The Dragon Slain Yergin PDF

C H A P T E R 5 The Dragon Slain O L D H O U S E was under siege. Its commercial competitors, both in the United States and around the world, could not be overcome. Moreover, a political and judicial war was being waged throughout the United States against Standard and its ruthless business pract...

C H A P T E R 5 The Dragon Slain O L D H O U S E was under siege. Its commercial competitors, both in the United States and around the world, could not be overcome. Moreover, a political and judicial war was being waged throughout the United States against Standard and its ruthless business practices. It was not a new challenge; Rocke­ feller and his associates had been criticized and vilified from the inception of the Standard Oil Trust. Standard Oil executives never really understood such criticism. They thought it was cheap demagoguery, uninformed jealousy, and special pleading. They were sure that, in its relentless pursuit of its own interests and enrichment, Standard Oil was not only checking the scourge of "unbridled competition," but was also truly, as Rockefeller himself said, perhaps the great­ est of "upbuilders" that the nation had ever known. To the public at large, however, that was not at all how things looked. Standard's critics saw a powerful, devious, cruel, entrenched, all-pervasive, and yet mysterious enterprise. It was accountable to no one except a handful of arrogant directors, and it mercilessly tried to destroy all who stood in its way. This view was part of the prospect of the age. The growth of Standard Oil had not occurred in a vacuum. It was a product of the swift industrialization of the American economy in the last few decades of the nineteenth century, which within a remarkably short time had transformed a decentralized and competitive economy of many small industrial firms into one dominated by huge industrial combinations called trusts, each one sitting astride an industry, many with in­ terlocking investors and directors. This rapid change was deeply alarming to many Americans. As the nineteenth century gave way to the twentieth, they looked to government to restore competition, control the abuses, and tame the economic and political power of the trusts, those vast and fearsome dragons THE that roamed so freely across the country. And the fiercest and most feared of all the dragons was Standard Oil. The Holding Company The renewed legal assaults against Standard began from the states, with antimonopoly suits brought by Ohio and Texas. In Kansas, the governor pushed a scheme to build a state-owned oil refinery, which would compete with Standard's and would be staffed by penitentiary inmates. At least seven other states, plus the territory of Oklahoma, launched legal actions of one kind or another. But Standard was slow to apprehend the full extent of the popular opposition to its business practices. "I think this anti-Trust fever is a craze," one senior executive wrote Rockefeller in 1888, "which we should meet in a very dignified way & parry every question with answers which while perfectly truthful are evasive of bottom facts." The company continued to keep everything as secret as it could. When Rockefeller testified in one of the Ohio suits, he was so unforthcoming that a New York newspaper headlined, "John D. Rockefeller Imitates a Clam." Moving to marshal all necessary resources to the battle at hand, Standard hired the best and most expensive legal talent. It also sought to influence the political process, perfecting the art of the timely political contribution. "Our friends do feel that we have not received fair treatment from the Republican Party," wrote Rockefeller when forwarding a contribution to the party in Ohio, "but we expect better things in the future." But Standard Oil did not stop with contributions. It put the Republican Senator from Ohio on a legal retainership— his fee in 1900 alone was $44,500. And it considerately made loans to a powerful Senator from Texas, then known as the "foremost Democratic leader in Amer­ ica," who needed money to pay for a six-thousand-acre ranch he had purchased outside Dallas. It used an advertising agency that, in the course of purchasing advertising space in newspapers, also planted news articles friendly to Standard Oil. It set up or took over what were called "blind tigers"—companies that looked to the outside world like totally independent distributors, but of course were not. In 1901, for instance, a company named Republic Oil was established to market in Missouri. Its advertisements bore such headlines as "No Trust" and "No Monopoly" and "Absolutely Independent.," But it secretly reported to 75 New Street in New York, which just happened to be the back door of 26 Broadway. While some of the states achieved temporary victories against Standard, none ultimately succeeded in their attacks. In one instance, after the Standard Oil companies were expelled from Texas and their properties put into receiv­ ership, the receivers convened a meeting in the Driskill Hotel in Austin to sell off all the properties. And sell them off they did—to agents of Standard Oil. 1 Still, the legal assaults forced further changes in Standard's organization. In 1892, in response to a court decision in Ohio, the trust was dissolved and the shares were transferred to twenty companies. But control remained with the same owners. The companies were grouped together as the "Standard Oil In97 terests." Under this new