ROBBER BARONS

TWO CAPTAINS OF INDUSTRY

THE necessities of the war, above all its high-tariff act of 1864, which had given such a strong impetus to home invention and manufacture, resulted also in a process of heightened enrichment of those aggressive individuals who came to be known as “captains of industry.”  Their progress toward the key positions, the fortresses of an increasingly industrial society, motivated by the revolutionizing energy of coal, iron and steam, was less spectacular, on the whole, than the swift preëmptions of the railroad barons who were inspired by regal gifts such as the seventeenth-century trading companies had received from monarchs.  It was the result of much obscure, routine effort ;  of a constant widespread growth of technology, of a progressive division or organization of labor power into its most productive patterns.

The labors of the captains of industry in the first stage of accumulation were generally peaceful and distant from the political stage of Washington, save when they sought tariff protection.  Later, when they contended with each other for commanding positions over their trades, they would be involved in high-handed and ruthless measures against each other, or opponents in adjacent industries.

A most dramatic economic event of the period was the invention of the reaper, perfected and sold in large quantities shortly before the war by Cyrus McCormick.  As they quickened the handling of grains, made large farming operations possible in the prairies which were so suited to monoculture, and the Mississippi Valley the leading food-producing region in the world, the new farm machines were saluted joyfully as symbols of the “ever restless and progressive spirit of the age.”  They supplanted the black slaves ;  they pointed to triumphs “grander than the triumphs of arms, for they will develop the means of supporting millions of human beings which the implements of war only destroy.”  Similarly the coming of sewing machines, of leather and textile machinery, of new mining processes, of rolling mills and flour-milling and cattle-slaughtering systems represented all successive “triumphs” along the economic front, so many victories won by the industrial “shock troops” of the 1860s and 1870s.

The inventor who, sensing some current need or applying some branch of current technical knowledge, completed a new machine, seldom prospered as did Cyrus McCormick ;  rarely did he win the full fruits of his invention.  Like the pioneers or prospectors of new, minerals, the first discoverers of gold or diggers of oil wells, the inventors were soon displaced, as a rule, by captains of industry.  Useful though the technologists were, they were styled by a Congressional report of 1867 as “confiding and thriftless . . . mere children in the rude conflicts which they are called on to endure with the stalwart fraud and cunning of the world.”  They were used and flung aside by men of ruse and audacity who had shown gifts for the accumulation of capital, who were skilled at management, that is, in “hiring and firing,” and who, far from sharing the hazards of applied science, tended to enter a new affair only when its commercial character had been established beyond a doubt.  In any case we have given over the “heroic” conception of the inventor as one fired by a divine spark of genius ;  and rather conceive that his contributions are the reflection of an increasing reservoir of knowledge which is the general property of human society—each separate invention was the compound of numerous, sometimes scores of patents—and as such, common property subject to purchase or seizure like the public domain, forests and power sites.

The war which enriched the alert in so many diverse ways often provided the quick capital necessary for the undertakers of new industrial projects.  Philip Armour, who returned one day from the California gold fields to set himself up as a wholesale butcher in the thriving lake port of Chicago, supplied the Union armies with a great deal of the pork of varying quality which it consumed.  Armour and the canny Jewish pork-dealer, Nelson Morris, headed two of the leading houses which, with some fifty-four others, handled 900,000 hogs a year by 1865.  Their competition was keen in the early days.  Each tried to get up earlier in the morning than the others so as to search for the best carcasses in the surrounding countryside.  But soon, with nine great railroads linking Chicago to the rest of the country, their traffic in meat became more than a “winter business”;  their market was extended in every direction.  And by a process of rationalization, they began to purchase their cattle live, concentrating all the handling and slaughtering and dressing in the centralized Union Stock Yards of Chicago, which connected with all the trunk lines.

It was Armour who consummated one of the most famous business “coups” of the period.  In 1865, watching the progress of Grant’s armies toward Richmond with a clairvoyant eye, and being completely persuaded of the early approach of victory and peace, he had suddenly rushed to New York and sold quantities of pork short at the prevailing high prices of around $40 a barrel.  After Appomattox, the crash of commodity markets, involving especially pork, ruined hundreds of traders, made thousands of farmers the poorer, but permitted Armour to “cover” his short contracts in pork at about $18 a barrel, so that he gained overnight $2,000,000 in quick profits and his praises were sung in high financial circles.  With this capital he swiftly increased his meat business, buying out weaker competitors and improving his plant until it became one of the most ingenious and prosperous industries in all the land.

Carnegie and John Rockefeller also became preëminent as captains of industry during the war, in the realms of the iron and oil trade respectively.  Both were to figure largely in the growth of industrial power in ways that were both similar and contrasting.  Each concentrated upon a single industry eventually, pressing his luck or opportunity, using a conjunction of favoring circumstances to erect an industrial pyramid, while increasing his advantage and strengthening his position as compared with rivals in the field.  The different methods of each in creating his major opus merit special study, as representing two examples of the type :  captain of industry.

