EPIDEMIC OF TRUST INVESTIGATION IN 1888—STANDARD INVESTIGATED BY NEW YORK STATE SENATE—ROCKEFELLER’S REMARKABLE TESTIMONY—INQUIRY INTO THE NATURE OF THE MYSTERIOUS STANDARD OIL TRUST—ORIGINAL STANDARD OIL TRUST AGREEMENT REVEALED—INVESTIGATION OF THE STANDARD BY CONGRESS IN 1888—AS A RESULT OF THE UNCOVERING OF THE STANDARD OIL TRUST AGREEMENT ATTORNEY-GENERAL WATSON OF OHIO BEGINS AN ACTION IN QUO WARRANTO AGAINST THE TRUST—MARCUS A. HANNA AND OTHERS TRY TO PERSUADE WATSON NOT TO PRESS THE SUIT—WATSON PERSISTS—COURT FINALLY DECIDES AGAINST STANDARD AND TRUST IS FORCED TO MAKE AN APPARENT DISSOLUTION.

There was no characteristic of Mr. Rockefeller and his great corporation which from the beginning had been more exasperating to the oil world than the secrecy with which operations were conducted. The plan of the South Improvement Company had only been revealed to those who signed an agreement to keep secret all transactions they might have with it. The purchase in 1874 and 1875 by the Standard Oil Company of Lockhart, Frew and Company of Pittsburg, of Warden, Frew and Company of Philadelphia, and of Charles Pratt and Company of New York was so thoroughly concealed that Mr. Rockefeller, five years after it occurred, dared make an affidavit that it had never occurred!^[120] Men who entered into running arrangements with Mr. Rockefeller were cautioned “not to tell their wives,” and correspondence between them and the Standard Oil Company was carried on under assumed names! Whenever the subject of the relations between the various companies came up in a lawsuit or an investigation, a candid and straightforward answer was always avoided by both Mr. Rockefeller and the men known to be associated with him in some way. For instance, in 1879, when H. H. Rogers was before the Hepburn Committee, an effort was made to find out what relation the firm of Charles Pratt and Company, of which he was a member, sustained to the Standard Oil Company. Mr. Rogers’s testimony was a masterpiece of good-natured evasion,^[121] and all that the examiners could get, though they returned again and again to the inquiry, was that Charles Pratt and Company worked in “harmony” with the Standard Oil Company.

When ex-Governor Nash of Ohio was investigating the relations of the Cleveland and Marietta Railroad and the National Transit Company, try his best he could not find out anything definite. In his report Mr. Nash said: “I have purposely referred to the parties who entered into this arrangement with Receiver Pease and his freight agent, J. E. Terry, as the parties represented by O’Day and Scheide, for the reason that I have not been able to ascertain who or what the parties are.” That they were officers of the National Transit Company he had evidence, but what relation had the National Transit Company to the Standard Oil Company? Was it a part of it? Mr. Nash was unable to find from Mr. O’Day, closely as he might question him.^[122]

In the Buffalo case, when John D. Rockefeller was on the stand, he was put through a questioning in regard to the relations of the persons concerned in the suit to the Standard Oil Trust, whose existence he admitted. Mr. Rockefeller answered all the questions his lawyers would allow, but at the end the plaintiffs had gained little or nothing, and there was a strong impression, from the attitude of his lawyers rather than from that of Mr. Rockefeller, that an effort was making to conceal the nature of the agreement or charter or whatever it was under which the companies involved were working. Naturally enough this attitude inspired resentment and aggravated the feeling that this secrecy meant evil-doing. When the epidemic of trust investigation broke out in 1888, and the Standard Oil Trust was brought up for examination, there was a general public demand to have the matter cleared up. The first investigation of importance took place in February, 1888, in New York City, and by the direction of the Senate of New York State. A list of more than a score of trusts was in the hands of the committee, and, with the limited time at their disposal, it was certain that they could not look into more than half a dozen. There seems to have been no hesitation about including the Standard Oil Trust. “This is the original trust,” wrote the committee. “Its success has been the incentive to the formation of all other trusts or combinations. It is the type of a system which has spread like a disease through the commercial system of this country.”

There were several things the committee wanted to know about the Standard Oil Trust, and its president was summoned for examination. (1) What was it? Was it an organisation recognised by any law of the land? Long ago men had decided that partnerships, corporations, companies, in which men united to do business, must be regulated by law and subjected to a certain amount of publicity, if the public good was to be protected. Was the Standard Oil Trust within or without the law? (2) By the testimony of its own members, in other years the Standard Combination controlled from eighty to ninety per cent. of the oil business of the country. Was this supremacy due in any measure to special privileges, such as discrimination in railroad rates? (3) Was its power used to manipulate production and prices, and to prevent men outside entering the oil business?