arrangement, the Executive Committee at 26 Broadway gave way to an informal meeting of presidents of the various constituent firms that constituted the Standard Oil Interests. Letters were no longer addressed to the Executive Committee, but rather simply to the "gentlemen upstairs." But the "gentlemen" were not happy with the reorganization of the "Stan­ dard Oil Interests." Further protection was necessary in response to continuing pressures and in order to put the company on a firmer legal foundation. They found the solution to their problems in New Jersey. That state had revised its laws to permit the establishment of holding companies—corporations that could own stock in other corporations. It was a decisive break with traditional business law in the United States. New Jersey also sought to make its business environ­ ment hospitable to this new form of combination. Thus, in 1899, the owners of the Standard Oil Interests established Standard Oil of New Jersey as the holding company for their entire operation. Its capitalization was increased from $10 million to $ 1 1 0 million, and it held stock in forty-one other companies, which controlled yet other companies, which in turn controlled still other companies. During this time, a momentous change of another kind also took place within Standard Oil. John Rockefeller had already amassed vast wealth, he was tired, and he began to plan for retirement. Though he was only in his mid-fifties, the constant strain of business, and of the attacks, was taking its toll. After 1890, his complaints of digestive problems and fatigue had become more frequent. He said that he was being crucified. He took to keeping a revolver by his bed at night. In 1893, he came down with a stress-related disease, alopecia, which not only caused him a good deal of physical distress, but also robbed him of all his hair—which, afterward, he sought to remedy variously with a skullcap or a wig. His formerly spare form now gave way to corpulence. His plans to step aside were temporarily postponed by a series of crises—the Panic of 1893 and the ensuing depression, and the growing vigor of competition both at home and abroad. Still, Rockefeller began to distance himself, and finally, by 1897, he had—not yet sixty years of age—stepped aside, turning administrative leadership over to one of the other directors, John D. Archbold. 2 The Successor: The Oil Enthusiast There had been little question but that John Archbold would be the successor. More than any other of the senior Standard executives, he was expert in all phases of the business. He had been one of the most powerful figures in the American oil industry during the preceding two decades; for the next two dec­ ades, he would be the most powerful. His was a long career. Short, and younger-looking than his age, Archbold was determined and indefatigable, always keen to "go ahead," and totally consumed by the demands and lightness of his cause. As a boy, during the Presidential campaign of i860, he had sold badges bearing the likenesses of the candidates. His brother took the better sales district; John far outsold him. At age fifteen, with the blessing of his Methodist minister ("God is willing that he should go"), Archbold boarded a train by himself in Salem, Ohio, to seek not his salvation but rather his fortune in Titusville and in oil. He started off as a shipping clerk, his salary so meager 98 that he slept on a bed under the office counter. He became an oil broker— always in motion, caught up then, as for the rest of his life, in what was known as "oil enthusiasm." Such enthusiasm was badly needed in the helter-skelter of the Oil Regions. "His daily round then was a hard job," an associate was to recall of the young oil broker. "There was always a foot or more of oil-soaked mud in the main streets of Titusville, and around the wells along the Creek it was just as bad, sometimes up to a man's thigh, but John Archbold cared nothing for it. He would wade through it, lilting a song if there was oil to be bought or bargained for." Archbold had no diversions other than work. He learned to use humor to defuse a tense situation, which became most valuable during the subsequent controversies and strife. Much later, when asked if Standard Oil had looked out only for its own interests, he dryly replied, "We were not always entirely phil­ anthropic." He also learned how to keep events, no matter how troubling, in perspective. He figured out how to make himself, and prove himself, very useful to others—particularly to John D. Rockefeller. He had caught Rockefeller's eye early, in 1871, when on registering at a hotel in Titusville, Rockefeller had seen a signature above his own. It was that of the young broker and refiner, who had signed in as "John D. Archbold, $4 a barrel." Rockefeller was taken by such self-confident advertising—at a time when oil could not fetch anywhere near such a price—and made special note. An activist, Archbold became secretary of the Titusville Oil Exchange. During the affair of the South Improvement Company and the Oil War of 1872, when Rockefeller and the railroads tried to monopolize control over the output of oil, he emerged as one of the leaders of the Oil Regions, denouncing Rocke­ feller in most scathing terms. Yet Rockefeller recognized someone who grasped the fundamentals of the Oil Regions, a man totally dedicated to the business, who could be aggressive and ruthless, and yet was flexible and adaptable. That last