The inner circle of the Pennsylvania Railroad in which Andrew Carnegie moved during the 1860s was an unequaled school in industry and politics.  Before the doors of the Pennsylvania’s offices politicians scraped their feet respectfully.  At the bidding of the railroad, the Pennsylvania legislature passed necessary measures with noticeable speed.  When Mr. Scott, according to legend, had “no further business” for the legislature, it would promptly adjourn.  Thus all the uncertainties and hazards of democratic institutions, such as an imperialistic industrial organization could not have safely endured, were erased by strong working agreements with the mighty Simon Cameron, as later with Matthew Quay or his lieutenants.  Into the hands of the group headed by Thomas Scott and J. Edgar Thomson numerous opportunities fell constantly, war industries, rights of way, terminal sites, franchises for railroad lines and street-car lines.

Watching these developments Carnegie soon sensed the future of railroad iron, which was growing to be Pittsburgh’s largest business.  He was a division superintendent at Pittsburgh, and the more skilled of the men who worked with him, such as the “grimy and sweaty” mechanic Piper, unfolded visions of metal bridges which were to replace the old wooden ones everywhere.  In the shops of the Pennsylvania, the railroad engineer Linville showed him the first iron bridges fabricated there according to his own designs.  At Pittsburgh a German named Kloman, smithy and maker of iron axles used for railroad stock, exhibited his excellent wares to Carnegie and his friends, vowing that he could not turn them out fast enough.  So in 1863 Carnegie, his brother Thomas, and his friends, Thomas Miller, a railroad purchasing agent, and Henry Phipps, agreed to furnish new capital to Kloman & Co., in order that more machinery might be installed.  They were to receive a minority partnership in the firm ;  but within a few years the Carnegie brothers and Phipps acquired half, then a majority interest in the iron foundry of Kloman.  At the same time Carnegie organized the Keystone Bridge Company, with the aid of the skillful artisans Piper and Linville.  A year later, he turned another part of his capital to an iron-rail manufacturing company, and then to another which produced locomotives.

In 1865 he resigned from the railroad, devoting himself wholly to the arts of the salesman and the entrepreneur, on behalf of his iron companies.  In master workmen like Kloman, Piper and Linville, he had gathered together, with rare luck, a technical skill which made the products he drummed for well regarded and more economical than those of others.  His brother, Thomas, up to the day of his untimely death, was considered a first-rate ironmaster, methodical, diligent in administering his business, less “flighty” than Andrew.  Henry Phipps was a shrewd fellow worker, a perfect “inside man,” parsimonious and yet also crafty in the pursuit of credit for their enterprises.  It was said of him that he knew how “to keep a check in the air” as long as any man.  With the aid of these men, and soon afterward that of the steel-worker, Captain “Bill” Jones, men of unremitting labor and high craftsmanship whom he used with instinctive brilliance, Carnegie was to bring together, as his biographer Hendrick flatteringly writes, “the vast mineral resources of America and the new mechanisms by which they were transformed in the use of the new age.”

In addition to his art of using men Carnegie also soon developed the qualities of the “commercial traveler on a heroic scale” as Hendrick says.  Bubbling with enthusiasm, and full-of-brass, he intruded himself everywhere, buttonholed everyone, listened to everything.  He cajoled and he flattered the influential men he knew, Scott and Thomson and other railroad chiefs, with telling effect.  And despite early quarrels among the partners, who sometimes contended with each other bitterly for a major part of the profits, even brother against brother, the more fertile and cunning Andrew soon came to dominate the others.  Even the stubborn German Kloman was subdued ;  at a moment of business reversal, the lion’s share of his property was surrendered to Carnegie.

For now, flourishing, the restless Carnegie no longer confined himself to the dusty and noisome foundries.  He had shown marked talents, such as are nowadays frowned upon in large parts of the world, for “getting something for nothing.”  As a projector, a man of nimble wit, he had learned to accumulate rapidly without excessively hard work ;  and once he concentrated, in an attempt to excel at the booming trade in iron rails, bridge beams and rolling stock, he found himself accumulating even more smoothly.

“Carnegie was never a hard worker . . .” Hendrick concludes.  “He spent half his time in play and let other men pile up his millions for him.”  He trotted about the world, established himself in New York, courted new friendships, and each fresh accession of wealth or influence augmented his self-importance.  He estimated his own mental powers so highly that having become within a few years a leading factor among Pittsburgh’s stovepipe-hatted ironmasters, and having the income of a millionaire in 1868, he saw no reason why he should not prosper in many other fields.

Carnegie measured other men and found them weak and slow-witted in his hands.  He employed himself now at “high finance”;  his office was set up near the cauldron of Wall Street.  The financiers of the Pennsylvania Railroad at this time entrusted him with the delicate mission of selling bonds for them.  He took $5,000,000 worth and disposed of them at a time when few would have bought American bonds “even if signed by an angel.”  In London, the veteran American banker, Junius Morgan, with whom he negotiated, was impressed by the speed of the young Carnegie’s action.  To close his “deals” within a few hours he used the new transatlantic cable which Cyrus Field had recently laid.  His quick commissions were large, exceeding $100,000 at a single turn, and these he turned back to the iron trade he now favored above all ;  the establishments of Union Iron Mills, Kloman & Phipps, Keystone Bridge, all centered in Pittsburgh.