It was to learn these things that the commission summoned Mr. Rockefeller. Flanked by Joseph H. Choate, present Ambassador to the Court of King Edward and the most eminent lawyer of the day, and S. C. T. Dodd, a no less able if a less well-known lawyer, Mr. Rockefeller submitted himself to his questioners. In no case where he has appeared on the stand can his skill as a witness be studied to better advantage. With a wealth of polite phrases—“You are very good,” “I beg with all respect”—Mr. Rockefeller bowed himself to the will of the committee. With an air of eager frankness he told them nothing he did not wish them to know. The committee had a desire to begin at the beginning. It evidently had heard that a short-lived organisation, called the South Improvement Company, had given Mr. Rockefeller his whip-hand in the oil business as far back as 1872, enabling him in three months’ time to raise his daily capacity as a refiner from 1,500 to 10,000 barrels, and so they asked Mr. Rockefeller:

Q. There was such a company?

A. I have heard of such a company.

Q. Were you not in it?

A. I was not.^[123]

It is a perfectly well-known fact that Mr. Rockefeller owned 180 shares in the South Improvement Company, of which he was a director; that, when a public uprising caused the destruction of the company, he was one of the two men who tried to save it; also that the Standard Oil Company of Ohio was the only concern which profited by the short-lived conspiracy.

Another staggering bit of testimony concerned railroad rates. Asked if there had been any arrangements by which the trust or the companies controlled by it got transportation at any cheaper rates than was allowed to the general public, Mr. Rockefeller answered: “No, sir.” As a matter of fact, the three great oil-carrying systems of the country—the Central, Erie and Pennsylvania—had all of them, for much of the period between 1872 and 1888, granted to Mr. Rockefeller rebates calculated to keep freight rates down for the Standard Oil Company and up for its competitors. Contracts and agreements to this effect are easily accessible to any one caring to investigate the quality of Mr. Rockefeller’s “no.” “No,” said Mr. Rockefeller, “we have had no better rates than our neighbours,” and then, with that lack of the sense of humour which, ethical qualities aside, is his chief limitation, he hastened to add: “But, if I may be allowed, we have found repeated instances where other parties had secured lower rates than we had.”

Later in the day the committee, which seems to have known something of Mr. Rockefeller’s former contracts with the railroads, returned to the subject, and the following colloquy, worthy of the study of all witnesses interested in how not to tell what you know, took place:

Q. Has not some company or companies embraced within this trust enjoyed from railroads more favourable freight rates than those rates accorded to refineries not in the trust?

A. I do not recall anything of that kind.

Q. You have heard of such things?

A. I have heard much in the papers about it.

Q. Was there not such an allegation as that in the litigation or controversy recently disposed of by the Interstate Commerce Commission, Mr. Rice’s suit; was not there a charge in Mr. Rice’s petition that companies embraced within your trust enjoyed from railroad companies more favourable freight rates?

A. I think Mr. Rice made such a claim; yes, sir.

Q. Did not the commission find that claim true?

A. I think the return of the commission is a matter of record; I could not give it.

Q. You don’t know it; you haven’t seen that they did so find?

A. It is a matter of record.

Q. Haven’t you read that the Interstate Commerce Commission did find that charge to be true?

A. No, sir; I don’t think I could say that. I read that they made a decision, but I am really unable to say what that decision was.

Q. You did not feel interested enough in the litigation to see what the decision was?

A. I felt an interest in the litigation; I don’t mean to say that I did not feel an interest in it.

Q. Do you mean to say that you don’t know what the decision was? that you did not read to see what the decision was?

A. I don’t say that; I know that the Interstate Commerce Commission had made a decision; the decision is quite a comprehensive one, but it is questionable whether it could be said that that decision in all its features results as I understand you to claim.

Q. You don’t so understand it? Will you say, as a matter of fact, that none of the companies embraced within this trust have enjoyed more favourable freight rates than the companies outside of your trust? Will you say, as a matter of fact, that it is not so?

