes of last July will be repeated on an aggravated scale."[180]
Three of the highest officials of the road sought an immediate interview with this leader of the producers. He warned them, and the Pennsylvania road which controlled their oil business, that unless immediate relief were furnished there would be an outbreak in the oil regions, because, as he told them, "The idea of a scarcity of cars on daily shipments of less than 30,000 barrels a day was such an absurd, barefaced pretence, that he could not expect men of ordinary intelligence to accept any excuses for the absence of cars, as the preceding fall, when business required, the railroads could carry day after day from 50,000 to 60,000 barrels of oil."[181]The warning was heeded. Thousands of empty cars, which the combination and its railroad allies had said couldn't behad anywhere, suddenly appeared hastening to Parker, blocking up the tracks in all directions, deranging the passenger business of the road. "They looked like mosquitoes coming out of a swamp." The sole buyer began buying again, and for the whole week, after having declared themselves unable to buy or move any, the railroads moved 50,000 barrels a day.[182]Producers under such rule saw their prices decrease and their land pass out of their possession, as was inevitable.
Ten years later in the Ohio oil-field all the substantial features of the plan we saw culminate at Parker are to be found in full play. There, also, the oil combination, Congress was told, is the only purchaser, and it fixes the price to suit itself. The production of the Ohio fields was between 18,000 and 20,000 barrels a day, but it could easily produce between 30,000 and 32,000. Because the only buyer refused to take care of the oil, wells have been shut back. Wells, which if opened up would run 1000 or 2000 or even more, were shut in four days out of the week.[183]
This culmination of 1878 made the people act. The producers were being ground to powder by the fact that an enemy had possession of their local pipes, their tankage, and their railways. "I am the unfortunate owner," said one of them, "of interests in nearly one hundred pumping wells. I have produced over half a million barrels of oil."[184]Oil was running out of the ground at the rate of 15,000,000 barrels a year, but the New York refiners who were in command of plenty of capital, said:
"We don't dare build large refineries, for we don't know where we could get the oil."[185]
At last the people organized the Tidewater Pipe Line. This was the first successful attempt to realize the idea often broached of a pipe line to the seaboard. It was the last hopeof the "outsiders"—the "independents." "Nothing short of the ingenuity that is born of necessity and desperation" produced that pipe line. It was well contrived and well manned, and had plenty of money. It was organized in 1878, with a capital of $1,000,000, which increased in a few years to $5,000,000. It built a pipe from the oil regions to Williamsport—105 miles—on the Philadelphia and Reading Railroad, whence the oil was carried in cars by that company and over the Jersey Central to Philadelphia and New York.
Unlimited capital and strategy did all that could be done against the Tidewater. At one place, to head it off, a strip of land barring its progress was bought entirely across a valley. It escaped by climbing the hills. At another point it had to cross under a railroad. The railroad officers forbade. Riding around, almost in despair, its engineer saw a culvert where there was no watercourse. It was for a right of passage which a farmer, whose land was cut in two by the railroad, had reserved in perpetuity for driving his cattle in safety to pasture. It did not take long to make a bargain with the farmer for permission to lay the pipe there.
The pipe line was finished and ready to move oil about the 1st of June, 1879. On June 5th a meeting was held at Saratoga of representatives of the four trunk-line railroads and of members of the oil trust. The meeting decided that the new competitor should be fought to the death. The rate on oil, which had been $1.15 a barrel, was reduced to 80, then to 30, to 20, to 15 cents by the railroads, to make the business unprofitable enough to ruin this first attempt to pipe oil to the seaboard. Finally the roads carried a barrel, weighing 390 pounds, 400 miles for the combination for 10 cents or less.[186]The representative of the Tidewater offered to prove to Congress, in 1880, if it would order an investigation—which it would not—that "the announced and ostensible object of the conference at Saratoga was to destroy the credit of the Tidewater, and to enable the oil combination to buy up the new pipe line, andthat a time was fixed by the combination within which it promised to secure the control of the pipe line—provided the trunk-lines would make the rates for carrying oil so low that all concerned in transportation would lose money.[187]There can be no doubt," he continued, "that, taking the avowed and ostensible object of the Saratoga meeting as the true one, it constituted, on the part of the willing participants, a criminal conspiracy of the most dangerous character."