He was thirty-three.  He was more “European” than his associates ;  the ties with Scotland were firm in him and renewed by many visits.  His plebeian Celtic forbears, common workingmen, were nevertheless of that keen, naturally endowed stock which gave the world so may philosophers, scientists, statesmen and writers.  Half-cultured, agnostic, a lover of literature, with the worm of immortality in him, the successful Andrew figured to himself an ampler life in association with leading public men ;  he saw himself as a good squire helping the poor, owning newspapers, which spread his influence, attaching to himself men of light and learning, like Herbert Spencer whose message of “survival of the fittest” he embraced fervently.  In periods of “reversion” he was gripped by a feudal notion of the rôle of wealth as one of benevolent social responsibility, something totally alien both to the methods he had used in acquiring it and to the principles in force in progressive, booming America.  Hence he remained an eccentric all his life.

In December, 1868, at the St. Nicholas Hotel, he had written in his diary :

Thirty-three and an income of $50,000 per annum !  By this time two years I can so arrange all my business as to secure at least $50,000 per annum.  Beyond this never earn—make no effort to increase fortune, but spend the surplus each year for benevolent purposes.  Cast aside business forever, except for others.

Settle in Oxford and get a thorough education, making the acquaintance of literary men—this will take three years’ active work—pay especial attention to speaking in public.  Settle then in London and purchase a controlling interest in some newspaper or live review and give the general management of it attention, taking a part in public matters, especially those connected with education and improvement of the poorer classes.

Man must have an idol—the amassing of wealth is one of the worst species of idolatry—no idol more debasing than the worship of money.  Whatever I engage in I must push inordinately ;  therefore should I be careful to choose that life which will be the most elevating in its character.  To continue much longer overwhelmed by business cares and with most of stay thoughts wholly upon the way to make more money in the shortest time, must degrade me beyond hope of permanent recovery.

Carnegie himself in after years pondered with curiosity over his youthful resolutions.  He was already too terribly involved in his business, which was an automatism impersonal and implacable.  It needed that he raise more capital for it ;  it required that he sit all night calculating in large sums against a thousand necessities.  It left him no peace, no room to move about in.  Each of the industrialists was to learn that “one thing led to another,” that once having begun here there was no escape.

Carnegie’s penetrations into various cultivated circles, his literary frequentations, were in truth but “drumming trips bringing orders to the company by adding to the list of his friends.”  One of his literary friendships was for instance with John Garrett, the master of the Baltimore & Ohio trunk line, who was also a Scot and as great a devotee of Burns as Carnegie.  One visualizes the two Celtic amateurs of literature at grips with each other :  if Carnegie rode over his scruples with ease, then Garrett acquired an equal fame as a railroad president who never issued reports to his stockholders and paid dividends for long years without earnings, until his system collapsed suddenly like a gutted house.  “Their mutual rhapsodizing” over their favorite poet, Hendrick tells us in his biography of the steel master, “alternated with negotiations for structural contracts.”  Burns and Shakespeare became practical members of the Keystone Bridge Company staff :  Burns invoked to sell iron to Scottish railroad barons, and Shakespeare as a guide and mentor in board-room discussions of business plans.

Up to 1872 Andrew Carnegie’s labors, though busy and fruitful enough, had lacked the singleness of direction which conquering souls are noted for.  But now in his thirty-seventh year, his chief apologist writes :

The change that came over the man resembled the religious experience known as a conversion, and like that experience it came as the exaltation of a single moment.  A mind that had lived in apparent darkness was illumined by a sudden flash of light. . . . It was the dazzling brilliance of a Bessemer converter that, in the twinkling of an eye, transformed Andrew Carnegie into a new man.

During a business journey to London, the young entrepreneur made the acquaintance of the “crazy Frenchman” Bessemer, then engaged in his experiments with steel.  He stood, we are told, before the blazing cauldron of the Bessemer converter, and then “jumping on the first available steamer, he rushed home” to his Pittsburgh ironworks crying :  “The day of Iron has passed—Steel is King !”  Thus he would appear to have had a vision of human progress by his own personal agency, as the greatest disseminator of steel, “the gleaming metal on which American settlement advanced,” and at the same time of his own fabulous share in the proceeds from such gains.  Carnegie is usually pictured by himself as well as others as an instrument of mighty social evolution, thanks to his perpetual selfseeking.

But there had already been a decade of practical steel-making in England.  Bessemer’s process for decarbonizing iron had become commercially successful toward 1856 ;  in Kentucky, William Kelly had devised somewhat the same type of cold-air blast converter, nine years before Bessemer, but had only been derided for his pains.  Then since 1865 the gifted Alexander Holley had been setting up Bessemer plants in America ;  soon 20,000 tons of steel rail were being rolled each year.  Even the Erie Railroad was replacing some of its soft worn-out iron rails with steel, or at least issuing bonds for such a stated purpose !  For six years Carnegie’s own partner William Coleman had been urging him to take up steel manufacturing.  It was as if he had been knocked down and dragged into his principality of Steel.