A. I stated in my testimony this morning that I had known of instances where companies altogether outside of the trust had enjoyed more favourable freights than companies in this trust; and I am not able to state that there may not have been arrangements for freight on the part of companies within this trust as favourable as, or more favourable than, other freight arrangements; but, in reply to that, nothing peculiar in respect to the companies in this association; I suppose they make the best freight arrangements they can.^[124]

The committee had a vague idea that refineries outside of the Standard Combination had had a hard time to live, and asked if the trust had sought in any way to make the operations of outsiders so unprofitable that they would either have to come in or go out of the business.

“They have not; no, sir, they have not,” replied Mr. Rockefeller.

“And they have lived on good terms with their competitors?”

“They have, and have to-day very pleasant relations with those gentlemen.”

It would have been interesting to have heard the comments of a number of gentlemen trying to carry on an independent business in 1888 on that answer: of the refiners in Oil City and Titusville, at that time preparing to carry their troubles to the Interstate Commerce Commission; of George Rice and others at Marietta, Ohio; of H. H. Campbell, of the Bear Creek Refining Company at Pittsburg; of Scofield, Shurmer and Teagle at Cleveland.

If all of Mr. Rockefeller’s testimony had been of the nature of the above, the investigation would have been worth little to the people who demanded it. But when it came to the questions which, after all, it was most essential to have answered at that moment, Mr. Rockefeller, after some skirmishing, gave the committee as frank testimony as is on record from him. The information wanted was in regard to the organisation of the Standard Oil Trust. As pointed out in a previous chapter, there had been some kind of an agreement adopted in 1882, binding together the varied interests which controlled the oil business. But what it was, where it was kept, by what authority it lived, nobody knew. For six years it had succeeded in hiding itself. What was the understanding which had made a trust of a company? The committee asked to know. Mr. Rockefeller and his counsel were the soul of amiability under the demand. They had only one request, and Mr. Choate made it persuasively:

“If the committee please,” he said, “I do not arise to make an objection to a request of the committee; we think that it is very proper that the committee should be made acquainted with this document and everything pertaining to it in order to advise them as to the nature and operation of this trust; at the same time, there are private interests and controversies involved which might be seriously prejudiced by a public exposition of its details, and therefore, in producing it, we, without asking the committee to make any promise or to commit themselves at all, request that while they make whatever use of it they please, it shall not be in all its details made a matter of public record or exhibition unless in their final judgment, after consideration of the matter, they shall consider it necessary. There are very important private interests involved that ought not, under the guise of a public investigation, to be interfered with.”

The committee examined the document and concluded to include it in its report.^[125] Like all great things, it was simplicity itself—an agreement which anybody could understand, by which some fifty persons holding controlling interests in corporations, joint stock associations, and partnerships of different states, placed all their stock in the hands of nine trustees, receiving in return trust certificates. These nine trustees themselves owned a majority of the stock and had complete control of all the property. Mr. Rockefeller, when questioned, stated that one of the trustees was a responsible officer in almost every refinery or organisation in the trust; that the trustees, as a body, knew by reports and correspondence, and by frequent consultation in New York with active promoters of each concern, just how the business was going on. “We all know how the business goes,” said Mr. Rockefeller; “we get reports once in thirty days showing what it has cost for everything.”

The trustees evidently ran the entire great combination under the agreement. But consider the anomaly of the situation. Thirty-nine corporations, each of them having a legal existence, obliged by the laws of the state creating it to limit its operations to certain lines and to make certain reports, had turned over their affairs to an organisation having no legal existence, independent of all authority, able to do anything it wanted anywhere; and to this point working in absolute darkness. Under their agreement, which was unrecognised by the state, a few men had united to do things which no incorporated company could do. It was a situation as puzzling as it was new. The committee in reporting on what it discovered did nothing to solve the puzzle. It simply sounded a warning:

“The actual value of property in the trust control at the present time is not less than one hundred and forty-eight millions of dollars, according to the testimony of the trust’s president before your committee. This sum in the hands of nine men, energetic, intelligent, and aggressive—and the trustees themselves, as has been said, own a majority of the stock of the trust which absolutely controls the one hundred and forty-eight millions of dollars—is one of the most active and possibly the most formidable moneyed power on this continent. Its influence reaches into every state and is felt in remote villages, and the products of its refineries seek a market in almost every seaport on the globe. When it is remembered that all this vast wealth is the growth of about twenty years, that this property has more than doubled in value in six years, and that with this increase the trust has made aggregate dividends during that period of over fifty millions of dollars, the people may well look with apprehension at such rapid development and centralisation of wealth wholly independent of legal control, and anxiously seek out means to modify, if not to prevent, the natural consequence of the device producing it, a device of late invention, namely, the aggregation of great corporations into partnerships with unbounded resources and a field of operations quite as extended as its resources. So much for the nature of the Standard Oil Trust. The committee regret that they are not able to make a more complete and satisfactory report as to the method of its operations and its effect upon public interests.

