ROBBER BARONS

CERTAIN INDUSTRIALISTS AROSE

THE very outcries of the underlying population during the late 1870s and the 1880s, of workers who found their wages being reduced, of farmers in much greater number who found the value of crops deflated, while freight tariffs and other services or goods they must obtain remained relatively high—all this testified to the strategic power held by the railroads over their regions and over broad sections of the nation’s commerce.

Both by example and by the facilities they offered (of opening a nation-wide market) the combined trunk-line systems suggested plainly to the industrialists in other fields that they organize themselves in similar fashion.  But in addition to broader markets and swifter, cheaper circulation of goods in larger cars, drawn by heavier locomotives, the secret tactics of the rebate gave certain producing groups (as in petroleum, beef, steel) those advantages which permitted them to outstrip competitors and soon to conduct their business upon as large a scale as the railways themselves.

The method of combination once established, it communicated itself with remarkable speed throughout the industrial system.  In rapid succession, joint-stock companies of much larger capital than ever used before began to exploit natural resources, such as copper and soft coal, or new industries such as steel, barbed wire, bicycles, telephones, electric power.  These big units of enterprise seemed to spring up to full size almost overnight.  The period of large-scale production, of rings, syndicates and pools, was at hand ;  the golden age of small industries was virtually ended.  Although the number of business enterprises continued to increase slowly, an overwhelming share of the production was carried on in the few “million-dollar plants” in each field.  This new scale and new technique brought the great increase in American manufactures, always pointed to by historians, by which in the ten years after 1880 manufactures rose in value from five billion dollars to more than nine billions, making the United States in very short order the premier industrial nation of the world.  But more, the very process of enrichment (by the industrialist) was made comparatively quick, a fact which was remarked by many observers.  In a public address in Chicago, in 1883, a United States Senator exclaimed :

Never in human history was the creation of material wealth so easy and so marvelously abundant, its consolidation under the forms of . . . vast units of power . . . monopolies which absorb and withdraw individual and independent rivalries.  Herein are dangers it will behoove us to gravely contemplate and consider what forces shall be summoned to counteract them.

But for the very reason that forces leading to combination were at work in the society, the general effect of the period was one of strenuous contest for the market, of anarchic, individual appetite and money-lust, of ruinous competition conducted with more terrible instruments than before, out of which a few giant industrialists arose. . . . These had possession of what Adam Smith would call “secrets of manufacture,” and J.A. Hobson, “private economies,” for producing or distributing their goods, which enabled them to overtake all their rivals and virtually to expropriate them.

At Braddock, on the Monongahela River, the new “million-dollar” steel works of Carnegie modeled after the great Bessemer plants of England were ready for production in 1875.  It was a troubled period when the new mill began to roll forth its steel.  But the output of the new metal in America was destined to increase almost fiftyfold by 1890 ;  and within three years of its beginning the Carnegie steel company was to have a larger share of its field than any rivals.  “Whatever I engage in I must push inordinately,” Carnegie had written in his diary.

In greatest measure the large-scale production of the Carnegie mills seems due to the genius of Captain “Bill” Jones, craftsman of steel-making, whom Carnegie had fortunately hired to superintend his plant.  Though he was possessed of little formal education this burly war veteran had made himself a brilliant technician of the new craft.  He perfected both process and machinery ;  in time, his papers were to be read before the Royal Society of London, and his technical patents were to be the prized possession of a steel Trust.  But in addition this lovable giant, whom Carnegie called “the most remarkable character I ever met,” infected the hundreds of men who worked under him with his own intensity and herculean energy.  Carnegie, as he himself said, “had no shadow of a claim to rank as inventor, chemist, investigator or mechanician.”  Therefore he felt all the more keenly the value of Jones’s service, and on one occasion even offered him, by way of encouragement or to bind him, a partnership, that is, a fractional share in the mounting profits of the corporation.  But in the realm of high finance and stock-juggling, Jones the sooty demigod of steel became only a humble and frightened workingman.  He begged only to be allowed his salary, a large one to be sure, “like the President of the United States,” but with neither the risks nor the fabulous rewards of the partners.

Demand for steel grew insatiable toward 1880 as railroad construction passed all bounds ;  and since a mounting share of this increased tonnage came to the Carnegies, it rested upon Jones to carry a heavier load year by year.  With unfailing ingenuity, Jones improved his furnaces, raised his tonnage output and speeded up his labor force until the amount of pig iron smelted per week in his mills exceeded anything known at the time.  Then the spiral of rising production would go around again, ever higher while Carnegie lashed his men to greater efforts.  In 1889 Captain Bill Jones was working to repair a faulty furnace with his own hands when an explosion of molten metal struck him and he died horribly.  Steelmaking was not safe then, nor is it wholly safe today.  In place of Jones, the martyr of steel, younger men whom he had trained entered the business, such as Charles Schwab, who rose swiftly from the ranks of common labor.  Thomas Carnegie too was carried away in mid-career by illness.  Yet the heartbreaking drive continued ;  out of Pittsburgh mountains of steel ingots and rails rolled, “the gleaming metal” upon which civilization advanced.

Thinking no more of early retirement to a life of literature and public service, Andrew Carnegie continued steadfastly at the helm of his steel company, to the exclusion of all other enterprises.  His hard blue eyes were sunken in that “worst species of idolatry,” as he himself had called the endless amassing of money.  According to Schwab, who came to work for him in 1879, Carnegie seldom came near his plant and had but the scantiest knowledge of its technique.  But from an office building in New York or Pittsburgh, or a castle in Scotland, he managed the “hiring and firing” with uncanny skill.  Within four years, Carnegie Brothers & Company, running day and night, were rolling 10,000 tons of steel a month, their profits reaching $1,625,000 in a year.  And every increase of production with the same or reduced man-hours augmented profits.

“When was there ever such a business !” Carnegie exclaimed.  Henceforth he “put all his eggs in one basket and watched the basket.”  Relieved of the routine of detail and the endless care of management, as Bridge describes him in his “Inside History of the Carnegie Steel Company,” the little Scot roamed freely over the whole field of industry, as an advertiser and ambassador at large for his business.  He spied everywhere upon the construction needs of railroads, or the plans of statesmen in two continents for armored battleships ;  and brought in many a big contract.  “Supplied with a daily report of the product of every department of each of the works,” writes Bridge, “he had the leisure to make comparisons and prod with a sarcastic note any partner or superintendent whose work did not rank with the best.”  With a few scathing words on a postcard or telegram he would spur on the best of his men by a system of “unfriendly competition” for which he became celebrated and dreaded.

“We broke all records for making steel last week,” his managers would telegraph him.  And he would answer at once :  “Congratulations !  Why not do it every week ?”  Or one manager would report a huge order received and filled, and his reply would be :  “Good boy—Next !”  Or they signaled to him :  “Lucy Furnace No. 8 broke all records today,” giving the figures.  And Carnegie returned :  “What were the other ten furnaces doing ?”

There was no satisfying the man.  Nor was there any peace for his workers and partners, driven alternately by generous money rewards or tongue-lashings.  Some of them, as Bridge explains, whose jealousies and rivalries were played upon incessantly by the domineering master, did not speak to each other for years.  Others would rebel at Carnegie.  Jones would send in his resignation with almost “rhythmic periodicity” only to be tempted back by handsome gifts and apologies.  But most of them turned their anger at the Carnegie taunts into renewed and fiercer efforts to surpass each other’s labor, while Andy, as one of them said, “drove the whole bandwagon.”

He was one of the chief “boosters” of his age.  He talked in public wrote or permitted himself to be interviewed upon every subject under the sun, and always managed to advertise his great steel company.  Moreover he was as bold as he was canny in the negotiations for pools among the various steel producers, or in breaking these pools and underselling the field.  The price of steel rails, supported by a tariff of $28 per ton, had declined steadily from $110 to $70.  But Carnegie, popping in everywhere, buttonholing every railroad president, “shaded” the market habitually.  “We went out to the various railroads and persuaded them to give us orders at $65 a ton. . . .” he relates.  He worked closely with the heads of the trunk lines, East and West, Gould, Vanderbilt, Dillon and Huntington.  To Huntington, who was “very hard up often,” he gave credit shrewdly.  Yet he followed no policy of unthinking generosity.  When demand ran high, and markets were scarce, he showed little mercy, broke his contracts for delivery and raised prices.

An incident mentioned in Barron’s diary is illuminating.  Carnegie had made a contract at a low price with Gould for the structural steel of the St. Louis Terminal Bridge.  Delivery of steel was suddenly halted, although the Carnegie people were supplying steel to other people.  Jay Gould sent an emissary of his, General Fitzgerald, to Carnegie to discover the reason.

Carnegie said, “Why, General, you know the price of steel has advanced and it is more profitable for us to sell it to others.”