It is a shy or tardy agent of progress that we see in Carnegie.  “Pioneering don’t pay,” he would reiterate ;  but now his large competitors, the Cambria and the Pennsylvania Steel Company, were outstripping him.  The man who was all spirit-of-enterprise had waited too long—indeed one wonders much in this connection at the significant lag between the interests of technical progress and those of business enterprise.  Had not the rickety iron rails and bridges been collapsing everywhere for years with horrendous accidents as a commonplace of the time ?  Did not the freight cars which traveled over them remain small in tonnage capacity, keeping freight tariffs exorbitant ?  Did not numerous contentious factions cling to the small lines, having different track gauges, so that passengers and freight must be transferred after short hauls—a system obsolete decades before it was abandoned ?  One wonders if another form of society, one that was not dependent for its innovations upon the providential “blind hand” of commercial struggle, would not have moved more rapidly in matters which affected the general population so deeply.

At any rate, it was high time for Carnegie to play pioneer.  “We must start the manufacture of steel rails and start at once,” he said to his partners.  And of course anything that Carnegie started he must “push inordinately.”  Once he was shown into his kingdom, given his opportunities, Carnegie rose to them with an administrative capacity for large affairs surpassed only by the socialist statesmen of modern Russia.  He had the same combination of ruthlessness and optimism.  Now with the aid of able lieutenants and engineers he proposed to erect the largest and the most efficient steel mills in the country, a plant that would cost the unprecedented sum of a million dollars !

Everything beckoned him to enter the new industry upon a large scale, and attempt, with a bold gambler’s stroke, to seize the lion’s share of its future wealth.  The market for steel, the demand for it was unlimited.  As a railroad worker himself he could estimate the boon it would prove to be in permitting larger tonnage movements over the more resistant and yet flexible tracks.  The laying of railroad track increased at a prodigious rate after the war.  The whole continent was being carved up with iron and steel tracks.  While the demand was unlimited, the market had also been closed to English competition by the imposition of a protective duty of $28 per ton in 1871.  The several iron companies at Pittsburgh which were his absorbing interest now were well manned and favorably located.  Iron ore was adjacent in Western Pennsylvania, or could be brought down cheaply in bulk by way of the Great Lakes from Michigan.  Soft coal and coke, vitally necessary to steel-making, was immediately at hand in the “Pittsburgh district.”  The Pennsylvania Railroad gave a quick outlet to the seaboard.  And finally, to round out the conjunction of favorable circumstances, he had and could attract comparatively large amounts of capital or credit for the creation of such an elaborate plant as would bring the greatest production economies, and whose prohibitive cost would, at the same time, restrict competition to at least a limited number of firms.  In an age that clamored for steel Carnegie determined at last to supply it in monstrous quantities ;  and under conditions of natural economy, access to raw material, facilities of transport, and markets that would give him crushing advantages over rivals in the field.  Such advantages the rising barons of heavy industry pursued with as sure a scent as did the quarreling princes of olden times.  It was the inexorable logic of the age of unbridled individual struggle and competition in which Andrew Carnegie grew up.

Soon at the suburb of Braddock, the ambitious building of majestic steel mills was begun by a joint-stock company for which the Carnegies, Henry Phipps and various others provided the capital.  With inimitable tact Carnegie decided to name the mills after his largest prospective customer, head of the Pennsylvania Railroad, the “J. Edgar Thomson Works.”

2

In Cleveland, a few hours distant from Pittsburgh, at the very same time the young merchant John D. Rockefeller, who was already noted for his sagacity and gravity, also contemplated an industrial adventure in many ways even more remarkable than Carnegie’s.

The discovery of oil in the northwestern corner of Pennsylvania by Drake in 1859 was no isolated event, but part of the long overdue movement to exploit the subsoil of the country.  When thousands rushed to scoop the silver and gold of Nevada, Colorado and Montana, the copper of Michigan, the iron ore of Pennsylvania and New York, technical knowledge at last interpreted the meaning of the greasy mineral substance which lay above ground near Titusville, Pennsylvania, and which had been used as a patent medicine (“Kier’s Medicine”) for twenty years.  The rush and boom, out of which numerous speculators such as Andrew Carnegie had drawn quick profits and sold out—while so many others lost all they possessed—did not escape the attention of Rockefeller.  The merchants of Cleveland, interested either in handling the new illuminating oil or investing in the industry itself, had sent the young Rockefeller to spy out the ground.

He had come probably in the spring of 1860 to the strange, blackened valleys of the Oil Regions where a forest of crude derricks, flimsy shacks and storehouses had been raised overnight.  Here he had looked at the anarchy of the pioneer drillers or diggers of oil, the first frenzy of exploitation, with a deep disfavor that all conservative merchants of the time shared.  There were continual fires, disasters and miracles ;  an oil well brought a fortune in a week, with the market price at twenty dollars a barrel ;  then as more wells came  in the price fell to three and even two dollars a barrel before the  next season !  No one could tell at what price it was safe to buy oil, or oil acreage, and none knew how long the supply would last.