“The brevity of the time within which the investigation was required to be made rendered it impossible for your committee to do more than examine the persons most prominent in the management of its affairs. Its cause was thus presented to the most favourable light possible, and it is only fair to conclude that nothing was left unsaid by them that could be said in its favour. No witness came forward to accuse it of the great offences commonly laid to its charge. No proofs were made of its rapacity or of the greed with which it lays hold of every competitive industry, except such as might be drawn from the fact that it is the almost sole occupant of the field of oil operations, from which it has driven nearly every competitor. No witness appeared to prove its power over railroad and transportation companies and to wring from already impoverished lines better terms than other shippers, except such as might be drawn from the admission of its officers, made with hesitation, that this wealth and the amount of its business enabled it to obtain better terms than its poorer competitors.”^[126]

The New York Senate made its investigation of trusts in February, 1888. In March the Committee on Manufactures of the House of Representatives began a similar inquiry. This committee, like the earlier one, made the Standard its principal subject. Fully 1,000 pages of a report of 1,500 pages are devoted to Mr. Rockefeller’s creation—five times the space given to the Sugar Trust, ten times that given to the Whiskey Trust. The testimony was wide in range. Indeed, from the volume alone, a pretty complete history of the Standard Oil Company up to 1888 could be written. Here are found the South Improvement Company charter and contracts in full. Here is Mr. Cassatt’s testimony, taken in the case of the Commonwealth of Pennsylvania vs. the Pennsylvania Railroad, showing the character of the rebates the Standard Combination was able to secure from the railroads at that time. Here is a partial history of the growth of the Standard pipe-lines. Many personal histories of refiners driven out of business by the conditions brought about by railroad discriminations; full accounts of the war of the producing element on the Standard; all of the testimony in the Buffalo case, where two refiners were found guilty of conspiring to ruin an independent refining concern; the reports of the Interstate Commerce Commission in the cases of George Rice; and much interesting explanation of various matters by leading Standard Oil officials appear in the report.

Mr. Rockefeller was on the stand, and one item of his testimony affords a curious comparison. On the 28th of February, when before the New York Senate committee, Mr. Rockefeller was asked if he was not a member of the South Improvement Company.

“I was not,” he replied.

On the 30th of the April following, when before the House Committee, the following colloquy took place:

Q. I want the names particularly of gentlemen who either now or in the past have been interested with you gentlemen who were in the South Improvement Company?

A. I think they were O. T. Waring, W. P. Logan, John Logan, W. G. Warden, O. H. Payne, H. M. Flagler, William Rockefeller, J. A. Bostwick, and—myself.

It was in this investigation that Henry M. Flagler gave explanations of various operations of the Standard, which have been quoted in the course of this narrative, notably explanations of the South Improvement Company, of the ten-cent rebate secured from all the railroads in 1875, of the purchase of the Empire Transportation Company, of the rebate on other people’s shipments enjoyed in 1878 by the American Transfer Company. Some of Mr. Flagler’s testimony in this investigation compares as curiously with affidavits of his made in 1880 as does that of his great chief. For instance, in 1880 Mr. Flagler swore that “the Standard Oil Company owns and operates its refineries at Cleveland, Ohio, and also a refinery at Bayonne in the state of New Jersey. That at no other place in the United States does the said Standard Oil Company own, operate, or control any refinery or refineries.”^[127] But in this investigation the following colloquy took place:

Q. When did the Standard Company of Ohio first enter into an alliance with other refineries?

A. If you mean (by) an alliance, Mr. Gowen, I should say never.

Q. I am only endeavouring to aid your friends in getting at what they want. Here, I notice, they propose to prove by you—I will give it in this way—that on account of the disastrous condition of the refining business, the Standard, on October 15, 1874, entered into an alliance with a number of Pittsburg refineries.

A. That is more correctly stated by saying that the Standard Oil Company purchased the refineries owned by the parties in Pittsburg.

Q. Who were they?

A. Lockhart, Frew and Company, I think, was the company. Wait a moment. It was the Standard Oil Company of Pittsburg, it being a corporation, and Warden, Frew and Company, of Philadelphia, and, I should say, Charles Pratt and Company, of New York.