certainly proved to be the case in 1875, when Rockefeller invited him into the combine. Archbold swiftly accepted. His first task was to acquire secretly all the refineries along Oil Creek. He took up the charge with absolute deter­ mination. In a period of a few months, he bought or leased twenty-seven refining properties—and worked himself into a serious physical collapse. Archbold rose quickly toward the top of Standard Oil. "He would make up his mind with one flash of his dark snapping eyes, and then was smiling again," recalled one of his colleagues. But he still had to clear one major obstacle with Rockefeller—his "unfortunate failing," as it was called. He liked alcohol too much, and Rockefeller insisted that he sign the temperance pledge—and stick to it. He did what Rockefeller wanted. And now, just fifty, yet already a veteran of more than three decades in the oil industry, Archbold brought vigor and experience to his new post as the number-one man in Standard Oil. Rocke­ feller, while remaining in touch with 26 Broadway, from then on devoted himself to his estates, his philanthropy, his golf, and the management of his money, which was ever increasing. Between 1893 and 1901, Standard Oil paid out more than $250 million in dividends, of which by far the greater part went to a half dozen men—and fully one-quarter of the total to Rockefeller. Such was the cash mountain that Standard Oil threw forth that one financial writer described the 99 company as "really a bank of the most gigantic character—a bank within an industry, financing this industry against all competitors." Meanwhile, Rockefeller, relieved of day-to-day responsibility, regained his health under his new regimen. In 1909, his doctor predicted that he would live to be a hundred because he followed three simple rules: "First, he avoids all worry. Second, he takes plenty of exercise in the open air. Third, he gets up from the table a little hungry." Rockefeller kept abreast of developments in the company, but he did not actively involve himself in its management. Nor would Archbold have allowed that. Archbold did visit Rockefeller on Saturday mornings to discuss the business with its largest stockholder. And Rockefeller retained the title of president, which proved to be a major error of judgment. In adherence to Standard's policy of complete secrecy, no effort was ever made to make his retirement known, and so Rockefeller would still be held personally responsible for whatever Stan­ dard Oil did. Thus, insofar as the public was concerned, Rockefeller continued to be synonymous with Standard Oil. He was the lightning rod for all the crit­ icism, all the rage, all the attacks. Why did he retain the president's title? His colleagues may have thought that his name was needed to hold the empire together—the factor of awe. Perhaps it was out of due respect for his stock holdings. But shortly after the turn of the century, one of the other senior directors, H. H. Rogers, privately offered quite another reason: "We told him he had to keep it. These cases against us were pending in the courts; and we told him that if any of us had to go to jail, he would have to go with us!" 3 "The Red Hot Event" The assault on Standard Oil gained force at the end of the nineteenth century. A powerful new spirit of reform—progressivism—was gaining ascendancy in America. Its principal aims were political reform, consumer protection, social justice, better working conditions—and the control and regulation of big busi­ ness. The last had emerged as an urgent issue as a great merger wave swept across America, with rapid growth in the number of trusts. The Standard Oil Trust, the nation's first, had been established in 1882. But the movement toward combination really gathered speed in the 1890s. According to one count, 82 trusts with a total capitalization of $1.2 billion had been formed before 1898. An additional 234 trusts were organized, with a total capitalization in excess of $6 billion, between 1898 and 1904. Some saw the trust—or monopoly—as cap­ italism's ultimate achievement. For others it was a perversion of the system that threatened not only farmers and laborers, but also the middle classes and en­ trepreneurial businessmen, who feared that they would be economically disen­ franchised. The trust issue was characterized in 1899 as "the great moral, social and political battle that now confronts the whole Union." Trusts were one of the most important issues in the Presidential campaign of 1900, and shortly after his victory, President William McKinley told his secretary, "The trust question has got to be taken up in earnest and soon." One of the first to take it up, Henry Demarest Lloyd, had continued his scathing attacks on Standard Oil in book form, in Wealth Against Common100 wealth, in 1894. In his wake, a group of fearless journalists set about to investigate and publicize the evils and ills of society. These writers, who set the progressive agenda, were to become known as "muckrakers," and they were at the center of the progressive movement. For, as one historian has observed, "The fun­ damental critical achievement of American Progressivism was the business of exposure." At the top of the agenda was the exposure of business. The magazine that touched off the whole muckraking campaign was McClure's. It was one of the country's leading periodicals, with a circulation in the hundreds of thousands. Its publisher was the temperamental, expansive, and imaginative