Returning to Cleveland, Rockefeller had counseled his merchant friends against investments in oil.  At best the refining trade might be barely profitable if one could survive the mad dance of the market and if the supply of oil held out.  Repugnance was strong in the infinitely cautious young merchant against the pioneering of the Oil Creek rabble.  Two years were to pass before he approached the field again, while his accumulations increased with the fruitful wartime trade in provisions.

In 1862, when small refineries were rising everywhere, when more and more oil fields were being opened, the prospects of the new trade were immensely more favorable.  A Clevelander named Samuel Andrews, owner of a small still, now came to the firm of Rockefeller & Clark with a proposal that they back him in setting up a sizable oil-refinery.  The man Andrews was something of a technologist :  he knew how to extract a high percentage of kerosene oil from the crude ;  he was one of the first to use the by-products developed in the refining process.  Rockefeller and his partner, who appreciated the man’s worth, invested $5,000 at the start with him.  The affair flourished quickly, as demand widened for the new illuminant.  Soon Rockefeller missed not a day from the refinery, where Andrews manufactured a kerosene better, purer than his competitors’, and Rockefeller kept the books, conducted the purchasing of crude oil in his sharp fashion, and saved old iron, waste oils, made his own barrels, watched, spared, squirmed, for the smallest bargains.

In 1865, with uncanny judgment, Rockefeller chose between his produce business and the oil-refining trade.  He sold his share in the house of Rockefeller & Clark, and purchased Clark’s share in the oil-refinery, now called Rockefeller & Andrews.  At this moment the values of all provisions were falling, while the oil trade was widening, spreading over all the world.  Several great new wells had come in ;  supply was certain—10,000 barrels a day.  Concentrating all his effort upon the new trade, he labored unremittingly to entrench himself in it, to be ready for all the hazards, which were great.  He inaugurated ruthless economies ;  giving all his attention “to little details," he acquired a numerous clientele in the Western and Southern states ;  and opened an export selling agency in New York, headed by his brother William Rockefeller.  “Low-voiced, soft-footed, humble, knowing every point in every man’s business,” Miss Tarbell relates, “he never tired until he got his wares at the lowest possible figures.”  “John always got the best of the bargain,” the old men of Cleveland recall :  “’savy fellow he was !” For all his fierce passion for money, he was utterly impassive in his bearing, save when some surprisingly good purchase of oil had been made at the creek.  Then he could no longer restrain his shouts of joy.  In the oil trade, John Rockefeller grew up in a hard school of struggle ;  he endured the merciless and unprincipled competition of rivals ;  and his own unpitying logic and coldly resolute methods were doubtless the consequence of the brutal free-for-all from which he emerged with certain crushing advantages.

While the producers of crude oil contended with each other in lawless fashion to drill the largest quantities, the refiners at different industrial centers who processed and reshipped the crude oil were also engaged in unresting trade conflicts, in which all measures were fair.  And behind the rivalry of the producers and the refiners in different cities lay the secret struggles of the large railroad interests moving obscurely in the background.  Drew’s Erie, Vanderbilt’s New York Central, Thomson and Scott’s Pennsylvania, extending their lines to the Oil Regions, all hunted their fortune in the huge new traffic, pressing the interests of favored shipping and refining centers such as Cleveland or Pittsburgh or Buffalo to suit themselves.  It would have been simplest possibly to have oil-refineries at the source of the crude material itself ;  but the purpose of the railroads forbade this ;  and there was no way of determining the outcome in this matter, as in any other phase of the organization of the country’s new resources, whose manner of exploitation was determined only through pitched battles between the various gladiators, wherein the will of Providence was seen.

Rockefeller, who had no friends and no diversions, who was “all business,” as John T. Flynn describes him, now gave himself to incessant planning, planning that would defeat chance itself.  His company was but one of thirty oil-refiners located in Cleveland ;  in the Oil Regions, at Oil City and Titusville, there were numerous others, including the largest refineries of all, more favorably placed for shipping.  But in 1867 Rockefeller invited into his firm as a partner, a business acquaintance of his, Henry M. Flagler, son-in-law of the rich whiskey brewer and salt-maker S.V. Harkness.  Flagler, a bold and dashing fellow, was deeply attracted by the possibilities of the oil business.  Thanks to Harkness, he brought $70,000 into the business, which at once opened a second refinery in Cleveland.  Within a year or two the firm of Rockefeller, Flagler & Andrews was the biggest refinery in Cleveland, producing 1,5oo barrels a day, having its own warehouses, its export agency in New York, its own wooden tank cars, its own staff of chemists or experts who labored to improve or economize the manufacturing processes.  The company moved steadily to the front of the field, surpassing its rivals in quality, and outselling them by a small, though not certain or decisive, margin.  How was this done ?

