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M A R C H   1 8 8 1

Story of a Great Monopoly
by H. D. Lloyd

The online version of this article appears in three parts. Click here to go to parts two and three.

WHEN Commodore Vanderbilt began the world he had nothing, and there were no steamboats or railroads. He was thirty-five years old when the first locomotive was put into use in America. When he died, railroads had become the greatest force in modern industry, and Vanderbilt was the richest man in Europe or America, and the largest owner of railroads in the world. He used the finest business brain of his day and the franchise of the state to build up a kingdom within the republic, and like a king he bequeathed his wealth and power to his eldest son. Bancroft's History of the United States and our railroad system were begun at the same time. The history is not yet finished, but the railroads owe on stocks and bonds $4,600,000,000, more than twice our national debt of $2,220,000,000, and tax the people annually $490,000,000, one and a half times more than the government's revenue last year of $274,000,000. More than any other class, our railroad men have developed the country, and tried its institutions. The evasion of almost all taxes by the New York Central Railroad has thrown upon the people of New York State more than a fair share of the cost of government, and illustrates some of the methods by which the rich are making the poor poorer. Violations of trust by Credit Mobiliers, Jay Gould's wealth and the poverty of Erie stockholders, such corruption of legislatures as gave the Pacific Mail its subsidies, and nicknamed New Jersey "The State of Camden and Amboy," are sins against the public and private faith on a scale impossible in the early days of republics and corporations. A lawsuit still pending, though begun ten years ago by a citizen of Chicago, to recover the value of baggage destroyed by the Pennsylvania Railroad; Judge Barnard's midnight orders for the Erie ring; the surrender of its judicial integrity by the supreme court of Pennsylvania at the bidding of the Pennsylvania Railroad, as charged before Congress by President Gowen, of the Reading Railroad; the veto by the Standard Oil Company of the enactment of a law by the Pennsylvania legislature to carry out the provision of the constitution of the State that every one should have equal rights on the railroads, -- these are a few of the many things that have happened to kill the confidence of our citizens in the laws and the administration of justice. No other system of taxation has borne as heavily on the people as those extortions and inequalities of railroad charges which caused the granger outburst in the West, and the recent uprising in New York. In the actual physical violence with which railroads have taken their rights of way through more than one American city, and in the railroad strikes of 1876 and 1877 with the anarchy that came with them, there are social disorders we hoped never to see in America. These incidents in railroad history show most of the points where we fail, as between man and man, employer and employed, the public and the corporation, the state and the citizen, to maintain the equities of "government" -- and employment -- "of the people, by the people, for the people."
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Our treatment of "the railroad problem" will show the quality and calibre of our political sense. It will go far in foreshadowing the future lines of our social and political growth. It may indicate whether the American democracy, like all the democratic experiments which have preceded it, is to become extinct because the people had not wit enough or virtue enough to make the common good supreme.