Samuel McClure. He was also an idiosyncratic man; on one trip to Paris and London, he collected a thousand neckties. He had already collected a talented group of writers and editors back in New York, and they were eagerly looking for a large theme. "The great feature is Trusts," McClure wrote to one of them in 1899. "That will be the red-hot event. And the magazine that puts the various phases of the subject that people want to be informed about will be bound to have a good circulation." The editors of the magazine decided to focus on one specific trust to illustrate the process of combination. But which one? They debated the Sugar Trust and talked about the Beef Trust, but discarded both. One of the writers then sug­ gested the discovery of oil in California. No, replied the managing editor, a woman named Ida Tarbell. "We have got to find a new plan of attacking it," she said. "Something that will show clearly not only the magnitude of the in­ dustries and commercial developments, and the changes they have brought in various parts of the country, but something which will make clear the great principles by which industrial leaders are combining and controlling these re­ sources." 4 Rockefeller's "Lady Friend" By this time, Ida Minerva Tarbell had already established herself as America's first great woman journalist. She was a tall woman, six feet, with a grave, quiet authority about her. After graduating from Allegheny College, she had gone off to Paris to write a biography of Madame Roland, a leader of the French Revolution who ended up on the guillotine. Tarbell devoted herself to career and never married, though later in life she was to become a celebrant of family life and an opponent of women's suffrage. At the beginning of the twentieth century, she was in her mid-forties, and already well known as the author of popular, but carefully crafted, biographies of Napoleon and Lincoln. Her manner and her appearance made her seem older than her age. "Her life largely consisted of holding people off," recalled another woman who was the literary editor at McClure's. "She seemed to the naked eye to have no coquetteries at all." With the issue of trusts firmly on the table at McClure's, Tarbell considered under­ taking her own investigation. The obvious target was the Mother of Trusts; she decided to take it on. Making a pilgrimage with McClure to a mud bath at an ancient spa in Italy, she won his approval. So Ida Tarbell began the research that would eventually topple Standard Oil. Life is not without its ironies, and the book that emerged from Tarbell's 101 research would stand as the final revenge of the Oil Regions against their con­ querors. For Ida Tarbell had grown up in the boom-and-bust communities of the Oil Regions. Her father, Frank Tarbell, had gone into business as a tank maker just months after Drake's discovery, and in the 1860s had done rather well, setting himself up, for a time, in the great boom town of Pithole. When the field there suddenly gave out and the bustling little metropolis went to ruin, he paid six hundred dollars for the town's leading hotel, which had just been built for sixty thousand dollars. He tore it down, piled up wagons with the French windows, the fine doors and woodwork, the lumber, and the iron brack­ ets, and carried them all off to Titusville, ten miles distant, where he used them to build a handsome new house for his family. In that remnant and reminder of one of the most extreme of all the booms-and-busts, Ida Tarbell spent her adolescence. (Later, she considered writing the story of Pithole—"nothing so dramatic as Pithole in oil history," she said.) Frank Tarbell allied himself with the independent oil producers in 1872 in the Oil War against the South Improvement Company; and thereafter, like so many in the Oil Regions, his working life was to be dominated by the struggles against the advance of Standard Oil and the pain that went with it. Later, Ida Tarbell's brother William was to become one of the senior officers of the in­ dependent Pure Oil Company and set up its German marketing operation. From both her father and brother, Tarbell imbibed the precariousness of the businessit was like "playing cards," as her brother William put it. "Often I wish I was in some other business and if I ever hit it rich," he wrote her in 1896, "you bet I'll put most of it into something safe." She remembered the agonies and financial difficulties her father had endured—the mortgaged house, the sense of failure, the apparent helplessness against the Octopus, the bitterness and divisions be­ tween those who did and those who did not come to terms with Standard Oil. "Don't do it, Ida," her now-elderly father implored her when he learned that she was investigating Standard Oil for McClure's. "They will ruin the mag­ azine." One evening, at a dinner party given by Alexander Graham Bell in Wash­ ington, the vice-president of a Rockefeller-aligned bank took Tarbell aside; he seemed to be politely threatening exactly what her father had warned her about when he raised a question about the condition of McClure's finances. "Well, I'm sorry," Ida Tarbell replied sharply, "but of course that makes no difference to me." She would not be stayed. An indefatigable and exhaustive researcher, she also became a sleuth, absorbed and obsessed by her case, convinced that she was on to a great story. Her research assistant, whom she sent traipsing down the back streets of Cleveland to search out