Of course General Fitzgerald puffed and blew and stormed and threatened the courts.

Mr. Carnegie quietly replied :  “ That’s just what the courts are for—to settle all differences.  I am astonished that you, General, should be so warm over such a little matter that can so easily be settled by the courts.”

In the end Gould’s company had to pay $365,000 more for their steel, because they had to have the steel immediately and Carnegie knew it.

Another device of Carnegie Brothers, which brought much business, was to ingratiate the railroad purchasing agents by allowing them a commission of as much as $2 per ton on rails—which, as a “reform” president of the Santa Fe declared one day, was “simply stealing.”  His continued close relations with the railroad men also enabled Carnegie to win secret rebates for his steel shipments over their lines, which helped him further to get the advantage of competitors.  But in using all these shifts, some of which Carnegie himself admitted to, he was simply neutralizing rivals who moved with equal stealth and freedom from scruples through the jungle of the market.

Though it was a new country, being built up with great ringing and hammering everywhere, as terribly in need of machines and railroads as Russia today, a condition of “overproduction,” of cut-throat competition arose again and again to demoralize various industries, especially the new steel.  Carnegie, who possessed the largest steel works and enjoyed various conjunctions of circumstances, such as cheap ore shipments over the Great Lakes and immediate access to the coke fields outside of Pittsburgh, soon had his hand over the market.  He could “shade rails” to $65 a ton when others asked $70, because Captain Jones could make them at $36, and a few years later would be producing them at under $20 !

In their great perplexity as to how the volume of production should be allotted and the disordered price structure sustained, the steel masters began to come together in secret peace-conclaves.  These first moves toward ending “ruinous” competition, that is, toward inaugurating monopoly prices, were made in the late ’70s.  Carnegie for the first time in the councils of the gentlemen of the steel trade, all Quakers or Pennsylvania Dutch, with black stovepipes and flowing side-whiskers, who “fought and shook hands” but never trusted each other’s word for an instant.  An attempt would be made to allocate orders in a pool of rail- and steel-billet makers.  With difficulty agreements would be reached as to the share each one would enjoy.  Carnegie would vociferate over the too small part allowed to his company and menace his contemporaries with destruction :  “I will then undersell you in the market and make good money doing it !”  The pool would hold-together for a time, as a form of loose, secret government of industry, which abolished competition.  But in these “middle ages” of American industry, individual members would impatiently break from their agreements, and would soon go poaching upon each other’s preserves.  Most often it was the “piratical” Carnegie who would break from the bonds, and who was said by his rivals to be “always on the alert to gather in business at lower prices than the others could afford.”

Then after much distress in the steel trade, chronically subject to feast and famine, the rivals would come together again.  But with each resumption of the steel pool, the sharp-trading Carnegie would fight for a larger and larger share of the trade.  He alone could supply the whole country with its steel beams and girders ;  and as for rails, “Remember, gentlemen,” he would warn, “I can roll steel rails at $9 a ton !”  This was at least half boast.

The repute of a “pirate” grew for Carnegie.  He himself confesses that submission to the pools irked him.  He was for “individualism” ad infinitum ;  especially since he possessed deadly advantages in the race, and saw the future of complete domination written large for him.  He would “break the bonds at the first opportunity.”  He for his part believed thoroughly in competition, as he wrote in “Triumphant Democracy,” since he knew himself equipped to do away with all the others and remain alone ruling over the empire he had conquered.

The expansion of the Carnegie steel company during a quarter-century was equaled only by the Rockefeller group in petroleum.  When, by 1880, the J. Edgar Thomson steel works earned profits at the rate of 130 per cent per annum, or more than its original investment, Andrew Carnegie had almost 60 per cent of its stock, which was closely held among the partners.  In 1881, “Carnegie Brothers & Company, Ltd.” was incorporated at $5,000,000 capital, with Carnegie still holding the lion’s share, but indebted to the company for $1,750,000 of stock.  This debt he retired quickly out of profits, which soon mounted to between two and four millions per annum, continuing the same process indefinitely.  Thus his slightly more than half-share of an initial capital of $1,250,000 increased to a majority share in a capital of several hundred millions created simply by reinvestment of tremendous winnings.  And along the road, he acquired other companies and properties vitally needed for his growth, whose cost, by his usual method, was retired out of their own profits.

In 1883, a great new steel plant, which had been built by Pittsburgh rivals according to the most modern manufacturing design at Homestead, close by the Carnegie works, fell into difficulties, chiefly owing to violent labor disputes.  At this moment, with the steel market considerably lower, Carnegie came forward with an offer to buy out his competitor at the cost of construction, which was $350,000.  In a few years Homestead paid for itself many times over.  At the same time Carnegie determined to make an alliance with the coke industry which supplied him with the fuel needed for the Bessemer process, and purchased in 1883, as we have seen, an 80 per cent interest in the H.C. Frick Coke Company, the largest producers in the Connellsville region.  The absorption of Frick Coke showed the tendency of big industrialists to extend their control over connected industries, or earlier processes of their own business, such as fuel or iron ore.  But for Carnegie the move was a fateful one, in another sense.  In Henry Frick he acquired one of the younger geniuses of big business who would in a few years direct all the Carnegie producing interests during their most prosperous and most dramatic period.

2

Henry Clay Frick, who was born in 1849, the descendant of German-Swiss immigrants to western Pennsylvania, was, like Edward Harriman, one of the aggressive newcomers who fought their way to power during the disasters of 1873.  His own parents were of modest circumstances ;  but his grandfather, Abraham Overholt, the famous whiskey distiller, was passing rich.  Although there would seem to be no need for haste, Frick, after brief schooling, was early given the usual American business apprenticeship in the general store of a relative ;  in this education, he was watched over and counseled by the whole strong, sanctimonious, grasping Pennsylvania-Dutch family.  Having some skill for bookkeeping since the age of thirteen, the silent, methodical boy three years later won enough approval to be given a post at the Overholt distillery at a thousand dollars a year.

Henry Frick was small and slight of frame ;  his face was pale, his features somewhat delicate and regular, his jaw unusually strong and prominent.  Somewhat ailing in health, he engaged in no active sports as a boy, and had almost no friends.  He arose early, worked hard, and retired early to bed or to a game of solitaire.  George Harvey, who was to be his official bard, accorded him the sole desire to emulate his grandfather, to “become a millionaire” some day in his own right.  While having such views for himself, Henry Frick remained rather lonely, communicated few of his feelings even to his family, held his own counsel and lived within himself.  He seemed cold, firm, inflexible.  This quiet exterior he would retain all his life, even when under great stress.  Underneath this mask was a smoldering passion which vented itself only upon a few occasions in terrific outbursts of temper, in “volcanic rage.”

But the Overholt distillery in the Connellsville region was situated almost directly over the great seam of bituminous coal, which with its low phosphorous content after the “coking” process would be found indispensable for the smelting of iron ore into steel by the Bessemer method.  The family of Frick, with the rise of the iron and subsequently of the steel trade toward 1870, were among the active purchasers of Connellsville coal acreage.  These days, everyone talked of the “cinders” and the ugly little coke ovens that were beginning to dot the black landscape.  While watching over the scattered investments of one of his Overholt uncles, Frick himself became keenly absorbed in the future of the industry.  And soon, March 3, 1871, with the aid of his relatives—and by anticipating a legacy of $10,000—he was able to make his first purchase (in partnership) of one hundred and twenty-three acres of coke lands.  Then he bought more coal lands, hundreds upon hundreds of acres, staking his father’s credit, borrowing money at banks against every possible form of pledge or security.  Out of these properties came “Frick and Company,” in which he held a one-fifth interest.

The solitary young fellow of twenty-one now fanatically pursued his objective.  What he saw with every month that passed was the chance to seize power over a vital link in the new industrial system.  It was a particularly brutal business :  the exhausting, laborious mining of coal, with its giant laborers, stripped to the waist, toiling, sweating before the fiery coke ovens whose ruddy flames lighting the sky at all hours have made the Connellsville coke region memorable.  A terrific explosion because of a faulty excavation, burying thirty miners alive, frightened one of his uncles.  Nothing deterred by such misfortunes to his laborers, Frick used early profits or promissory notes to buy out the other partners, and increase his own share.

Late in 1871, he appeared before the bank of Judge Thomas Mellon in Pittsburgh, and besought this dignified and widely esteemed money-lender for large credits—$10,000 at 10 per cent, to build fifty more coke ovens.  What he did was to show, with something approaching eloquence, and “in the most painstaking detail” that the coking process was an essential factor in the fabrication of steel.  The shrewd and strong founder of the House of Mellon saw with the boy of twenty-one, and furthered the plans of Overholt’s grandson—at 10 per cent.