In the struggle for business, Rockefeller’s instinct for conspiracy is already marked.  The partnership with Flagler brought an access of fresh capital and even more credit.  Then in a further step of collusion, this of profound importance, Rockefeller and Flagler approached the railroad which carried so many carloads of their oil toward the seaboard, and whose tariff figured heavily in the ultimate cost.  They demanded from it concessions in freight rates that would enable them to meet the advantages of other refining centers such as Pittsburgh, Philadelphia and New York.  Their company was now large enough to force the hand of the railroad, in this case, a branch of Vanderbilt’s New York Central system ;  and they were granted their demands :  a secret reduction or “rebate” on all their shipments of oil.  “Such was the railroad’s method,” Rockefeller himself afterward admitted.  He relates :

A public rate was made and collected by the railroad companies, but so far as my knowledge extends, was seldom retained in full ;  a portion of it was repaid to the shipper as a rebate.  By this method the real rate of freight which any shipper paid was not known by his competitors, nor by other railroads, the amount being a matter of bargain with the carrying companies.

Once having gained an advantage Rockefeller pressed forward relentlessly.  The volume of his business increased rapidly.  Thanks to the collaboration of the railroad, he had placed his rivals in other cities and in Cleveland itself under a handicap, whose weight he endeavored to increase.

The railroads, as we see, possessed the strategic power, almost of life and death, to encourage one industrial group or cause another to languish.  Their policy was based on the relative costs of handling small or large volume shipments.  Thus as the Rockefeller company became the largest shipper of oil, its production rising in 1870 to 3,000 barrels a day, and offered to guarantee regular daily shipments of as much as sixty carloads, the railroads were impelled to accept further proposals for rebates.  It was to their interest to do so in view of savings of several hundred thousand dollars a month in handling.  On crude oil brought from the Oil Regions, Rockefeller paid perhaps 15 cents a barrel less than the open rate of 40 cents ;  on refined oil moving from Cleveland toward New York, he paid approximately 90 cents against the open rate of $1.30.  These momentous agreements were maintained in utter secrecy, perhaps because of the persisting memory of their illegality, according to the common law ever since Queen Elizabeth’s time, as a form of “conspiracy” in trade.

In January, 1870, Rockefeller, Flagler & Andrews were incorporated as a joint-stock company, a form increasingly popular, under the name of the Standard Oil Company of Ohio.  At this time their worth was estimated at one million dollars ;  they employed over a thousand workers and were the largest refiners in the world.  Despite deeply disturbed conditions in their trade during 1870, profits came to them in a mounting flood, while in the same year, it is noteworthy, four of their twenty-nine competitors in Cleveland gave up the ghost.  The pious young man of thirty who feared only God, and thought of nothing but his business, gave not a sign of his greatly augmented wealth, which made him one of the leading personages of his city.  His income was actually a fabulous one for the time.  The Standard Oil Company from the beginning earned something like 100 per cent on its capital ;  and Rockefeller and his brother owned a full half-interest in it in 1870.  But with an evangelistic fervor John Rockefeller was bent only upon further conquests, upon greater extensions of the power over industry which had come into the hands of the group he headed.

In the life of every conquering soul there is a “turning point,” a moment when a deep understanding of the self coincides with an equally deep sense of one’s immediate mission in the tangible world.  For Rockefeller, brooding, secretive, uneasily scenting his fortune, this moment came but a few years after his entrance into the oil trade, and at the age of thirty.  He had looked upon the disorganized conditions of the Pennsylvania oil fields, the only source, then known, and found them not good :  the guerilla fighting of drillers, of refining firms, of rival railroad lines, the mercurial changes in supply and market value—very alarming in 1870-offended his orderly and methodical spirit.  But one could see that petroleum was to be the light of the world.  From the source, from the chaotic oil fields where thousands of drillers toiled, the grimy stream of the precious commodity, petroleum, flowed along many diverse channels to narrow into the hands of several hundred refineries, then to issue once more in a continuous stream to consumers throughout the world.  Owner with Flagler and Harkness of the largest refining company in the country, Rockefeller had a strongly entrenched position at the narrows of this stream.  Now what if the Standard Oil Company should by further steps of organization possess itself wholly of the narrows ?  In this period of anarchic individual competition, the idea of such a movement of rationalization must have come to Rockefeller forcibly, as it had recently come to others.¹

Even as early as 1868 the first plan of industrial combination in the shape of the pool had been originated in the Michigan Salt Association.  Desiring to correct chaotic market conditions, declaring that “in union there is strength,” the salt-producers of Saginaw Bay had banded together to control the output and sale of nearly all the salt in their region, a large part of the vital national supply.  Secret agreements had been executed for each year, allotting the sales and fixing the price at almost twice what it had been immediately prior to the appearance of the pool.  And though the inevitable greed and self-seeking of the individual salt-producers had tended to weaken the pool, the new economic invention was launched in its infantile form.  Rockefeller’s partners, Flagler and Harkness, had themselves participated in the historic Michigan Salt Association.