those who had reason to remember, wrote her, "I tell you this John D. Rockefeller is the strangest, most silent, most mysterious, and most interesting figure in America. The people of this country know nothing about him. A brilliant character study of him would make a tremendous trump card for McClure's." Tarbell intended to play that card. But how was she going to gain access directly to Standard? Help came from an unexpected direction. After John Archbold, H. H. Rogers was the most senior and powerful director of Standard Oil, as well as a prominent speculator 5 102 in his own right. He was responsible for Standard's pipeline and natural gas interests. But Rogers's own interests did not end with business. In one of the great services to American letters, he had, a decade earlier, taken control of Mark Twain's tangled and bankrupt finances, put them right, and thereafter managed and invested the famous author's money so that Twain could, as Rogers instructed him, "stop walking the floors." Rogers once explained, "It rests me to experiment with the affairs of a friend when I am tired of my own." Rogers loved Twain's books, and would read them aloud to his wife and children. The two men became very close friends; Twain played billiards on a table Rogers had given him. But, when it came to his own business, Rogers was a very tough man, with little sentimentality. It was he, after all, who had once made the classic statement to a commission investigating Standard Oil, "We are not in business for our health, but are out for the dollars." In Who's Who, he listed himself simply as "Capitalist"; others called him "Hell Hound Rogers" because of his speculative forays into Wall Street. He thought that Rockefeller disap­ proved of him because he was, in his own words, "a born gambler." And, indeed, with the stock market closed on the weekends, Rogers, itching for some action, would invariably start up a poker game. It was at Twain's urging that Rogers took over the financing of the education of the blind and deaf Helen Keller, enabling her to go to Radcliffe. Twain himself was ever grateful to Rogers, once describing him not only as "the best friend I ever had," but also, "the best man I have known." Ironically, Twain, a sometime publisher, had been offered the opportunity to publish Henry Demarest Lloyd's attack on Standard Oil, Wealth Against Commonwealth. "I wanted to say," he wrote to his wife, "the only man I care for in the world; the only man I would give a damn for; the only man who is lavishing his sweat and blood to save me & mine from starvation and shame, is a Standard Oil fiend. . . . But I didn't say that. I said I didn't want any book; I wanted to get out of the publishing business." Twain came and went as he pleased from Rogers's office at 26 Broadway, and sometimes lunched with the "gentlemen upstairs" in their private dining room. One day Rogers mentioned that he had learned that McClure's was preparing a history of Standard Oil. He asked Twain to find out what kind of history. Twain was also a friend of McClure's, and he inquired of the publisher. One thing led to another, and Twain ended up arranging for Ida Tarbell to meet Rogers. She now had her connection. Her meeting with Rogers took place in January 1902. She was apprehensive about encountering the powerful Standard Oil tycoon face-to-face. But Rogers greeted her warmly. He was, she immediately decided, "by all odds the hand­ somest and most distinguished figure in Wall Street." They swiftly established a special rapport, for it emerged that, when Tarbell was a small girl, Rogers had lived not only in the same town in the Oil Regions, running a little refinery, but on a hillside just below the Tarbell family. He told her how he had lived in a rented house—at a time when to live in a rented house was a "confession of failure in business"—in order to be able to have more money to buy stock in Standard Oil. He said that he well remembered Tarbell's father and the sign for "Tarbell's Tank Shops." He said that he had never been happier than in 103 those early days. He may have been sincere—or a good psychologist who had done his homework. He succeeded in charming Ida Tarbell; years later she was still to call him fondly "as fine a pirate as ever flew his flag in Wall Street." Over the next two years, she met regularly with Rogers. She would be ushered in one door and out another; company policy forbade visitors to en­ counter one another. She was sometimes even granted the use of a desk at 26 Broadway. She would bring case histories to Rogers, and he would provide documents, figures, justifications, explanations, interpretations. Rogers was sur­ prisingly candid with Tarbell. One winter day, for instance, she boldly asked him in what way did Standard "manipulate legislation." "Oh, of course, we look after it!" he replied. "They come in here and ask us to contribute to their campaign funds. And we do it,—that is, as individu­ als. . . . We put our hands in our pockets and give them some good sums for campaign purposes and then when a bill comes up that is against our interests we go to the manager and say: 'There's such and such a bill up. We don't like it and we want you to take care of our interests.' That's the way everybody does." Why was he so forthcoming? Some suggested that it was a form of revenge against Rockefeller, with whom he had fallen out. He himself offered a more pragmatic explanation. Tarbell's work, he told her, "will be taken