The Mellon investigator on the ground reported confidentially :  “Lands good, ovens well built, manager on job all day, knows his business down to the ground.”  The loans were repaid out of earnings, then increased. . . . When the raging panic caught Pittsburgh in its tide, “it was an awful time,” Frick relates.  But while business grew paralyzed, and most mines were shut down, Frick showed unflagging energy and resourcefulness in managing and selling.  He kept on selling Connellsville coke at any price rather than close up.  He rode out the storm, and when it had passed he was one of the few left standing.

As a youth in trade, we are told that Frick had early become “a master of all the honorable tricks.”  The panic brought him fortune, as it did Carnegie.  He used credit as an instrument for infinite accumulation and increase ;  borrowing money where he saw clearly a substantial profit, he would soon repay, then borrow again upon an ascending scale.  He was one of the first to open up the profitable miners’ or company store.  When money became scarce in 1874 he issued his own “scrip” for goods at his store.  Harvey tells us that from the House of Mellon—the father, and also the young son Andrew keeping very close to his movements—Frick received credits of $100,000 during the depression, though there were bad enough moments, in one of which the Mellon bank was compelled to close its doors.  In the pursuit of credit, it would not be too much to say that he was as devious, as persistent, as Henry Phipps of Carnegie Brothers.  This is the man of whom the legend persists that he had so trained his carriage horse that the bourgeois nag would proceed automatically from banker to banker in Pittsburgh, with no order from the driver.

“Only one subject interested Frick :  coke.”  As he had expropriated the acreage of farmers who were in need and who were told nothing of the future value of coke, so Frick proceeded to expel from the field his largest competitors.  One of these, A.S. Morgan & Co., while in difficulties proposed joining forces with him.  But Frick, who secretly hungered for their lands, remained coy and distant, and in due time acquired the property at foreclosure.  During the years of depression coke had fallen to 90 cents a ton.  But after four years of arduous existence, Frick found demand rising.  Reopening the Morgan mines in 1878, he held in his hands the production of two thousand additional acres of coal land.  He alone now accounted for 80 per cent of the Connellsville coke.  With the resumption of steel-making at full blast, demand for coke swelled, and Frick pitilessly raised the price of coke.  The steel masters might bluster and groan, but Henry Frick stood in undisputed command of the sources of their fuel, and challenged them to proceed further without him.  The price of coke was now fixed by him at $3.6o, eventually at $5 a ton.  Henry Frick at the age of thirty was a millionaire, a baron of coke.

Frick’s largest customer, Andrew Carnegie, had been struck with admiration at the manner in which the screws had been turned on him.  Nor could he sleep easily while the other possessed such a formidable advantage over him.  They might have fought to the finish.  But Frick attracted Carnegie strangely.  In coke- as in steel-making, rivals fell before the advance of both men, year by year.  Carnegie recollects in his autobiography :

We found that we could not get on without a supply of the fuel essential to the smelting of pig iron. . . . The Frick Coke Company had not only the best coal and coke property, but . . . in Mr. Frick himself a man with a positive genius for its management.

After the proper overtures, the two joined forces, Carnegie Brothers buying at first a half-control of the coke company.

It was true that Frick, in the spirit of John D. Rockefeller, had shown an extraordinary capacity for management ;  organizing his means of production for a large scale, weeding out waste minutely, unifying all his mining operations, all shipping and selling into a compact machine.  Efficiency was his idol, and all that was weakly human was to be stripped and flung aside.  Those who came in contact with this imperious young man felt the steel in his nature.  Some admired him, especially his fellows, or bankers such as the Mellons for whom he was “good as gold,” though “self-confident, impetuous and inclined to be daring in his affairs,” according to the elder Mellon.  His workers on the other hand were moved by a unanimous, passionate hatred of him.  They were hard-driven at their heavy tasks ;  and when they rebelled and struck they met with an implacable resistance.  The fields of Connellsville might literally run red with blood, as they sometimes did, but in the end the miners must yield to the law of Frick.

The union of the Carnegie and Frick companies in 1883 had given an overwhelming impetus to the industrial machine which the two men now assembled in the form of a “vertical” combination.  Several years later, in 1889, Frick became general manager of the whole combination, rationalizing, coordinating its activities in a swift, smooth-flowing circulation from raw materials to finished product.  At the head of this great machine which reared itself in a blackened, roaring Pittsburgh, the partners, Carnegie, Phipps, Frick and others, formed a compact, close-mouthed, loyal brotherhood, which was called “Carnegie Associates.”  There was no group in their own field which could withstand their pressure.  There was nothing like it anywhere, save the economic juggernaut which Rockefeller and his friends were building in the oil trade.

3

In John D Rockefeller economists and historians have often seen the classic example of the modern monopolist of industry.  It is true that he worked with an indomitable will, and a faith in his star à la Napoleon, to organize his industry under his own dictatorship.  He was moreover a great innovator.  Though not the first to attempt the plan of the pool—there were pools even in the time of Cicero—his South Improvement Company was the most impressive instance in history of such an organism.  But when others had reached the stage of the pool, he was building the solid framework of a monopoly.

Rockefeller’s problems were far more difficult than those for instance of Carnegie, who quickly won special economies through constructing a very costly, well-integrated, technically superior plant upon a favored site.  In the oil-refining business, a small still could be thrown up in the ’70s for manufacturing kerosene or lubricating oil at a tenth the cost of the Edgar Thomson steel works.  The petroleum market was mercurial compared to iron, steel and even coal ;  there were thousands of petty capitalists competing for advantage in it.  Hence the tactics of Rockefeller, the bold architecture of the industrial edifice he reared, have always aroused the liveliest interest, and he himself appeals to us for many reasons as the greatest of the American industrialists.  In no small degree this interest is owing to the legend of “Machiavellian” guile and relentlessness which has always clung to this prince of oil.

After the dissolution of the South Improvement Company, Rockefeller and Flagler had come to a conference of the irate diggers of petroleum with mild proposals of peaceful coöperation, under the heading of the “Pittsburgh Plan.”  The two elements in the trade, those who produced the raw material from the earth and those who refined it, were to combine forces harmoniously.  “You misunderstand us,” Rockefeller and Flagler said.  “Let us see what combination will do.”

There was much suspicion.  One of Titusville’s independent refiners (one of those whom Standard Oil tried to erase from the scene) made a rather warlike speech against the plan, and he recalls that Rockefeller, who had been softly swinging back and forth in a rocking chair, his hands over his face, through the conference, suddenly stopped rocking, lowered his hands and looked straight at his enemy.  His glance was fairly terrifying.

You never saw such eyes.  He took me all in, saw just how much fight he could expect from me, and then up went his hands and back and forth went his chair.

At this very moment, Rockefeller was arranging anew the secret rebates with the leading railroads of the country, which had been so loudly decried in 1872.  Upon the refined oil he shipped from Cleveland he received a rebate of 50 cents a barrel, giving him an advantage of 25 per cent over his competitors.  Once more the railroads continued a form of espionage for his company.  But all arrangements were now effected in a more complete secrecy.

Equally secret was the campaign Rockefeller pursued to amalgamate with his own company the strongest refineries in the country.  According to Miss Tarbell’s “History,” he now constantly “bent over a map of the refining interests of the country,” or hurried from one secret conference to another, at Cleveland, New York, or at Saratoga, “the Mecca of schemers,” where long hours of nocturnal debate in a certain pavilion brought into his plan the refineries of Pittsburgh and Philadelphia.  Look at what combination has done in one city, Cleveland, he would say.  The plan now was for all the chosen ones to become the nucleus of a private company which should gradually acquire control of all the refineries everywhere, become the only shippers, and have the mastery of the railroads in the matter of freight rates.  Those who came in were promised wealth beyond their dreams.  The remarkable economies and profits of the Standard were exposed to their eyes.  “We mean to secure the entire refining business of the world,” they were told.  They were urged to dissemble their actions.  Contracts were entered into with the peculiar secret rites which Mr. Rockefeller habitually preferred.  They were signed late at night at his Euclid Avenue home in Cleveland.  The participants were besought not to tell even their wives about the new arrangements, to conceal the gains they made, not to drive fast horses or put on style, or buy new bonnets, or do anything to let people suspect there were unusual profits in oil-refining, since that might invite competition.

In this campaign perhaps fifteen of the strongest firms in the country, embracing four-fifths of the refining trade, were brought into alliance with the Standard Oil Company by 1875-78.  Among them were individuals who had opposed Rockefeller most strenuously a season before :  the ablest of these, J.J. Vandergrift and John Archbold of the Pennsylvania oil regions, Charles Pratt and Henry Rogers of New York, entering the family of Standard Oil as partners by exchange of stock.  They continued under their own corporate identity as “Acme Oil Company,” or “Pratt & Rogers,” but shared the same freight advantages as Standard Oil, used the same sources of information and surveillance, the common organization of agents and dealers in the distributing field.