One of the chief officials of the Pennsylvania Railroad testified to the competition which his road had carried on with the Tidewater. "It certainly was fought," he said; "the rates were considerably reduced."[188]Rates were put down to points so low that the railroad men would never tell what they were. I have no knowledge—I have no recollection—was all the president and general freight agent of the Pennsylvania Railroad could be got to say, when before the Interstate Commerce Commission.[189]"Not enough to pay for the wheel grease," said the general freight agent.[190]The oil trust also cut the prices of pipeage by its local lines from 20 cents to 5 cents a barrel, turning cheapness into the enemy of cheapness.
But the Tidewater was strong enough to withstand even so formidable an assault as this. As its business was small, its losses were small; but the railroads, making this war on it for the benefit of others, suffered heavily. The trunk-lines, it has been calculated, wilfully threw away profits equal to $10,000,000 a year for the sake of inflicting a loss of $100,000 on the pipe lines.[191]Enough revenue was lost to pay dividends of 2½ to 5 per cent. on the total capital of the roads.
One effect that followed this reduction in rates was a corresponding decline in the price of oil at New York, in which the cost of freight is a constant element. The Committee ofthe New York Legislature found in the testimony it heard reason to believe that the members of the oil trust took advantage of their advance knowledge to sell at high prices, to those who did not know, all they would buy for future delivery.
The "Hepburn" report of the New York Legislature of 1879 gives special prominence to the computations that $1,500,000 were the profits of this speculative deal.[192]
The customers of the Tidewater, the independent refiners in Philadelphia, were charged by the Pennsylvania Railroad on oil that came through the Tidewater 15 cents a barrel for one mile of hauling. The utmost the law allowed them was half a cent a mile, and they were carrying oil 500 miles to New York for the same charge of 15 cents a barrel, and less. Under such pressure these independent refineries, which the Tidewater had been built to supply, sold out one after another. The Tidewater was then in the position of a great transporting company, that had spent a large amount of money to bring a great product to its Philadelphia terminus, and found that refining establishments which had been begging it to give them oil had become the cohorts of its opponent. To meet this the Tidewater built refineries of its own at Chester, and at Bayonne, New Jersey, on New York waters.
When asked for a rate to another point, the Pennsylvania gave one that was three and four times as much as they would charge the oil trust, but added, "we cannot make a rate on the empty cars returning." That is, as it was interpreted, "we will carry the oil, but we will not permit the empty cars to come over the roads to get the oil. They must be taken on a wheelbarrow, or by canal, or by balloon."[193]The war went on. Attempts were made to seduce the officials of the Tidewater. A stockholder, who had been too poor to pay for his stock, received a large sum from the oil combination and began a vexatious suit for a receivership.[194]A minorityforced their way into the offices of the company, and took violent possession of it by a "farcical, fraudulent, and void" election, as the court decided in annulling it. Its financial credit was attacked in the money market and by injunctions against its bonds.
Affidavits were offered from members of the oil combination denying that they had had anything to do with these proceedings. In reference to these affidavits, the representative of the Tidewater reminded the court that that combination was a multifarious body. "One-half of them," he said, "do a thing, and the other half swear they know nothing about it. In pursuance of this Machiavelian policy, they have eight or ten gentlemen to conduct negotiations, and eight or ten to say they do not know anything about them."
Then, with no visible cause, the capacity of the pipe fell below the demands upon it. This insufficient capacity was pleaded in court as one of the reasons why the pipe should be taken out of the hands of its owners. One day the cause was discovered—a plug of wood. Some mysterious hand had been set to drive a square block of wood into the pipe so as to cut down its capacity to one-third. The representative of the Tidewater declared in court his belief that this plug had been placed by "people on the other side who have made affidavits in this case." A similar deed, but much worse, as it might have cost many lives, was done during the contest with Toledo, nine years later.[195]
The Tidewater was successful, but not successful enough. It owned 400 miles of pipe, including the 105 miles of the trunk-line, and had control of nearly 3,000,000 barrels of tankage. It did a great work for the people. "It was," the PhiladelphiaPresssaid, in 1883, "the child of war. It has been a barrier between the producers and the monopoly which would crush them if it dared." While these words of exultation were being penned, a surrender was under negotiation. The Tidewater's managers were nearly worn out. These tactics of corrupting their officers, slandering their credit, buying up their customers, stealing their elections, garroting them with lawsuits founded on falsehoods, shutting them off the railroads, and plugging up their pipe in the dark, were too much. They entered into a pool. The two companies in the summer of 1883 "recognized" each other, as the trunk lines do, and agreed to divide the business in proportions, which would net the Tidewater $500,000 a year. The announcement that this pool had been forced on the Tidewater fell like a death-blow on the people of the oil regions. "The Tidewater," the PhiladelphiaPresssaid, editorially, "will probably retain a nominal identity as a corporation, but its usefulness to the public and its claim to popular confidence and encouragement were extinguished the instant it consented to enter into alliance with the unscrupulous monopoly which resorts to that means of conciliating and bribing what it had failed to destroy." As was anticipated by thePress, the Tidewater retained its nominal identity, but that was all. Its surrender was admitted by its principal organizer, Mr. Franklin B. Gowen. The officials of the Pennsylvania Railroad have testified to it. "They made an arrangement of some kind, the conditions of which I never knew; one swallowed the other or both swallowed the other, or something, and settled up their difficulties,"[196]said the general freight agent. The president said: "The competition between these pipe lines ceased."[197]
The attorney of the Tidewater was asked if there were any negotiations which resulted in a compromise of the differences with the oil combination.