as a final expression on the Standard Oil Company," and, since she was going to write it in any event, he wanted to do everything he could to have the company's case "made right. " Rogers even arranged for her to see Henry Flagler, by then already deeply immersed in his own grand development of Florida. To Tarbell's irri­ tation, all Flagler would say—piously—was that "we were prospered," appar­ ently by the Lord. Rogers had broadly hinted that he might be able to deliver an interview with Rockefeller himself, but it did not eventuate. Rogers never said why. Tarbell's overall goal, she told a colleague, was "a narrative history of the Standard Oil Company." It was not "intended to be controversial, but a straight­ forward narrative, as picturesque and dramatic as I can make it, of the great monopoly." Rogers—proud of his accomplishments and of his company—was under the same impression. Whatever Tarbell's original intent, her series—which began appearing in McClure's in November 1902—proved to be a bombshell. Month after month, she spun the story of machination and manipulation, of rebates and brutal competition, of the single-minded Standard and its constant war on the injured independents. The articles became the talk of the nation and opened doors to new informants. After the first few months, Tarbell returned to Titusville to see her family. "It is very interesting to note now that the thing is well underway, and I have not been kidnapped or sued for libel as some of my friends pro­ phesied," she said, "people are willing to talk freely to me." Even Rogers continued to receive her cordially as the articles were coming out, despite all. But then she published an installment that revealed how Standard's intelligence network operated, putting intense pressure on even the smallest of the inde­ pendent retailers. Rogers was furious. He broke off their relationship and refused 6 104 to see her again. She remained totally unrepentant about what she had written. More than anything else, she later said, the "unraveling of this espionage charge . . . turned my stomach against the Standard." For "there was a littleness about it that seemed utterly contemptible compared with the immense genius and ability that had gone in to the organization. Nothing about the Standard had ever given me quite the feeling that that did." And that feeling, more than anything else, gave the acid edge to her labors and to her exposé. Altogether, Tarbell's series ran for twenty-four successive months, and was then published in November 1904 in book form as The History of Standard Oil Company, complete with sixty-four appendices. It was a work of great clarity and force, a considerable accomplishment—under the handicap of limited ac­ cess—in its mastery of the complex history of the company. But beneath its controlled surface coursed a raging anger and a powerful condemnation of Rockefeller and the cutthroat practices of the Trust. In Tarbell's narrative, Rockefeller, despite his much-professed devotion to Christian ethics, emerged an amoral predator. "Mr. Rockefeller," she wrote, "has systematically played with loaded dice, and it is doubtful if there has been a time since 1872 when he has run a race with a competitor and started fair." The publication of the book was a major event. One journal described it as "the most remarkable book of its kind ever written in this country." Samuel McClure told Tarbell, "You are today the most generally famous woman in America. . . . People universally speak of you with such reverence that I am getting sort of afraid of you." Later, from Europe, he reported that even in the Continental newspapers "your work is constantly mentioned." As late as the 1950s, the historians of Standard Oil of New Jersey, hardly friendly to Tarbell's book, were to declare that it "probably has been more widely purchased and its contents more widely disseminated throughout the general public than any other single work on American economic and business history." Arguably, it was the single most influential book on business ever published in the United States. "I never had an animus against their size and wealth, never objected to their corporate form," Tarbell explained. "I was willing that they should combine and grow as big and rich as they could, but only by legitimate means. But they had never played fair, and that ruined their greatness for me." Ida Tarbell was not yet quite done with her story. She followed up in 1905 with a final attack, a furious personal portrait of Rockefeller. "She found him," her biographer has written, "guilty of baldness, bumps and being the son of a snake oil dealer." Indeed, she took his physical appearance, including his illnessinduced baldness, as a sign of moral decrepitude. Perhaps it was the ultimate revenge of a true daughter of the Oil Regions. For, as she was finishing that last article, her father, one of the independent oil men who had fought Rocke­ feller and been vanquished, lay dying in Titusville. As soon as she completed the manuscript, she rushed off to his deathbed. And what of Rockefeller's reaction? As the articles were coming out, an old neighbor, dropping in to visit the oil tycoon, brought up the subject of what he called Rockefeller's "lady friend"—Ida Tarbell. "I tell you," Rockefeller replied, "things have changed since you and I 105 were boys. The world is full of socialists and anarchists. Whenever a man suc­ ceeds remarkably in any particular line of business, they jump on him and cry him down." Afterward, the neighbor described Rockefeller's attitude as that "of a game fighter who expects to be whacked on the head once in a while. He is not the least disturbed by any blows he may receive. He maintains that Standard has done more good than harm." On other occasions, Rockefeller was overheard to use a pet name for his "lady friend"—"Miss Tar Barrel." 