“I wanted able men with me,” Rockefeller said later.  “I tried to make friends with these men.  I admitted their ability and the value of their enterprise.  I worked to convince them that it would be better for both to coöperate.”

In the meantime a campaign no less elaborate and bold was pursued to eliminate from the field those firms whose existence was considered superfluous.  Rockefeller did not “confiscate” his opponents outright.  In the interests of his great consolidation he measured the value of their properties without sentiment, and gave his terms.  Thus a plant which had cost $40,000 might in the future, after his own plans had matured, be worth little more than $15,000, or 37½ cents on the dollar.  Such an offer he would make and this only.  The victim, as the case might be, would surrender if timid, or attempt resistance in trade, or practice blackmail upon him, or fight him to the finish and have resort to the highest courts.

Where a “deal” across the table could not be effected, Rockefeller might try a variety of methods of expropriation.  With his measured spirit, with his organized might, he tested men and things.  There were men and women of all sorts who passed under his implacable rod, and their tale, gathered together reverently by Miss Tarbell, has contributed to the legend of the “white devil” who came to rule over American industry.

A certain widow, a Mrs. Backus of Cleveland, who had inherited an oil-refinery, had appealed to Mr. Rockefeller to preserve her, “the mother of fatherless children.”  And he had promised “with tears in his eyes that he would stand by her.”  But in the end he offered her only $79,000 for a property which had cost $200,000.  The whole story of the defenseless widow and her orphans, the stern command, the confiscation of two-thirds of her property, when it came out made a deep stir and moved many hearts.

In another instance a manufacturer of improved lubricating oils set himself up innocently in Cleveland, and became a client of the Standard Oil for his whole supply of residuum oils.  The Rockefeller company encouraged him at first, and sold him 85 barrels a day according to a contract.  He prospered for three years, then suddenly when the monopoly was well launched in 1874, his supply was cut down to 12 barrels a day, the price was increased on some pretense, and the shipping cost over the railroads similarly increased.  It became impossible to supply his trade.  He offered to buy of Rockefeller 5,000 barrels and store it so that he might assure himself of a future supply.  This was refused.

“I saw readily what that meant,” the man Morehouse related to the Hepburn Committee in 1879.  “That meant squeeze you out—Buy out your works. . . . They paid $15,000 for what cost me $41,000.  He [Rockefeller] said that he had facilities for freighting and that the coal-oil business belonged to them ;  and any concern that would start in that business, they had sufficient money to lay aside a fund and wipe them out—these are the words.”

In the field of retail distribution, Rockefeller sought to create a great marketing machine delivering directly from the Standard Oil’s tank wagons to stores in towns and villages throughout the United States.  But in the laudable endeavor to wipe out wasteful wholesalers or middlemen, he would meet with resistance again, as in the producing fields.  Where unexpectedly stout resistance from competing marketing agencies was met, the Standard Oil would simply apply harsher weapons.  To cut off the supplies of the rebel dealer, the secret aid of the railroads and the espionage of their freight agents would be invoked again and again.  A message such as the following would pass between Standard Oil officials :

We are glad to know you are on such good terms with the railroad people that Mr. Clem [handling independent oil] gains nothing by marking his shipments by numbers instead of by names.

Or again :

Wilkerson and Company received car of oil Monday 13th—70 barrels which we suspect slipped through at the usual fifth class rate—in fact we might say we know it did—paying only $41.50 freight from here.  Charges $57.40.  Please turn another screw.

The process of “Turning the Screw” has been well described by William D. Lloyd.  One example is that of a merchant in Nashville, Tennessee, who refused to come to terms and buy from Standard Oil ;  he first found that all his shipments were reported secretly to the enemy ;  then by a mysterious coincidence his freight rates on shipments of all kinds were raised 5o per cent, then doubled, even tripled, and he felt himself under fire from all parts of the field.  He attempted to move his merchandise by a great roundabout route, using the Baltimore & Ohio and several other connecting roads, but was soon “tracked down,” his shipments lost, spoiled.  The documents show that the independent oil-dealers’ clients were menaced in every way by the Standard Oil marketing agency ;  it threatened to open competing grocery stores, to sell oats, meat, sugar, coffee at lower prices.  “If you do not buy our oil we will start a grocery store and sell goods at cost and put you out of business.”

By this means, opponents in the country at large were soon “mopped up”;  small refiners and small wholesalers who attempted to exploit a given district were routed at the appearance of the familiar red-and-green tank wagons, which were equal to charging drastically reduced rates for oil in one town, and twice as much in an adjacent town where the nuisance of competition no longer existed.  There were, to be sure, embittered protests from the victims, but the marketing methods of Standard Oil were magnificently efficient and centralized ;  waste and delay were overcome ;  immense savings were brought directly to the refining monopoly.

But where the Standard Oil could not carry on its expansion by peaceful means, it was ready with violence ;  its faithful servants knew even how to apply the modern weapon of dynamite.

In Buffalo, the Vacuum Oil Company, one of the “dummy” creatures of the Standard Oil system, became disturbed one day by the advent of a vigorous competitor who built a sizable refinery and located it favorably upon the water front.  The offices of Vacuum conducted at first a furtive campaign of intimidation.  Then emboldened or more desperate, they approached the chief mechanic of the enemy refinery, holding whispered conferences with him in a rowboat on Lake Erie.  He was asked to “do something.”  He was urged to “go back to Buffalo and construct the machinery so it would bust up . . . or smash up,” to fix the pipes and stills “so they cannot make a good oil. . . . And then if you would give them a little scare, they not knowing anything about the business.  You know how . . .”  In return the foreman would have a life annuity which he might enjoy in another part of the country.

So in due time a small explosion took place in the independent plant, as Lloyd and Miss Tarbell tell the tale, from the records of the trial held several years later, in 1887.  The mechanic, though on the payrolls of the Vacuum Oil Company, led a cursed existence, forever wandering without home or country, until in complete hysteria he returned to make a clean breast of the whole affair.  The criminal suit against high officials of the Standard Oil monopoly included Henry Rogers and John Archbold, but the evil was laid by them to the “overenthusiasm” of underlings.  Evidence of conspiracy was not found by the court, but heavy damages were awarded to the plaintiff, who thereafter plainly dreaded to reënter the dangerous business.

These and many other anecdotes, multiplied, varied or even distorted, spread through the Oil Regions of Pennsylvania and elsewhere through the country (as ogre-tales are fed to children), and were accumulated to make a strange picture of Mr. Rockefeller, the baron of oil.  Miss Tarbell in her “History,” written in her “muckraking” days, has dwelt upon them with love.  She has recorded them in rending tones with a heart bleeding for the petty capitalists for whom alone “life ran swift and ruddy and joyous” before the “great villain” arrived, and with his “big hand reached out from nobody knew where to steal their conquest and throttle their future.”

But if truth must be told, the smaller capitalists, in the producing field especially, were themselves not lacking in predatory or greedy qualities ;  as Miss Tarbell herself admits, they were capable of hurrying away from church on Sundays to tap enemy tanks or set fire to their stores of oil.  What they lacked, as the Beards have commented, was the discipline to maintain a producers’ combination equal in strength to that of the refiners.  The other factors in the industry engaged in individualistic marketing or refining ventures were very possibly “mossbacks,” as one of the Standard Oil chieftains growled, “left in the lurch by progress.”

4

The campaigns for consolidation, once launched, permitted Rockefeller little rest, and engaged his generalship on many fronts at once.  In a curious interview given while he was in Europe, cited by Flynn, he himself exclaimed :

How often I had not an unbroken night’s sleep, worrying about how it was all coming out. . . . Work by day and worry by night, week in and week out, month after month.  If I had foreseen the future I doubt whether I would have had the courage to go on.

With unblinking vigilance he conducted throughout his company an eternal war against waste.  We have spoken of his unequaled efficiency and power of organization.  There is a famous note to his barrel factory in his careful bookkeeper’s hand which has been cited with amused contempt by his critics, to show how attention to small details absorbed his soul.  It reads :

Last month you reported on hand, 1,119 bungs.  10,000 were sent you beginning this month.  You have used 9,527 this month.  You report 1,092 on hand.  What has become of the other 500 ?

It is not a laughing matter, this affair of 5oo barrel bungs, worth at the most a dollar or two in all.  Rockefeller’s hatred of waste told him that in a large-scale industry the rescued pennies multiplied a million times or more represented enormous potential gains.  This was to be true of all the great industrial leaders after Rockefeller’s time ;  the spirit regarded as parsimony is a large-visioned conception of technical efficiency in handling big machines.  Thus the feeding of horses, the making of his own glue, hoops, barrels, all was carefully supervised and constantly reduced in cost.  Barrels were cut $1.25 apiece, saving $4,000,000 a year, cans were reduced 15 cents, saving $5,000,000 a year, and so forth.