This grand idea of industrial rationalization owed its swift, ruthless, methodical execution no doubt to the firmness of character we sense in Rockefeller, who had the temper of a great, unconscionable military captain, combining audacity with thoroughness and shrewd judgment.  His plan seemed to take account of no one’s feelings in the matter.  Indeed there was something revolutionary in it ;  it seemed to fly in the fact of human liberties and deep-rooted custom and common law.  The notorious “South Improvement Company,” with its strange charter, ingeniously instrumenting the scheme of combination, was to be unraveled amid profound secrecy.  By conspiring with the railroads (which also hungered for economic order), it would be terribly armed with the power of the freight rebate which garrotted all opposition systematically.  This plan of combination, this unifying conception Rockefeller took as his ruling idea ;  he breathed life into it, clung to it grimly in the face of the most menacing attacks of legislatures, courts, rival captains, and, at moments, even of rebellious mobs.  His view of men and events justified him, and despite many official and innocent denials, he is believed to have said once in confidence, as Flynn relates :

I had our plan clearly in mind.  It was right.  I knew it as a matter of conscience.  It was right between me and my God.  If I had to do it tomorrow I would do it again in the same way—do it a hundred times.²

The broad purpose was to control and direct the flow of crude petroleum into the hands of a narrowed group of refiners.  The refiners would be supported by the combined railroad trunk lines which shipped the oil ;  while the producers’ phase of the stream would be left unorganized—but with power over their outlet to market henceforth to be concentrated into the few hands of the refiners.

Saying nothing to others, bending over their maps of the industry, Rockefeller and Flagler first drew up a short list of the principal refining companies who were to be asked to combine with them.  Then having banded together a sufficient number, they would persuade the railroads to give them special freight rates—on the ground of “evening” the traffic-guaranteeing equitable distribution of freight business ;  and this in turn would be a club to force other elements needed into union with them.  They could control output, drive out competitors, and force all foreign countries throughout the world to buy their product from them at their own terms.  They could finally dictate market prices on crude oil, stabilize the margin of profit at their own process, and do away at last with the dangerously speculative character of their business.

Their plans moved forward rapidly all through 1871.  For a small sum of money the “conspirators” obtained the Pennsylvania charter of a defunct corporation, which had been authorized to engage in almost any kind of business under the sun.  Those who were approached by the promoters, those whom they determined to use in their grand scheme, were compelled in a manner typical of all Rockefeller’s projects to sign a written pledge of secrecy :

I, __ __, do solemnly promise upon my honor and faith as a gentleman that I will keep secret all transactions which I may have with the corporation known as the South Improvement Company ;  that should I fail to complete any bargains with the said company, all the preliminary conversations shall be kept strictly private ;  and finally that I will not disclose the price for which I dispose of any products or any other facts which may in any way bring to light the internal workings or organization of the company.  All this I do freely promise.

At the same time, in confidential pourparlers with the officials of the Erie, the Pennsylvania and the New York Central Railroads, the men of the Standard Oil represented themselves as possessing secret control of the bulk of the refining interest.  Thus they obtained conditions more advantageous than anything  which had gone before ;  and this weapon in turn of course ensured the triumph of their pool.³

The refiners to be combined under the aegis of the South Improvement Company were to have a rebate of from 40 to 50 per cent on the crude oil they ordered shipped to them and from 25 to 50 per cent on the refined oil they shipped out.  The refiners in the Oil Regions were to pay twice as much by the new code (though nearer to New York) as the Standard Oil Company at Cleveland.  But besides the rebate the members of the pool were to be given also a “drawback” consisting of part of the increased tariff rate which “outsiders” were forced to pay.  Half of the freight payments of a rival refiner would in many cases be paid over to the Rockefeller group.  Their competitors were simply to be decimated ;  and to make certain of this the railroads agreed—all being set down in writing, in minutest detail—“to make manifests or way-bills of all petroleum or its product transported over any portion of its lines . . . which manifests shall state the name of the consignee, the place of shipment and the place of destination,” this information to be furnished faithfully to the officers of the South Improvement Company.

The railroad systems, supposedly public-spirited and impartial, were to open all their knowledge of rival private business to the pool, thus helping to concentrate all the oil trade into the few hands chosen.  In return for so much assistance, they were to have their freight “evened,” and were enabled at last to enter into a momentous peace pact with each other by which the oil traffic (over which they had quarreled bitterly) was to be fairly allotted among themselves.

By January, 1872, after the first decade of the oil business, John Rockefeller, with the aid of the railroad captains, was busily carrying out a most “elaborate national plan” of his own for the control of his industry—such planned control as the spokesman of the business system asserted ever afterward was impossible.  The first pooling of 1872, beautiful as was its economic architecture and laudable its motive, had defects which were soon plainly noticeable.  All the political institutions, the whole spirit of American law still favored the amiable, wasteful individualism of business, which in Rockefeller’s mind had already become obsolete and must be supplanted by a centralized, one might say almost collectivist—certainly coöperative rather than competitive—form of operation.  Moreover, these “revolutionists” took little account of the social dislocations their juggernaut would bring.  Like the railroad baron, Vanderbilt, working better than they knew, their eyes fixed solely upon the immediate task rather than upon some millennium of the future, they desired simply, as they often said, to be “the biggest refiners in the world. . . .”