"If by differences," he replied, "you mean competition in trade, I answer the question, yes. That resulted in a written contract.... The purpose of the contract was to settle the rivalry in business between the two companies, each company to takea percentage of transportation and gathering, and each to do with the oil as it saw fit."[198]
The treasurer of the Tidewater, who had been in its service since 1880, corroborated its attorney. A contract had been made between the two; the date of it was October 9, 1883. Copies of the contracts are in the author's possession.
The Interstate Commerce Commission in 1892 judicially found the same fact. It says: "About December, 1883, the pipe lines, with the view of getting better rates, adjusted their differences, and the competition between them ceased. The pipe-line business appears then to have passed into the control of the National Transit Company."[199]All but 6 per cent. of the National Transit Company is owned by the oil trust. It formed practically one-third the imposing bulk of the $70,000,000 of the trust of 1882.[200]If anything can be made certain by human testimony this evidence proves that these pipe lines stopped competing in 1883. The witnesses are the men who negotiated the contract, and upon whose approval it depended. But when the president of the trust was asked under oath, in 1888, if there were any pipe lines to tide-water competing with it, he named, as "a competing company," "the Tidewater Pipe Line."
"The Tidewater Company? Does that compete with your company?"
"It does."
"It is in opposition to it?"
"It is in opposition to it."[201]
In the same spirit he denied, in 1883, that he had anything to do with the company which had represented the oil trust in this "swallowing or something" of the Tidewater. This, the National Transit Company, was the most important member of the trust. Under its cover, by means like those described, from New York to West Virginia and Ohio, almost all the pipes for gathering and distributing oil have been brought into one ownership. Millions yearly of the earnings of this company were pooled with all the others in the trust, and the president was receiving his share of them four times a year. He was the sole attorney[202]authorized to sign contracts for the trustees, who thus held all the combined companies in a common control. These trustees, of whom he was the chief, not only controlled but owned as their personal property more than half the stock of every company represented. But these facts were not then known to the public. It was not intended that they should be known, as the struggle to conceal them from the New York Legislature five years later—in 1888—showed.
"Have you any connection with the National Transit Company?" he was asked, after taking the oath.
"I have not."[203]
When the Tidewater passed under this alien control, Mr. Franklin B. Gowen severed all his connection with it. He did not hold himself for sale to any man who had money to pay fees. He stood at a height where the profession of law was immeasurably above prostitution in the temples of justice—the odious aspect in which the sacrifice of purity in the ancient temples of Aphrodite is reproduced in our courts. It would have been impossible for him to combine the functions of a great law reformer and procurer of judicial virtue for railroad corporation wreckers. He never forgot what some successful lawyers seem never to remember—that the lawyer is, as much as the judge, an officer of the court and of justice. While he lived he was proud to be recognized as the chief defender in the courts of the rights of those whom it was sought to crush in this industry, although he thus allied himself with the poor and heavy laden. He could have usedhis anti-monopoly eloquence as an advertisement of his value to monopoly; but he would not sell his soul to fill his stomach. His heart revolted against the wicked cruelty with which he saw the strong misuse the weak, and his penetrating vision saw clearly the ruin to which overgrown power and conscienceless greed were hurrying the liberties of his country. In his speech before the Pennsylvania Legislature in 1883, advocating a law to prevent the use of railway power by railway officials to redistribute the property of the people among their favorites, he said, speaking of what had been done in the oil regions of Pennsylvania: "If such a state of facts as I now call your attention to had been permitted by any government in Europe or Asia for a six months, instead of the sixteen years it has existed in this Commonwealth, the crown and sceptre of its ruler would have been ground into the dust, and yet the good, honest, patient, long-suffering people have submitted to it in this Commonwealth until the time has come that if we hold our peace the very stones will cry out.