The remarkable series of eight railroad strikes, which began during the Centennial Exposition of the prosperity of our first century and the perfection of our institutions, culminated on July 16, 1877, in the strike on the Baltimore and Ohio Railroad at Martinsburg, West Virginia. This spread into the greatest labor disturbance on record. For a fortnight there was an American Reign of Terror. We have forgotten it, -- that is, it has taught us nothing; but if Freeman outlives us to finish his History of Federal Government from the Achaian League to the Disruption of the United States, he will give more than one chapter to the labor rising of 1877. The strike at Martinsburg was instantly felt at Chicago and Baltimore in the stoppage of shipments. In a few hours the Baltimore and Ohio, one of the chief commercial arteries of Maryland, Virginia, West Virginia, Ohio, Indiana, and Illinois, was shut up. The strike spread to the Pennsylvania, the Erie and the New York Central railroads, and to the Great Western lines, with their countless branches, as far west as Omaha and Topeka, and as far south as the Ohio River and the Texas Pacific. The feeling of the railroad employes all over the country was expressed by the address of those of the Pennsylvania Railroad to its stockholders. The stockholders were reminded that "many of the railroad's men did not average wages of more than seventy-five cents a day;" that "the influence of the road had been used to destroy the business of its best customers, the oil producers, for the purpose of building up individual interests." "What is the result? The traffic has almost disappeared from the Pennsylvania Railroad, and in place of $7,000,000 revenue this year, although shipments are in excess of last year, your road will receive scarcely half the amount. This alone would have enabled your company to pay us enough for a living." The address also refers pointedly to the abuses of fast freight lines, rolling-stock companies, and other railroad inventions for switching business into private pockets. Other workingmen followed the example of the railroad employes. At Zanesville, Ohio, fifty manufactories stopped works. Baltimore ceased to export petroleum. The rolling mills, foundries, and refineries of Cleveland were closed. Chicago, St. Louis, Cincinnati, all the cities large and small, had the same experience. At Indianapolis, next to Chicago the largest point for the eastward shipment of produce, all traffic was stopped except on the two roads that were in the hands of the national government. At Erie, Pa., the railroad struck, and notwithstanding the remonstrance of the employes refused to forward passengers or the United States mails. The grain and cattle of the farmer ceased to move to market, and the large centres of population began to calculate the chances of famine. New York's supply of Western cattle and grain was cut off. Meat rose three cents a pound in one day, while Cleveland telegraphed that hogs, sheep, beeves and poultry billed for New York were dying on the sidetracks there. Merchants could not sell, manufacturers could not work, banks could not lend. The country went to the verge of panic, for the banks, in the absence of remittances, had resolved to close if the blockade lasted a few days longer. President Garrett, of the Baltimore and Ohio Railroad, wrote that his "great national highway could be restored to public use only by the interposition of the United States army." President Scott, of the Pennsylvania Railroad, telegraphed the authorities at Washington, "I fear that unless the general government will assume the responsibility of order throughout the land, the anarchy which is now present will become more terrible than has ever been known in the history of the world." The governors of ten States -- West Virginia, Maryland, New Jersey, New York, Pennsylvania, Ohio, Illinois, Wisconsin, Missouri, and Kentucky -- issued dispersing proclamations which did not disperse. The governors of four of them -- West Virginia, Maryland, Pennsylvania, and Illinois -- appealed to the national government for help against domestic insurrection, which the State could not suppress. The president of the United States issued two national proclamations to the insurgents. The state troops were almost useless, as in nearly all cases they fraternized with the strikers. All the national troops that could be spared from the Indian frontier and the South were ordered back to the centres of civilization. The regulars were welcomed by the frightened people of Chicago with cheers which those who heard will never forget. Armed guards were placed at all the public buildings of Washington, and ironclads were ordered up for the protection of the national capital. Cabinet meetings were continuous. General Winfield S. Hancock was sent to Baltimore to take command, General Sherman was called back from the West, and General Schofield was ordered from West Point into active service. Barricades, in French style, were thrown up by the voters of Baltimore. New York and Philadelphia were heavily garrisoned. In Philadelphia every avenue of approach to the Pennsylvania Railroad was patrolled, and the city was under a guard of six thousand armed men, with eight batteries of artillery. There were encounters between troops and voters, with loss of life, at Martinsburg, Baltimore, Pittsburg, Chicago, Reading, Buffalo, Scranton, and San Francisco. In the scene at Pittsburg, there was every horror of revolution. Citizens and soldiers were put to flight, and the town left at the mercy of the mob. Railroad cars, depots, hotels, stores, elevators, private houses, were gutted and burned. The city has just compromised for $1,810,000 claims for damages to the amount of $2,938,460, and has still heavy claims to settle. The situation was described at this point by a leading newspaper as one of "civil war with the accompanying horrors of murder, conflagration, rapine, and pillage." These were days of greater bloodshed, more actual suffering, and wider alarm in the North than that part of the country experienced at any time during the civil war, except when Lee invaded Pennsylvania. As late as August 3d, the beautiful valley of the Wyoming, in Pennsylvania, was a military camp, traversed by trains loaded with Gatling guns and bayonets, and was guarded by Governor Hartranft in person with five thousand soldiers. These strikes, penetrating twelve States and causing insurrections in ten of them, paralyzed the operation of twenty thousand miles of railroad, and directly and indirectly threw one million men temporarily out of employment. While they lasted they cause greater losses than any blockade which has been made by sea or land in the history of war. Non-sensational observers, like the Massachusetts Board of Railroad Commissioners, look to see the outburst repeated, possibly to secure a rise of wages. The movement of the railroad trains of this country is literally the circulation of its blood. Evidently, from the facts we have recited, the States cannot prevent its arrest by the struggle between these giant forces within society, outside the law.

