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