In absorbing the services of J.J. Vandergrift, in 1872, Rockefeller had acquired as an ally to his enterprise a combination of small pipe lines called the United Pipe Lines.  His lieutenants then constructed more pipes ;  and by 1876 he controlled almost half the existing pipe lines, some running 80 to 100 miles, to the railroad terminals and shipping points.  At this time the largest pipe-line interest in competition with Standard Oil’s was the Empire Transportation Company, headed by Colonel Joseph Potts, but dominated by the officers of the Pennsylvania Railroad, which held an option over the entire property.

Himself an aggressive entrepreneur, Potts soon found that he must expand or suffer extinction.  To the alarm of the Rockefeller organization, he purchased several big refineries in New York and proceeded to pipe crude oil from the oil fields and over the railroad to seaboard.  Rockefeller vehemently petitioned the railroad to withdraw from his domain.  Refused at an interview, he promised that he would take his own measures, and left his adversaries with expressions of sanctimonious regret, the form in which his most deadly threats were usually offered.

It was war, a war of rates.  He moved with lightning speed.  At once the other railroads, Erie and New York Central, were ordered to stand by, lowering their freight rates for him while he slashed the price of refined oil in every market which Potts reached.

But Potts, a stubborn Presbyterian, fought back harder than anyone Rockefeller had ever encountered.  He replied in kind by further price cuts ;  he then began to build larger refineries at the coast ports, lined up independent oil-producers behind him, and reserves in quantities of tank cars, in barges, ships, dock facilities.  During the bitter conflict, with which, as Flynn relates, the hills and fields of Pennsylvania resounded, both sides, and the railroads supporting them as well, suffered heavy wounds.  Yet Rockefeller would not desist, since Standard Oil’s whole system of organization was endangered.

In the midst of this furious engagement a great blow fell upon the enemies of John D. Rockefeller, as if given by the hand of the God to whom he constantly prayed.  During the summer of 1877 the workers of the Baltimore & Ohio Railroad struck against wage cuts and their strike spread quickly to adjacent railroads, raging with especial violence in the Pennsylvania system.  The most destructive labor war the nation had ever known was now seen in Baltimore and Pittsburgh, with militant mobs fighting armed troops and setting in flames property of great value in revenge for the many deaths they suffered.  During this storm which the railroad barons had sown by cutting wages 20 per cent and doubling the length of freight trains, the Pennsylvania interests quickly came to terms with Standard Oil, so that they might be free to turn and crush the rebellious workers.  The entire business of Empire Transportation was sold out to the oil combination at their own terms, while Potts was called off.  In Philadelphia, Rockefeller and his partners, quietly jubilant, received the sword of the weeping Potts.

The oil industry as a whole was impressed with the victory of Standard Oil over a railroad ring which had seemed invincible in the past.  In a movement of fear many other interests hastened to make terms with Rockefeller.  By the end of 1878 he controlled all the existing pipe-line systems ;  through a new freight pool he directed traffic or quantities of supplies to the various regions or cities as he pleased.

By 1876 this industry had assumed tremendous proportions.  Of the annual output of nearly 10,000,000 barrels, the Standard Oil Company controlled approximately 80 per cent, while exports of petroleum products to the value of $32,000,000 passed through their hands.  But in 1877 the great Bradford oil field was opened with a wild boom, the uproarious coal-oil scenes of ’59 were enacted anew, crowds rushed to the new fields, acreage values boomed, oil gushed out in an uncontrollable flood—half again as much oil as existed before came forth almost overnight.  The markets grew demoralized again, just when Rockefeller seemed to have completed his conquest of the old Oil Regions.

What was he to do ?  In the two years that followed he directed his organization at the high tension of an ordinance department in wartime, so that piping, refining and marketing capacity might be expanded in time, and the almost untenable supply handled without faltering.  With utmost energy a huge building program was carried on and further millions were staked on the hazardous business.  Then, holding down the unruly producers, he imposed harsh terms through his pipe lines, refusing storage, forcing them to sell the oil they drilled “for immediate shipment” at the depressed prices of 64 to 69 cents a barrel, or have it run into the ground.

The overproduction could not be stopped.  The oil men raged at the great machine which held them in bonds.  Once more the independents gathered all their forces together to form a protective combination of their own.  They founded the Parliament of Petroleum.  They raised funds to construct an immense “free” pipe line running over the mountains to the seaboard, and ridding them at last of the railroads which hemmed them in.  The new Tidewater Pipe Line would break Standard’s control over railroad rates and bring crude oil to the sea.

Rockefeller’s agents now lobbied in the state legislature of Pennsylvania to have the proposed pipe line banned.  Failing of this his emissaries were thrown out over the state to buy up right of way in the path of the enemy’s advance.  But the Tidewater’s engineers moved with equal speed and secrecy, eluded the defenses which Rockefeller threw in their way and by April, 1879, completed their difficult project.

From successive stations, the great pumps were to drive oil over the very top of the Alleghenies, and down to Williamsport, touching the Reading Railroad, which had joined forces with the independents.  Amid picturesque celebration—while the spies of the Standard Oil looked on incredulously—the valves were opened, the oil ran over the mountain and down toward the sea !  Rockefeller was checkmated—but to whom would the producers and their free pipe line sell the crude oil at the seaboard ?  They had no inkling though they berated him, of the extent of his control at the outlet.

The opposition to the Rockefeller “conspiracy” now rose to its climax of enthusiasm.  The hundreds of petty oil men who fought to remain “independent” and keep their sacred right to flood the market or “hold up” consumers at their own pleasure, won sympathy everywhere ;  and with the aid of local politicians in New York and Pennsylvania they also had their day in court.  Their tumult had grown so violent that at long last the lawmakers of Pennsylvania moved to prosecute the monopolists for “conspiracy in restraint of trade.”  Writs were served and on April 29, 1879, a local Grand Jury indicted John D. Rockefeller, William Rockefeller, J.A. Bostwick, Henry Flagler, Daniel O’Day, J.J. Vandergrift and other chieftains of Standard Oil for criminal conspiracy, to “secure a monopoly of the oil industry, to oppress other refiners, to injure the carrying trade, to extort unreasonable railroad rates, to fraudulently control prices,” etc.  Simultaneously in New York State, the legislature appointed a committee of investigation of railroads, headed by the young lawyer A. Barton Hepburn.  Forced to look at all the facts which were brought out by the Hepburn Committee, the nation was shocked.  The railroad interests, as archconspirators, were at once under heavy fire.  But no one understood the scope and meaning of the new phase reached in industrial life at this stage, save perhaps Mr. Chauncey Depew, who in a moment of illumination exclaimed on behalf of the railroad interests he so gallantly championed :  “Every manufacturer in the state of New York existed by violence and lived by discrimination. . . . By secret rates and by deceiving their competitors as to what their rates were and by evading all laws of trade these manufacturers exist.”  This was God’s truth and certainly true of all the other states in the Union.  And of course under the prevailing circumstances there was nothing to be done, save recommend certain “regulative” laws.

With Rockefeller, there had arisen the great industrial combination in colossal and “sinister” form ;  he was the mighty bourgeois who was to expropriate all the petty bourgeois and his name was to be the rallying cry of parties and uprisings.  The outlook for monopoly seemed dark, yet the trial, in the name of a democratic sovereignty which held “sacred” the property of the “conspirators,” whatever the means by which they may have preëmpted or confiscated such property—was to be simply a comedy, and was to be enacted again and again.  Before the bar of justice, Rockefeller and his brilliant lieutenants would appear, saying, “I refuse to answer on the advice of counsel.”  A Henry Rogers, a Flagler, would use every shift which such philosophers of the law as Joseph Choate or Samuel C.T. Dodd might counsel.  They would “refuse to incriminate themselves” or evade reply on a point of technicality, or lie pointblank.  Or, as in the case of the terribly cynical Archbold, they would simply jest, they would make mock of their bewildered prosecutors.

It was Rockefeller who made the most profound impression upon the public.  He seemed distinguished in person ;  with his tall stooping figure, his long well-shaped head, his even jaw.  His long, fine nose, his small birdlike eyes set wide apart, with the narrowed lids drooping a little, and the innumerable tiny wrinkles, made up a remarkable physiognomy.  But his mouth was a slit, like a shark’s.  Rockefeller, impeccably dressed and groomed, thoroughly composed, pretendedly anxious to please, foiled his accusers with ease.  Every legal subterfuge was used by him with supreme skill.  Certain of his denials were legally truthful, as Flynn points out, since stockownership concerning which he was questioned was often entrusted temporarily (in time for such trials) to mere clerks or bookkeepers in his employ.

But the moment came when he was asked specifically about his connection with the notorious refiners’ pool of 1872.

“Was there a Southern Improvement Company ?”

“I have heard of such a company.”

“Were you not in it ?”

“I was not.”