Kerosene has become, by its cheapness, the people's light the world over. In the United States we used 220,000,000 gallons of petroleum last year. It has come into such demand abroad that our exports of it increased from 79,458,888 gallons in 1868, to 417,648,544 in 1879. It goes all over Europe, and to the far East. The Oriental demand for it is increasing faster than any other. We are assured by the eloquent petroleum editor of the New York Shipping List that "it blazes across the ruins of Babylon and waste Polynesia, and Far Cathay, in Burmah, in Siam, in Java, the bronzed denizens toil and dream, smoke opium and swallow hasheesh, woo and win, love and hate, and sicken and die under the rays of this wonderful product of our fruitful caverns." However that may be, it is statistically true that China and the East Indies took over 10,000,000 gallons in 1877, and nearly 25,000,000 gallons in 1878. After articles of food, this country has but one export, cotton, more valuable than petroleum. It was worth $61,789,438 in our foreign trade in 1877; $46,574,974 in 1878; and $18,546,642 in the five months ending November 30, 1879. In the United States, in the cities as well as the country, petroleum is the general illuminator. We use more kerosene lamps than Bibles. The raw material of this world's light is produced in a territory beginning with Cattaraugus County in New York, and extending southwesterly through eight or nine counties of Pennsylvania, making a belt about one hundred and fifty miles long, and twelve or fifteen miles wide, and then, with an interval, running into West Virginia, Kentucky, and Tennessee, where the yield is unimportant. The bulk of the oil comes from two counties, Cattaraugus in New York, and McKean in Pennsylvania. There are a few places elsewhere that produce rock oil, such as the shales of England, Wales and Scotland, but the oil is so poor that American kerosene, after being carried thousands of miles, can undersell it. Very few of the forty millions of people in the United States who burn kerosene know that its production, manufacture, and export, its price at home and abroad, have been controlled for years by a single corporation, -- the Standard Oil Company. This company began in a partnership, in the early years of the civil war, between Samuel Andrews and John Rockefeller in Cleveland. Rockefeller had been a bookkeeper in some interior town in Ohio, and had afterwards made a few thousand dollars by keeping a flour store in Cleveland. Andrews had been a day laborer in refineries, and so poor that his wife took in sewing. He found a way of refining by which more kerosene could be got out of a barrel of petroleum than by any other method, and set up for himself a ten-barrel still in Cleveland, by which he cleared $500 in six months. Andrews' still and Rockefeller's savings have grown into the Standard Oil Company. It has a capital, nominally $3,500,000, but really much more, on which it divides among its stockholders every year millions of dollars of profits. It has refineries at Cleveland, Baltimore, and New York. Its own acid works, glue factories, hardware stores, and barrel shops supply it with all the accessories it needs in its business. It has bought land at Indianapolis on which to erect the largest barrel factory in the country. It has drawn its check for $1,000,000 to suppress a rival. It buys 30,000 to 40,000 barrels of crude oil a day, at a price fixed by itself, and makes special contracts with the railroads for the transportation of 13,000,000 to 14,000,000 barrels of oil a year. The four quarters of the globe are partitioned among the members of the Standard combinations. One has the control of the China trade; another that of some country of Europe; another that of the United States. In New York, you cannot buy oil for East Indian export from the house that has been given the European trade; reciprocally, the East Indian house is not allowed to sell for export to Europe. The Standard produces only one fiftieth or sixtieth of our petroleum, but dictates the price of all, and refines nine tenths. Circulars are issued at intervals by which the price of oil is fixed for all the cities of the country, except New York, where a little competition survives. Such is the indifference of the Standard Oil Company to railroad charges that the price is made the same for points so far apart as Terre Haute, Chicago, and Keokuk. There is not to-day a merchant in Chicago, or in any other city in the New England, Western, or Southern States, dealing in kerosene, whose prices are not fixed for him by the Standard. In all cases these prices are graded so that a merchant in one city cannot export to another. Chicago, Cincinnati, or Cleveland is not allowed to supply the tributary towns. That is done by the Standard itself, which runs oil in its own tank cars to all the principal points of distribution. This corporation has driven into bankruptcy, or out of business, or into union with itself, all the petroleum refineries of the country except five in New York, and a few of little consequence in Western Pennsylvania. Nobody knows how many millions Rockefeller is worth. Current gossip among his business acquaintances in Cleveland puts his income last year at a figure second only, if second at all, to that of Vanderbilt. His partner, Samuel Andrews, the poor English day laborer, retired years ago with millions. Just who the Standard Oil Company are, exactly what their capital is, and what are their relations to the railroads, nobody knows except in part. Their officers refused to testify before the supreme court of Pennsylvania, the late New York Railroad Investigating Committee, and a committee of Congress. The New York committee found there was nothing to be learned from them, and was compelled to confess its inability to ascertain as much as it desired to know "of this mysterious organization, whose business and transactions are of such a character that its members declined giving a history or description, lest their testimony be used to convict them of crime."