7 The Trust-Buster Tarbell was by no means a socialist. If there was a program to her attack on Standard Oil, it was an appeal for a countervailing force to corporate power. To Theodore Roosevelt, who had become President in 1901 upon the assassi­ nation of William McKinley, the countervailing force could be only one—gov­ ernment. Theodore Roosevelt embodied the progressive movement. The youngest man ever to enter the White House up to that time, he was forever bursting with energy and enthusiasm. He was described as "a steamroller in trousers" and as "the meteor of the age." A journalist wrote that, after visiting him, "you go home and wring the personality out of your clothes." With equal passion, Roosevelt embraced reform causes of all sorts—from the mediation of the RussoJapanese War to the promotion of simplified spelling. For the former he received the Nobel Peace Prize in 1906. As to the latter, in the same year, he sought to have the Government Printing Office adapt three hundred simplified spellings of familiar words—for instance, "dropt" for "dropped." The Supreme Court refused to accept such simplifications in legal documents, but Roosevelt stead­ fastly kept to them in his own private letters. It was he who first used the term "muckraker" to describe the journalists of the progressive movement. He meant it derisively, for he felt that their attacks against politicians and corporations were too negative and too focused on the "vile and debasing." He feared that their writings would fuel the flames of revolution and push people toward socialism or anarchism. Still, he soon took their agenda as his own—including the regulation of railroads and the horren­ dous meat-packing industry, and the protection of food and drugs. At the center of his program stood the control of corporate power—which would earn him the sobriquet of "Trust-buster." Roosevelt was not opposed to trusts per se. Indeed, he saw combinations as the logical, inevitable feature of economic prog­ ress. He once said that combination could be turned back by legislation no more easily than the spring floods on the Mississippi. But, said the President, "we can regulate and control them by levees"—that is, by regulation and public scrutiny. Such reform was essential in his view to short-circuit radicalism and revolution and preserve the American system. Roosevelt distinguished between "good" trusts and "bad" trusts. Only the latter deserved to be atomized. And on that cause he would not be stayed. Altogether, his administration launched at least forty-five antitrust actions. 106 The Mother of Trusts was to have center stage in the ensuing battles. Standard Oil was one of Roosevelt's most useful targets; it became the favorite dragon of this irrepressible knight—there was no better opponent against which to joust. Still, Roosevelt sought the support of big business in his 1904 campaign, and the executives of Standard Oil tried to reach out to him. When a friendly congressman, who was also chairman of a Standard subsidiary, informed Arch­ bold that Roosevelt thought Standard Oil was antagonistic toward him, Archbold replied that, on the contrary, "I have always been an admirer of President Roosevelt and have read every book he ever wrote, and have them, in the best bindings, in my library." The congressman had a bright idea. A presidential author might certainly be subject to flattery, especially one who had proved as prolific as Roosevelt. He would apprise Roosevelt of Archbold's admiration, and use that gambit to arrange a meeting. "The 'book business' fetched down the game at the very first shot," the congressman wrote triumphantly to Archbold. But he added a word of warning: "You had better read, at least, the titles of those volumes to refresh your memory before you come over." Flattery may have gotten Arch­ bold in the front door, but not much further. "Darkest Abyssinia," he angrily said a few years later, "never saw anything like the course of treatment we received at the hands of the administration following Mr. Roosevelt's election in 1904." Before election day, the Democrats had made a major issue of big business contributions to the Republican campaign, including one hundred thousand dollars from Archbold and H. H. Rogers. Roosevelt ordered the hundred thou­ sand dollars returned, and thereupon, in a burst of publicity, promised every American what became his slogan, a "square deal." Whether the money was ever actually returned was another question. Attorney General Philander Knox told Roosevelt's successor, William Howard Taft, that, when he had walked into Roosevelt's office one day in October 1904, he had heard the President dictating a letter directing the return of the money to the Standard Oil Company. "Why, Mr. President, the money has been spent," Knox said. "They cannot pay it back—they haven't got it." "Well," replied Roosevelt, "the letter will look well on the record, any­ how." Immediately after Roosevelt's election in 1904, his administration launched an investigation of Standard Oil and the petroleum industry. The result was a searing critique of the trust's control of transportation, amplified by a personal denunciation of the company by Roosevelt himself. The pressure was so ob­ viously building against Standard that Archbold and H. H. Rogers hurried to Washington in March 1906 to see Roosevelt and ask him not to proceed with legal action against the company. "We told him that we had been investigated and investigated, reported on and reported on," Archbold wrote to fellow di­ rector Henry Flagler after the meeting with Roosevelt, "but that we could stand it as long as the others could. He listened patiently to all that we had to say and I think was fairly impressed. . . . It can hardly have failed to do good with the President." 