His hearers were amazed at the apparent perjury he made pointblank with even voice and an inscrutable movement of the eyes.  But no !  He had been only a director of the South Improvement Company, and not of the “Southern Improvement Company,” as the prosecutor had named it by mistake.

If Rockefeller was embittered by the cruel fame he won, he never showed it.  The silence he preserved toward all reproaches or questions may have been a matter of clever policy ;  yet it suggested at bottom a supreme contempt for his critics and accusers alike.

“We do not talk much—we saw wood !”

There were times when his movements were hampered, times when he dared not enter the State of Pennsylvania though the authorities there called for him impatiently ;  times when it was equally convenient to remain almost in hiding at his New York headquarters in Pearl Street, while the world at large howled against him.  Yet he moved with unequaled agility and force against all serious attacks upon his industrial barony.

The menace of the Tidewater Pipe Line which cut through his network of railroads and refineries he must crush at all costs.  This was far more important than any impeachment of his character.  Fertile in expedients at a crisis, he could also be infinitely patient.  It used to be said :  “To Mr. Rockefeller a day is as a year, and a year as a day.  He can wait, but he never gives up.”  Now when he perceived that the Tidewater’s line to the sea was a reality, he besieged it from all sides.  On the one hand he offered to buy all the oil it ran, a tempting offer which would have made the affair most profitable to the stockholders.  Rebuffed here he proceeded to use the inventions of his rivals and build a long pipe line of his own to the sea.  Night and day his engineers and gangs labored in the mountains, to connect the Bradford fields with the Standard Oil terminal at Bayonne.  Then before the walls of Bayonne, where lay his great coastal refineries and storage tanks, his pipe line was stopped by an interested railroad from which he would have removed his freight business.  The Town Council of Bayonne was induced to be friendly and grant a franchise ;  the Mayor who resisted for a time was suddenly won over ;  and in all secrecy, because of the need of haste to prevent a blocking franchise by the railroad, his gangs assembled.  There were 300 men ready in the night of September 22, 1879, with all materials, tools, wagons gathered, waiting for the signal—the swift passage of an ordinance by the Town Council and its signing by the Mayor.  Then with mad speed the trench across the city was dug, the pipes laid, jointed and covered, before the dawn.  The National Transit Company was completed as the largest pipe-line system in the field.

His own line of communications was now secured against the enemy.  But he also pursued a campaign of secret stock purchase for control, gaining a minority interest in the Tidewater company, creating dissensions within, damaging its credit, detaching its officials, instigating suits for receivership, serving writs, injunctions, and more writs, until the managers seemed to struggle for their very sanity.  Day by day these blows fell mysteriously, until in 1882 the adversary surrendered and effected the best agreement possible under the circumstances.  By this a minor part of the oil-transporting business was apportioned to itself and it yielded up its independence after four years of fighting an unresting, infinitely armed master.  All the pipe lines were now amalgamated under Standard Oil control ;  the great railroads, notably the Pennsylvania, were forced by agreement and in return for a stipulated yearly ransom to retire from the business of oil transportation forever.  John D. Rockefeller at the age of forty-four had accomplished his ambition—he was supreme in the oil industry, “the symbol of the American monopolist.”

5

Up to 1881 the forty-odd companies controlled by Rockefeller and his partners formed a kind of entente cordiale bound by interchange of stock.  This form of union being found inadequate or impermanent, the counsel of the Standard Oil Company, Samuel C.T. Dodd, came forward with his idea of the Trust.  By a secret agreement of 1882, all the existing thirty-seven stockholders in the divers enterprises of refining, piping, buying or selling oil conveyed their shares “in trust” to nine Trustees :  John and William Rockefeller, O.H. Payne, Charles Pratt, Henry Flagler, John Archbold, W.G. Warden, Jabez Bostwick and Benjamin Brewster.  The various stockholders then received “trust certificates” in denominations of $100 in return for the shares they had deposited ;  while the Trustees, controlling two-thirds of all the shares, became the direct stockholders of all the companies in the system, empowered to serve as directors thereof, holding in their hands final control of all the properties.  The Trustees could dissolve any corporations within the system and organize new ones in each state, such as the Standard Oil of New Jersey, or the Standard Oil of New York.  Nor could any outsiders or newly arrived stockholders have any voice in the affairs of the various companies.  The Trustees formed a kind of supreme council giving a centralized direction to their industry.  Such was the first great Trust ;  thus was evolved the harmonious management of huge aggregations of capital, and the technique for large-scale industry.

Dodd, the resourceful philosopher of monopoly, defended his beautiful legal structure of the “Standard Oil Trust” both in a pamphlet of 1888 and in an argument before a Congressional committee of that year.  It was but the outcome of a crying need for centralized control of the oil business, he argued.  Out of disastrous conditions had come “coöperation and association among the refiners, resulting eventually in the Standard Oil Trust [which] enabled the refiners so coöperating to reduce the price of petroleum products, and thus benefit the public to a very marked degree.”  In these arguments, learned economists of the time, such as Professor Hadley, supported Dodd.  The Trust, as perfected monopoly, pointed the way to the future organization of all industry, and abolished “ruinous competition.”¹

From their headquarters in the small old-fashioned building at 140 Pearl Street the supreme council of an economic empire sat together in conference like princes of the Roman Church.  Here in utmost privacy confidential news brought by agents or informers throughout the world was discussed, and business policies determined.  The management and responsibility was skillfully divided among committees :  there was a committee on Crude Oil, a committee on Marketing, on Transportation, and numerous other departments.  By these new processes markets or developments everywhere in everybody’s business were followed or acted upon.

Every day the astute leaders rounded together by Rockefeller lunched together in Pearl Street, and later in a large and famous office building known as 26 Broadway.  No one questioned the preeminence of John D. Rockefeller, though Charles Pratt usually sat at the head of the table.  The aggressive Archbold was closest to John D. Rockefeller.  His brother William Rockefeller, an amiable mediocrity, but immensely rich as well, and long trained in the use of money, depended most upon Henry H. Rogers.  Rogers took a more dominant place in the management with the passing years.  He is described by Thomas Lawson as “one of the most distinguished-looking men of the time, a great actor, a great fighter, an intriguer, an implacable foe.”

These, together with Brewster, Barstow, J.H. Alexander and Bostwick, were the leaders who carried on their industrial operations throughout the world like a band of conspiratorial revolutionists.  But “there was not a lazy bone nor a stupid head” in the whole organization, as Miss Tarbell has said.  Behind them were the active captains, lieutenants, followers and workers, all laboring with the pride, the loyalty, the discipline and the enthusiasm born of the knowledge that “they can do no better for themselves” anywhere than under the “collar” of the Standard Oil.  Freed of all moral scruples, curiously informed of everything, they were prompted by a sense of the world’s realities which differed strangely from that of the man in the street.  They were a major staff engaged in an eternal fight ;  now they scrapped unprofitable plants, acquiring and locating others ;  or now they gathered themselves for tremendous mobilizing feats during emergencies in trade.  They found ways of effecting enormous economies ;  and always their profits mounted to grotesque figures :  in 1879, on an invested capital of $3,500,000, dividends of $3,150,000 were paid ;  the value of the congeries of oil companies was then estimated at $55,000,000.  Profits were overwhelmingly reinvested in new “capital goods” and with the formation of the Trust capitalization was set at $70,00o,000.  By 1886 net earnings had risen to $15,000,000 per annum.

“Hide the profits and say nothing !” was the slogan here.  To the public prices had been reduced, it was claimed.  But after 1875, and more notably after 1881, despite the fluctuations of crude oil a firm tendency set in for the markets of refined oil products.  Upon the charts of prices the rugged hills and valleys of oil markets turn into a nearly level plain between 1881 and 1891.  Though raw materials declined greatly in value, and volume increased, the margin of profit was consistently controlled by the monopoly; for the services of gathering and transporting oil, the price was not lowered in twenty years, despite the superb technology possessed by the Standard Oil.  Questioned on this, that “frank pirate” Rogers replied, laughing :  “We are not in business for our health, but are out for the dollar.”

While the policy of the monopoly, as economists have shown, might be for many reasons to avoid maximum price levels—such as invited the entrance of competition in the field—it was clearly directed toward keeping the profit margin stable during a rising trend in consumption and falling “curve” in production cost.  Similarly in perfecting its technology the Trust was guided by purely pecuniary motives, as Veblen points out, and it remains always a matter of doubt if the mightier industrial combinations improved their service to society at large in the highest possible degree.  As often as not it happened that technical improvements were actually long delayed until, after a decade or more, as in the case of Van Syckel’s pipe line of 1865, their commercial value was proved beyond a doubt.  It was only after rivals, in desperation, contrived the pumping of oil in a two-hundred-mile-long pipe line that Rockefeller followed suit.  So it was with the development of various by-products, the introduction of tank cars, etc.