To the principal oil firms in Cleveland Rockefeller went one by one, explaining the plan of the South Improvement Company patiently, pointing out how important it was to oppose the creek refiners and save the Cleveland oil trade.  He would say :

“You see, this scheme is bound to work.  There is no chance for anyone outside.  But we are going to give everybody a chance to come in.  You are to turn over your refinery to my appraisers, and I will give you Standard Oil Company stock or cash, as you prefer, for the value we put upon it.  I advise you to take the stock.  It will be for your good.”

Then if the men demurred, according to much of the testimony at the Senate Investigation of 1876, he would point out suavely that it was useless to resist ;  opposition would certainly be crushed.  The offers of purchase usually made were for from a third to a half the actual cost of the property.

Now a sort of terror swept silently over the oil trade.  In a vague panic, competitors saw the Standard Oil officers come to them and say (as Rockefeller’s own brother and rival, Frank, testified in 1876) “If you don’t sell your property to us it will be valueless, because we have got the advantage with the railroads.”

The railroad rates indeed were suddenly doubled to the outsiders, and those refiners who resisted the pool came and expostulated ;  then they became frightened and disposed of their property.  One of the largest competitors in Cleveland, the firm of Alexander, Scofield & Co., held out for a time, protesting before the railroad officials at the monstrous unfairness of the deal.  But these officials when consulted said mysteriously :  “Better sell—better get clear—better sell out—no help for it.”  Another powerful refiner, Robert Hanna, uncle of the famous Mark Alonzo, found that the railroads would give him no relief, and also was glad to sell out at 40 or 50 cents on the dollar for his property value.  To one of these refiners, Isaac L. Hewitt, who had been his employer in boyhood, Rockefeller himself spoke with intense emotion.  He urged Hewitt to take stock.  Hewitt related :  “He told me that it would be sufficient to take care of my family for all time . . . and asking for reasons, he made this expression, I remember :  `I have ways of making money that you know nothing of.’”

All this transpired in secret.  For “silence is golden,” the rising king of oil believed.  Though many were embittered by their loss, others joined gladly.  The strongest capitalists in Cleveland, such as the wealthy Colonel Oliver H. Payne, were amazed at the swift progress Rockefeller had made, at the enormous profits he showed them in confidence to invite their coöperation.  Payne, among others, as a man of wealth and influence, was taken into the board of directors and made treasurer of the Standard Oil Company.  (The officers of the South Improvement Company itself were “dummies.”)  Within three months by an economic coup d’état the youthful Rockefeller had captured all of Cleveland’s oil-refining trade, all twenty-five competitors surrendered to him and yielded him command of one-fifth of America’s output of refined oil.

Tomorrow all the population of the Oil Regions, its dismayed refiners, drillers, and workers of oil, might rise against the South Improvement Company ring in a grotesque uproar.  The secret, outwardly peaceful campaigns would assume here as elsewhere the character of violence and lawlessness which accompanied the whole program of the industrial revolution.  But Rockefeller and his comrades had stolen a long march on their opponents ;  their tactics shaped themselves already as those of the giant industrialists of the future conquering the pigmies.  Entrenched at the “narrows” of the mighty river of petroleum they could no more be dislodged than those other barons who had formerly planted their strong castles along the banks of the Rhine could be dislodged by unarmed peasants and burghers.

¹ The English economist J.A. Hobson has written in this connection :  “Each kind of commodity, as it passes through the many processes from the earth to the consumer, may be looked upon as a stream whose channel is broader at some points and narrow at others.  Different streams of commodities narrow at different places.  Some are narrowest and in fewest hands at the transport stage, others in one of the processes of manufacture, others in the hands of export merchants. . . .”  In the case of petroleum the logical “narrows” was at the point of refinery ;  and inevitably, Rockefeller and Flagler set in motion their great plan to control the stream.  “Just as a number of German barons planted their castles along the banks of the Rhine, in order to tax the commerce between East and West which was obliged to make use of this highway, so it is with these economic `narrows.’  Wherever they are found, monopolies plant themselves in the shape of `rings,’ `corners,’ `pools,’ `syndicates,’ or trusts.’”  (“The Evolution of Modern Capitalism,” p. 142.)

² By hearsay the legend has come to me of a private conversation between Mr. Rockefeller and some old friends at dinner long ago in which the oil baron said with emotion :  “I discovered something that made a new world and I did not know it at the time.”

³ With unbridled competition in the Oil Regions the different refiners could not know from day to day what their raw materials would cost, as new wells came in or gave out.  A refiner in Cleveland might buy his petroleum at $5 a barrel for future use ;  then on the following day, his competitors might cover their needs for half, or vice versa.  Similarly the railroads would experience a heavy demand for cars at one period, succeeded by periods of slackness when prices were low and production was discouraged.  New inventions, such as that for pumping oil through pipes (Van Syckel’s pipe line of 1865) added further to the confusion of the trade, upsetting the elements of cost and supply anew.  In the two processes of refining and carrying the petroleum, the dominant interests were resolved therefore upon rationalization, come what may.