Their great business capacity would have insured the managers of the Standard success, but the means by which they achieved monopoly was by conspiracy with the railroads. Mr. Simon Sterne, counsel for the merchants of New York in the New York investigation, declared that the relations of the railroads to the Standard exhibited "the most shameless perversion of the duties of a common carrier to private ends that has taken place in the history of the world." The Standard killed its rivals, in brief, by getting the great trunk lines to refuse to give them transportation. Commodore Vanderbilt is reported to have said that there was but one man -- Rockefeller -- who could dictate to him. Whether or not Vanderbilt said it, Rockefeller did it. The Standard has done everything with the Pennsylvania legislature, except refine it. In 1876 its organization was brought before Congress, and referred to a committee. A prominent member of the Standard, not a member of Congress, conducted the farce of inquiry from behind the seat of the chairman. Another member of the company, who was a member of Congress, came with the financial officer of the company before the committee, and sustained him in his refusal to testify about the organization, its members or its relations with the railroads. The committee has never reported. The facts they suppressed must be hunted out through newspaper articles, memorials from the oil producers and refiners, records of lawsuits, reports of chambers of commerce and of legislative investigating committees, and other miscellaneous sources of information.

The contract is in print by which the Pennsylvania Railroad agreed with the Standard, under the name of the South Improvement Company, to double the freights on oil to everybody, but to repay the Standard one dollar for every barrel of oil it shipped, and one dollar for every barrel any of its competitors shipped. This contract was produced in Congress, and was stigmatized by Representative Conger as "the most damnable and startling evidence yet produced of the possibility of railroad monopoly." Ostensibly this contract was given up, in deference to the whirlwind of indignation it excited. But Rockefeller, the manager of the Standard, was a man who could learn from defeat. He made no more tell-tale contracts that could be printed. He effected secret arrangements with the Pennsylvania, the New York Central, the Erie, and the Atlantic and Great Western. What influences he used to make the railroad managers pliable may probably be guessed from the fact that one quarter of the stock of the Acme Oil Company, a partner in the Standard combination on which heavy monthly dividends are paid, is owned by persons whose names Rockefeller would never reveal, which Mr. Archbold, the president of the company, said under oath he had not been told, and which the supreme court of Pennsylvania has not yet been able to find out. The Standard succeeded in getting from Mr. Vanderbilt free transportation for its crude oil from the wells in Pennsylvania, one hundred and fifty miles, to the refineries at Cleveland, and back. This stamped out competing refineries at Pittsburg, and created much of the raw material of the riots of July, 1877. Vanderbilt signed an agreement, March 25, 1872, that "all agreements for the transportation of oil after this date shall be upon a basis of perfect equality," and ever since has given the Standard special rates and privileges. He has paid it back in rebates millions of dollars, which have enabled it to crush out all competitors, although many of them, like the Octave Oil company and the Titusville refiners, had done all their business over his road till they went into bankruptcy, broken by his contracts with the Standard. He united with the Erie in a war on the