The end in sight was always, as Veblen said, increase of ownership, and of course pecuniary gain rather than technical progress in the shape of improved workmanship or increased service to the community.  These latter effects were also obtained.  But to a surprising degree they seem accidental by-products of the long-drawnout struggles, the revolutionary upheavals whence the great industrial coalitions sprang.

The greatest service of the industrial baron to business enterprise seemed to lie elsewhere, as Veblen contended.  “The heroic rôle of the captain of industry is that of a deliverer from an excess of business management.”  It is a “sweeping retirement of business men as a class from service . . . a casting out of business men by the chief of business men.”

John D. Rockefeller said that he wanted in his organization “only the big ones, those who have already proved they can do a big business.  As for the others, unfortunately they will have to die.”

6

The obscure tumult in the Oil Regions in 1872, the subsequent exposures of the railroad rebate and the oil monopoly in 1879, made a lively though unclear impression upon the public mind.  Now the more imaginative among the mass of consumers felt fear course through them at the thought of secret combinations ranged against them, the loud demagogue was roused from his slumbers, the reformer set off upon his querulous and futile searches.  But among the alert entrepreneurs of all the money marts an entirely different response must have been perceptible.  With envious lust the progress of the larger, more compact industrial organizations, like that of Carnegie Brothers & Company, or the associations formed by a Rockefeller, was now studied.  Ah-ha ! there was the way to profits in these confused and parlous times.  How quickly and abundantly those fellows accumulated cash and power !  “I was surprised,” confessed William Vanderbilt before a committee of New York legislators in 1878, “at the amount of ready cash they were able to provide.”  He referred to the oil-refiners’ combination.  In the twinkling of an eye they had put down $3,000,000 to buy out Colonel Potts’s pipe-line company.  And in the following year Vanderbilt, commenting to the Hepburn Committee at Albany on the shrewdness of the Standard Oil ring, said :

There is no question about it but these men are smarter than I am a great deal. . . . I never came in contact with any class of men as smart and alert as they are in their business.  They would never have got into the position they now are.  And one man could hardly have been able to do it ;  it is a combination of men.

The storms of public indignation, as we have seen, vented themselves chiefly upon the railroad heads who “discriminated against the little fellow” by the rebate and freight pool.  But far from being frightened at such protests the money-changers hastened to throw their gold at the feet of him who promised them crushing, monopolistic advantages.  So Villard, in 1881, by whispering his plans to conquer all the Northwest overnight, attracted instantly a powerful following of capitalists to his “blind pool.”  So the lawyers or undertakers who came forward with plans for secret trade associations or pools in salt, beef, sugar or whiskey, were now heard with intense excitement by men who yesterday were busy ambushing or waylaying each other in the daily routine of their business.

They would say to each other, as in the Salt Association, formed earliest of all, “In union there is strength. . . .” Or, “Organized we have prospered ;  unorganized not.”  “Our combination has not been strong enough ;  the market is demoralized.”  And others would murmur fearsomely :  “But we will be prosecuted for ‘restraint of trade.’  There are state laws in Maryland, Tennessee and elsewhere which hold that ‘monopolies are odious.’  There is the common law against trade conspiracy. . . .”

Then a bolder voice among the plotters would say :  “How much did you make last year ?  Not a cent ?  Are you making anything now ?  Well, what do you propose to do ?  Sit here and lose what capital you have got in the business ?  There is only one way to make any money in a business like the —— business and that is to have a pool.”

Thus the trail would be blazed.  The industrialists, like the railroad barons before them, came together in furtive conferences, much mistrusting each other, but lamenting together the bad times and owning to the folly of competition among themselves ;  while those who made pools, as they heard by rumor, in oil or salt flourished.  After much bickering and jockeying, the lawyers would draw up binding agreements by which the amount of output would be fixed, quotas and territories would be assigned to each member, and business orders proportionally allotted, with fines levied upon those who broke the rules.  These planning agreements the members of the pool would promise faithfully to live by.

The first pools, crude experiments in a “federalism” of industry, were as inept as the first weak devices for union among laborers.  Their tactics and results differed widely.  By 1880, certain pools such as the salt pool had got the margin of profit much higher by “pegging” the market price of a barrel of salt at about double what it was formerly, and holding steadily to this level.  Their procedure usually avoided raising the market price too high.  This would beget fresh competition.  However, they kept prices “moderately” firm, although supply might actually be abundant.  The essential object in view was “to increase the margins between the cost of materials and the price of the finished product,” and this was effected, according to Ripley, “in almost every case.”

A variety of economies were gained by pooling, depending upon the firmness of the association.  Railroads were forced to give rebates ;  inefficient or badly located plants were closed down ;  excess sales forces and labor were reduced, a “war chest” was accumulated and competitors were driven out.  To intruders the cost of necessary machinery might be made more burdensome.  Thus in connection with the Wire Nail Pool, independents declared to government investigators :

We found the market in which we could buy machines [to manufacture nails] was very limited, most of the machine manufacturers having entered into an agreement with the combination to stop making them for outside parties.

In some cases the pool might, as in the case of salt in 1881, decide to “slaughter the market” for a season, giving the coup de grâce to overstocked competitors in some areas, then resume the even tenor of their ways.  Or they would sell low in one section which was pestered by competition, and recoup off the general market.  The pools, in short, claimed to represent the party of “modernity,” of progress by specializing machinery, buying raw materials cheaper, utilizing more by-products, research units, export development, advertising and selling in common.  While “not wishing to take the position of posing before the public as benefactors to any extent,” yet they claimed that industry was more stabilized, prices were seldom raised inordinately, and labor was paid higher wages—though here one famous manufacturer, John Gates, admitted that this was done on demand, in periods of affluence, when it was seen they had high profits and desired to avoid labor troubles.  Generally they assumed a marvelous command over the labor situation—here was one of their surest gains.  The workman became truly their commodity ;  for in time of a strike, orders could be shifted to other factories in a different section of the country and these kept running full blast.

In other cases, it was also notable that a technique of central control, extremely rigid and absolute, was developed.  Immediately upon formation of the Distilling & Cattle Feeding Association, as Ripley relates, prices were cut sharply to force competitors into the pool, rivals were bought up or forced out, sometimes by negotiation and sometimes by intimidation or violence.  Then by 1889, from twelve to twenty whiskey distilleries were operated on behalf of eighty-three plants previously existing, great savings were effected, and profits were steady and high enough to “accumulate a surplus for purpose of contest with outsiders.”  Thus the “whiskey ring,” as Henry Lloyd wrote at the time, regulated the liquor traffic as no government could up to then or ever since effectively do, decreeing where and how much liquor should be made, and enforcing their decree, controlling alcohol, hence the sciences, medicine, even the arts and poetry.  By February, 1888, only two large independents out of eighty distilleries resisted the combination.  These were in Chicago, and one of them in April of that year published in the Chicago Tribune the fact that they had caught a spy of the combination in their works ;  later, tampering with the valves of their vats was discovered ;  then offers of large bribes if they would sell out their plants.  In December, according to Lloyd’s account, this distillery became the scene of an awful explosion :

All the buildings in the neighborhood were shaken and many panes of glass were broken. . . . There were 15,000 barrels of whiskey stored under the roof that was torn open, and if these had been ignited a terrible fire would have been added to the effect of the explosion.  A package of dynamite which had failed to explode, though the fuse had been lighted, was found on the premises by the Chicago police.

7

The most successful of the early industrial pools was formed toward 1880 by the slaughterhouses of Chicago.  Here at the natural transshipment center where numerous great railroad trunk lines converged, the grain, produce, cattle and swine of the West seemed to flow toward the world markets as through a bottle-neck held in the hands of packing-houses, elevators and millers.

“I like to turn bristles, blood, and the inside and outside of pigs and bullocks into revenue . . .” said the astute Philip D. Armour.  This puritanical and grasping dealer in pigs was among the first to note the enormous waste of labor and material in his trade.  Both he and Nelson Morris had soon ceased to sell cattle “on the hoof,” and had begun to systematize the work of despatching, dressing, smoking and canning steers in their stockyards by large-scale methods.  After the Civil War, Morris had begun shipping frozen beef during the winter to points as far distant as Boston ;  and in 1874, the Cape Cod Yankee Gustavus Swift had revolutionized the industry by introducing the refrigerator car, under the Tiffany patents, with its bunkers and tanks for ice, and its heat-proof doors.  So instead of shipping merely smoked or frozen meat in winter, it became possible suddenly to sell at all seasons of the year to every corner of the globe.  By dint of further technical advance contributed as well by the firms of Cudahy, Hammond (later Wilson & Company) and others, the stockyards of Chicago became the home of a gigantic and rhythmically functioning industry, which was soon famous throughout the world for the “mass production” of animal food.  By an ingenious arrangement of the yards, and division of the labor, the droves of cattle which poured into Chicago were disassembled with amazing rapidity.  Passing swiftly through winding viaducts into pens they would be suddenly stunned, dropped through trap-doors into slaughtering rooms, then killed.  Thereafter laborers hung the carcasses by wire around the legs to a moving trolley-line, cut up, bled, dressed, and classified them.  The operations of the laborers, chiefly Negroes and Slav immigrants, gathered in mighty armies, was thoroughly and shrewdly regimented and driven at top speed throughout the process.  Finally every by-product, every species of animal raw material, was put to use, so that tremendous economies were gained on every hand in a hundred different ways.