"I for one intend to submit to it no longer. You may say it is unwise for me to attack this wrong, but I have attacked it before and I will attack it again. If I could only throw off the other burdens that rest upon my shoulders, I would feel it to be my duty to preach resistance to this great wrong, as Peter the Hermit preached the crusade. I would go through this State from Lake Erie to the Delaware; I would go into every part of this Commonwealth and endeavor, by the plain recital of the facts, to raise up such a feeling and such a power as would make itself heard and felt, and by the fair, open, honest, and proper enforcement of the law, right the wrong, and teach the guilty authors of this infamous tyranny
"'That truth remembered long:When once their slumbering passions waked,The peaceful are the strong.'"
Mr. Gowen bravely fulfilled his pledge not to submit. His principal occupation became the championship in the courts and the Interstate Commerce Commission of those who wereoppressed by this crushing power. His incorruptible lance was always in place, until the morning he was found dead in his room in Washington.
The oil combination had, up to this time, sent all its oil east by rail as it had no pipe line, and its faithful fools, the railroads, therefore burned their fingers with joy to roast the Tidewater for so good a customer. But while the railroad officials were wasting their employers' property to destroy the combination's new competitor, its astute managers, seeing how good a thing pipe lines were, quietly built a system of their own to the seaboard. The railroads had helped them get hold of the pipe lines—had in repeated cases, as the Erie, the Atlantic and Great Western, the Pennsylvania, the Cleveland and Marietta did, allowed them to lay their pipes on the lands of the railroads—and were now to see the pipe lines used to replace the railroads in the transportation of oil. These oil men saw what the railroad men had not the wit to see—or else lacked the virtue to live up to—that the pipe line is an oil railway. It requires no cars and no locomotives; it moves oil without risk of fire or loss; it is very much cheaper than the ordinary railway, for this freight moves itself after being lifted up by pumps. The pipe line was the sure competitor of the railway, fated to be either its servant or master, as the railroad chose to use it or lose it. The railways sentimentally helped the trust to gather these rival transportation lines into its hands; then the trust, with the real genius of conquest, threw the railroads to one side. A system of trunk-line pipes was at once pushed vigorously to completion in all directions. While the members of the oil trust were building these pipe lines to take away the oil business of the railroads, the officials of the latter were giving them by rebates the money to do it with. At the expense of their own employers, the owners of the railroads, these freight agents and general managers presented to the monopoly, out of the freight earnings of the oil business, the money with which to build the pipe lines that would destroy that branch of the business of the roads.
It was the Tidewater that proved the feasibility of trunk pipe lines. The trunk pipe lines the combination has built were in imitation. Extraordinary pains have been taken to sophisticate public opinion with regard to all these matters—for the ignorance of the public is the real capital of monopoly—and with great success. The history we have transcribed from the public records is refined by one of the combination into the following illuminant:
"About 1879 or 1880 it was discovered that railways were inadequate to the task of getting oil to the seaboard as rapidly as needed. Combined capital and energy were equal to the emergency. No need to detail how it was done. To-day there reaches,"[204]etc., etc. It must have been on some such authority that this, from one of our leading religious journals, was founded: "Only by such union"—of the refiners—"could pipe lines have been laid from the oil wells to the tide-water, reducing to the smallest amount the cost of transportation."[205]An account of the pipe-line system in the New YorkSun, of December 14, 1887, describing the operations of the great pumps that force the oil through the pipes, says: "Every time the piston of the engine passes forward and back a barrel of oil is sent seaward. A barrel of oil is forced on its way every seven seconds of every hour of the twenty-four. Every pulsation of the gigantic pumps that are throbbing ceaselessly day and night is known and numbered at headquarters in New York at the close of each day's business." This heart of a machine, beating at the headquarters in New York, and numbering its beats day and night, stands for thousands of hearts whose throbs of hope have been transmuted into this metallic substitute. This heart counts out a gold dollar for every drop of blood that used to run through the living breasts of the men who divined, projected, accomplished, and lost.
CHAPTER X
CHEAPENING TRANSPORTATION
Throughall 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 theindependent 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 illegalthat 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 bythe 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 costof 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, sincethe 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. Atthe 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.