Q. Any others?

A. That is all.

Q. All those gentlemen, Warden, Frew and Company, and the Standard Oil Company of Pittsburg, Charles Pratt and Company, of New York, are now associated with you as parties interested in the present Oil Trust?

A. They are stockholders. The property formerly owned by them was at that time purchased by the Standard Oil Company.

Q. When you speak of purchasing their interest, you do not exclude them from their interest? They united with you and remained as your associates in the business?

A. If it was not from the fact that ours was a corporation, we might call it a co-partnership.

Q. They becoming interested in yours, and you in theirs?

A. Yes, sir.

Q. And you simply used your name to represent the joint ownership, as it was a corporation?

A. Yes, sir.^[128]

Full as the testimony on the Standard Oil Trust gathered by the Federal committee of 1888 is, its report touched but one point, and that was its organisation. To the committee it seemed that the agreement under which the trust operated was such as to make it exempt from the anti-trust legislation which was then contemplated by Congress. The legislation proposed was directed against “combinations to fix the price or regulate the production of merchandise or commerce.” Now a mass of testimony had been presented showing that, from the starting-point of the Standard’s history with the South Improvement Company, its aim has been to regulate the output of refined oil so as to fix the price, but this testimony, the committee saw clearly enough, did not apply to the trust which it was investigating. For—so swore the trustees—they had nothing to do with the business operations of the separate concerns. They simply held the stock of the various corporations, exercised their right as stockholders, received and distributed the dividends. Each company did its own business in its own way. The trustees were not responsible for it. There was something humorous to those familiar with the oil world, in the idea of J. D. Rockefeller, William Rockefeller, J. D. Archbold, Henry H. Rogers, Charles Pratt, H. M. Flagler, Benjamin Brewster, W. H. Tilford and O. B. Jennings, having nothing to do, as trustees of the Standard Oil Trust, but to receive and divide dividends, engrossing and interesting a task as that undoubtedly was. But, as a matter of fact, nothing else could be settled on them by anything in the testimony. For instance, in 1887 there was an alliance formed between the Oil Producers’ Protective Association and the Standard for limiting the production of crude oil (a movement of which we shall hear more later). This certainly was in restraint of trade. But, on examination, the committee found the contract had been signed by the Standard Oil Company of New York. The trustees had nothing to do with it! Taking up, point by point, the conditions of which the oil producers complained, not one of them could be fixed on the trust. It had made no agreements, signed no contracts, kept no books. It had no legal existence. It was a force powerful as gravitation and as intangible. You could argue its existence from its effects, but you could never prove it. You could no more grasp it than you could an eel. Certainly the Committee on Manufactures was justified in confining its report to pointing out the fact that the Standard Oil Trust agreement was a shrewd and slippery device for evading responsibility.

And there the investigations of 1888 ended. There had been much noise over them, and for what good? So asked the discontented oil public. It simply had secured the form of an agreement which could no more be touched by legislation than human greed. It was characteristic that the oil public, intent on immediate remedies, should be discouraged. If they had applied to their cause the same patience and foresight Mr. Rockefeller did to his, they would have realised that, as a matter of fact, a respectable first step had been taken toward their real goal, a goal which has not by any means been reached—that is, a legal form of organisation for corporations doing interstate business which would enable the public to know promptly if they were securing special privileges or were restricting trade. This first step was in securing the famous trust agreement. That was now in the hands of people given to thinking about things, and something came of it, even more quickly than the philosophical observer of public events might expect, and in this wise:

In 1887 there was elected to the attorney-generalship of Ohio a lawyer, something under forty years of age, named David K. Watson. Two years later Mr. Watson was a candidate for re-election. One day, while busy with his campaign, he came out of his office in the state-house on the public square in Columbus, and, crossing the street, stopped, as he often did, at a book-shop to look over new publications. He happened there on a small yellow leatherette volume entitled “Trusts.” It was written by William W. Cook, of the New York bar, and cost fifty cents. Mr. Watson bought the book and spent the evening reading it. At the end he found the Standard Oil Trust agreement. It was the first time he had ever seen it. He read it carefully and saw at once that, if it was a bona fide agreement, the Standard Oil Company of Ohio was and had been for seven years violating the laws of the state of Ohio by taking the affairs of the company from the directors and placing them in the hands of trustees, nearly all of whom were non-residents of the state. Mr. Watson knew on the instant that, if this were a bona fide agreement and he were re-elected attorney-general of Ohio, it would be his duty to bring an action against the Standard Oil Company of the state. He laid the little book away until he knew the result of the election.