The opportunity for large-scale management of the slaughtering trade, after the coming of the refrigerator car, had brought quickly a movement of consolidation among the numerous firms.  The little houses were bought up by bigger ones ;  distributing agencies or large packing-houses were set up in strategic centers such as Omaha, St. Louis and Kansas City, and fleets of refrigerator cars were formed to carry the dressed-meat and vegetable traffic which now proceeded to boom magnificently.

Armour, Morris and the other packers who used to give each other “a wallop with a smile,” at length arrived at a complete “gentlemen’s agreement” which ended all competition between them.  Thus unified, the Big Four of meat, as distributors, faced the consumers with their compact organization and fixed price system.  On the other hand, as refiners (or “processors”) of raw material, they confronted the disorganized producers, that is, the farmers, with the same concealed unanimity.  At the stockyards, ever since 1880, according to Charles Edward Russell’s lively account in his “The Greatest Trust in the World,” only four buyers would come to bid on the cattle offered each morning :

The first offers a low price, the second is not interested, the third is not interested, nor is the fourth in a hurry to make a purchase.  The next day the buyer for another one of the Big Four sets a price, and the other three refuse to buy.

The price is low, but there is no other buyer.  No “conspiracy” is perceptible ;  there is only an accidental harmony of minds.

These overlords of beef now had their hands over the market in live cattle.  Coöperating with each other firmly and using the utmost secrecy, they were also able to fight with remarkable effect against the rulership which the great railroads held over them in turn.  During the ’80s the beef pool soon forced down rates on their shipments, obtained rebates like the oil-refiners, and set up refrigerator car companies through which all perishable food and vegetables must be handled solely, receiving indirect toll from farms of the South, the Middle West and the Pacific Coast.  Moreover their combination was able to force the railroads to pay them a “mileage” fee of three-fourths of a cent per mile for the use of their refrigerator cars.  Where a railroad seemed tardy in complying with such orders, as in the case of the New York Central, it was punished almost at once, according to Russell, by the diversion of as much as 150 cars of freight per week.  Thus, empty or laden, the refrigerator cars brought a perpetual ransom from the railroads to the barons of the packing-houses, who ruled unchallenged over a mighty national traffic in food.

Neither from adjacent industries, such as railroads, nor from would-be invaders of their field, nor farmers nor middlemen nor consumers, would the packers brook interference.  Resistance in every direction was met with an implacable force, now operating through financial and now through political “influences.”  Widespread and violent strikes of the workers were broken in 1886, in 1894 and again in 1904 by the united front of the stockyard firms and a system of uniform blacklisting carried out by them with perfect discipline.  This aroused the admiration of captains of industry in all other fields, and gave Chicago long ago its atmosphere of violence.

The power of the kings of animal food was supreme, grandiose and feudal ;  and sad to relate, like many earlier dynasts they abused it.  There was none to say nay if they used diseased swine, goats, or cows in making their famous sausages or hams or tinned beef.  For thirty years, although millions of persons patronized them, the four or five overlords in Chicago alone decided what sanitary measures of inspection or approval should be taken.  They themselves did not eat this dressed food which they disseminated so widely to an invisible public, toward whom their moral attitude was strictly detached and impersonal.  Overwhelmingly bent on pecuniary gains to be derived from the handling of the animal carcasses, and also prone to utilize with ingenious technology a steadily inferior product, they were universally believed guilty of many lapses which did small honor to the American table.  Yet none oversaw their activities, and few protested even when frequent cases of sickness or even death were traced directly to their merchandise.  It remained for Mr. Upton Sinclair to arouse all the country and galvanize a President, a quarter of a century ago, by his pathetic account of the stockyard laborer who fell into a vat and involuntarily became preserved calf’s foot jelly or potted beef.  This was undoubtedly one of those splendid poetic exaggerations which become immortal and stir men’s minds forever.  Such things did not happen often, of course—yet the tale, told in Sinclair’s novel “The Jungle,” published in 1904, seemed to be the first blow which actually shook the thrones of the monarchs of meat.

The appearance of the early, crude combinations in industry aroused from time to time no little fear, indignation and oratory in certain sections of the public.  Even in 1872 an excited Congressman rose from his seat to vituperate the conspirators of brine, urging that the government take over the manufacture of salt, like the kingdoms of olden times, rather than tolerate the daily oppression of every housewife in the land.  And after salt, he continued prophetically, why not sugar and fish and eggs and pork and flour ?  Was the “square meal” in free America to be put forever out of reach of the “square eater” by the predatory combinations grasping at the American breakfast table ?  In the same year, even President Grant had had occasion to denounce the combination of the oil-refiners as a “monstrous conspiracy,” causing the Rockefeller associates to enter upon their long career of innocent denials ;  while the other capitalists who combined in pools were prompted by popular suspicion to move about their business as with rubber-soled shoes.

But, besides the resistance of tradition and the common law, the pools were weakened by dissensions among their members, by their greed, private ambitions and long-rooted habits of hoodwinking each other.  There were many instances where control was lamentably weak.  A conference of wire-nail manufacturers was held in the late ’80s, at which prices were to be fixed for the coming season.  At lunch time one of the leading members slipped away to send a telephonic message by a boy, in which he offered at once to “shade” the rates just fixed by the combination.  By chance the message fell into the hands of the chairman of the pool, who, convening the members after lunch, displayed on the spot the evidence of their colleague’s treachery.

A corporation lawyer who helped to draw up many agreements between copper-mine operators is cited by Barron as saying :

It is a large order . . . that always breaks a pool.  The manufacturer will figure that he can pay his fine to the pool, take a big order, and with the profit on this be in a stronger position than any of his competitors who may then try to break the pool.  Suppose there is a ten-per-cent profit in his business, and he can get a $1,000,000 order by cutting to five-per-cent profit.  He does not regard it as dishonorable, if it is a “fine” pool to pay the $5,000 fine, and then say to his competitors :  “I have paid my fine.”

Now if they wish to fight and use up cash, he has $45,000 more than they.  Thus, according to this ostensible authority, Mr. Edwin Jackson, the pools would usually run several years, beget competition by the prosperity they enjoyed, break up into a fight for the survival of the fittest, then come together again, shamefaced, recalling how happy had been the days of restricted competition, to try the strength of union once more.

Plainly the pool was a transitory form, and nothing showed it more clearly than the quarrels and rate wars of the different railroads, which, though having attempted to pool their resources for many years since 1870, continued for a generation thereafter to verge between struggle without quarter and hypocritical agreement. The chief difficulty resided in the fact that though everyone agreed upon the sweets of combination and understood the prize of monopoly, there was conflict eternal over who should have the most of the prize.  The formation of pools called forth economic war, and their dissolution, usually a short time later, or the entrance of a powerful invader brought renewed war.  In the meantime there were no rules, no arbiters, no courts to appeal to, since the government of the time recognized only the principle of keeping hands off these vital economic matters, and continued to hold sacred life, liberty and property.  For a long time the ranks of the baronial class remained torn between the contradictory impulses toward combination and individual competition, between the tendencies to rational unity and dispersion.  Only against the rebellions of workers, seen from below, did they seem to act with unison ;  seen from above they were bitterly and treacherously divided.  The period between 1873 and 1893 was marked as deeply by its belligerency as by its significant combinations.

However, certain leaders, such as John D. Rockefeller, whose conceptions are far in advance of his contemporaries, seem to give direction to the continuous social revolution.  The inertia of the crowd may oppose him for a time, but he is confident of the correctness of his judgment.  He ignores the bitterness of petty capitalists crushed out under his feet.  When other industrialists attempt the weak union of the pool, he forges already the Trust.  He is as one who feels the turn of the current before others ;  at first he seems to be navigating against it ;  then it shifts as foreseen, and he moves forward with an overwhelming force behind him.

¹ Dodd explains (in “Combinations,” 1888) its origin :  “It was a union not of corporations, but of stockholders. . . . From time to time new persons and capital were taken into this association.  As the business increased new corporations were formed in various States, some as trading companies, others as manufacturing companies.  In some cases the stocks of these companies were placed in the hands of Trustees instead of being distributed to the owners.  Out of this grew what is known as the Standard Oil Trust.”