Pennsylvania Railroad, to force it to sell to the standard all its refineries, and the great pipe lines by which the oil, like Croton water in the mains, was carried from the wells to the railroads. He then joined with the Erie and the Pennsylvania in a similar attack on the Baltimore and Ohio, which had to sell out to the Standard. So the Standard obtained the control of all the pipe lines and of the transportation, of everything, in fact as a witness said before the New York Railroad Investigating Committee, except the bodies of the producers. Mr. Vanderbilt began, as did the Erie and Pennsylvania railroad kings, with paying back to the Standard, but to no other shipper, ten per cent of its freight bills. He continued making one concession after another, till when he was doing the business for other shippers $1.40 and $1.25 a barrel, he charged the Standard only eighty and eighty-one cents, and this was afterwards reduced to sixty cents a barrel. During the war against the Pennsylvania road to make it sell out to the Standard, the New York Central carried oil for less than nothing. Besides the other allowances, Mr. Vanderbilt paid the Standard through its alias, the American Transfer Company, a rebate of thirty-five cents a barrel on all crude oil shipped by it or its competitors. When the oil producers, whom the Standard had cut off from all access to the world except through it, sought an exit through an out-of-the-way railroad and the Erie Canal, or down the Ohio River hundreds of miles to Huntingdon, thence by the Chesapeake and Ohio Railroad to Richmond, and so to the sea, Mr. Vanderbilt lowered his rates to the Standard so that it could undersell any one who used these devious routes. When the producers, June, 1879, completed their own tidewater pipe line, 104 miles long, to a junction with the Reading Railroad, obtaining in this way a direct connection with the seaboard, Mr. Vanderbilt reduced his rate to the public from $1.40 to $1.25 a barrel to thirty-five and twenty-five cents, and charged the Standard twenty, fifteen, finally but ten cents. For ten cents Mr. Vanderbilt hauled for the Standard a barrel weighing 390 pounds over 400 miles, and hauled back the empty cars, at the same time that he charged forty-five cents for hailing a can of milk weighing ninety pounds for sixty miles. So closely had the Standard octopus gripped itself about Mr. Vanderbilt that even at the outside rates its competitors could not get transportation from him. He allowed the Standard to become the owner of all the oil cars run over his road, and of all his terminal facilities for oil. As the Standard owned all but 200 of the oil cars run on the Erie, and leased all that road's terminal facilities, it could charge its rivals anything it pleased for the privileges of New York harbor. When Mr. Vanderbilt was questioned by Mr. Simon Sterne, of the New York committee, about these and other things, his answers were, "I don't know," "I forget," "I don't remember," to 116 questions out of 249 by actual count. At a time when the Standard Oil Company through its other self, the American Transfer Company, was receiving from the New York Central thirty-five cents a barrel on all oil shipped by itself or its competitors, and was getting other rebates which cost the New York Central over $2,000,000 from October 17, 1877, to March 31, 1879, Mr. Vanderbilt testified positively before the New York Investigating Committee that he knew nothing whatever about the American Transfer Company, its officers, or the payments to it.


The online version of this article appears in three parts. Click here to go to parts two and three.

The Atlantic Monthly; March 1881; Story of a Great Monopoly; Volume 47, No. 281; pages 317-334.
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