8 107 The Suit Archbold was deluding his colleagues—and himself. For, in November of 1906, the moment arrived: In the Federal Circuit Court in St. Louis, the Roosevelt Administration brought suit against Standard Oil, charging it under the Sherman Antitrust Act of 1890 with conspiring to restrain trade. As the suit progressed, Roosevelt fanned the flames of public outrage. "Every measure for honesty in business that has been passed in the last six years has been opposed by these men," the President publicly declared. Privately, he told his attorney general that Standard's directors were "the biggest criminals in the country." The War Department announced that it would not buy oil products from the combine. Not to be outdone, the Democrats' perennial Presidential candidate, William Jennings Bryan, declared that the best thing that could happen to the country would be to put Rockefeller in jail. Standard Oil realized that it was in a battle for survival. The tables were turned, and now the government was subjecting the company to a "good sweat­ ing." As one executive wrote to Rockefeller: "The Administration has started out on a deliberate campaign to destroy the Company and everybody connected with it, and to use every resource at its disposal to accomplish that end." In its defense, Standard marshaled grand legal talent, some of the most distinguished names in American jurisprudence. The government's case was led by a corporate lawyer named Frank Kellogg, who, two decades later, would become Secretary of State. Over a course of more than two years, 444 witnesses gave testimony, and 1,371 exhibitions were introduced. The full record was to cover 14,495 pages bound in twenty-one volumes. The Chief Justice of the Supreme Court later described the transcript as "inordinately voluminous. . . containing a vast amount of conflicting testimony relating to innumerable, complex, and varied business transactions, extending over a period of nearly forty years." Meanwhile, other suits and cases were also proceeding against Standard. Occasionally, Archbold tried to make light of the judicial and administrative onslaught. "For nearly forty-four years of my short life," he told a large banquet audience, "I have been engaged in somewhat strenuous effort to restrain trade and commerce in petroleum and its products, in the United States, the District of Columbia, and in foreign countries. I make this confession, friends, as a confidential matter to you, and in the strong conviction and belief that you will not give me away to the Bureau of Corporations." But, despite the bantering, he and his colleagues were deeply apprehensive. "The Federal authorities are doing their utmost against us," he wrote privately in 1907. "The President names the judges, who are also the jury, who try these corporation c a s e s . . . I do not suppose they can eat us although they may succeed in inciting a mob to do damage. We shall do our very utmost to protect our shareholders. Further than this it is impossible for me or anyone to say." In another case, in that same year, a federal judge with the memorable name of Kenesaw Mountain Landis—who would later become the first com­ missioner of baseball—levied a huge fine against Standard Oil for violating the law by accepting rebates. He also denounced the "studied insolence" of Stan­ dard's lawyers and regretted "the inadequacy of the punishment." Rockefeller 108 was playing golf with friends in Cleveland when a messenger boy appeared with the judge's decision. Rockefeller tore open the envelope, read the contents, and put it in his pocket. He then broke the silence by saying, "Well, gentlemen, shall we proceed?" One of those present could not contain himself. How large was the judgment, he asked? "The maximum penalty, I believe—twenty-nine million dollars," replied Rockefeller. Then, as an afterthought, he added, "Judge Landis will be dead a long time before this fine is paid." With that single outburst, he resumed his golf, seemingly unperturbed, and went on to play one of the best games of his life. Indeed, Landis's judgment was eventually overturned. But then in 1909, in the main antitrust suit, the Federal court found in favor of the government and ordered the dissolution of Standard Oil. Theodore Roo­ sevelt, now out of office and on his way back from a big-game-hunting trip in Africa, heard the news while on the White Nile. He was exultant. The decision, he said, "was one of the most signal triumphs for decency which has been won in our country." For its part, Standard Oil wasted no time in appealing to the Supreme Court. Twice the case had to be reheard by the Supreme Court, owing to the deaths of two justices. Both industry and the financial community waited nervously for the outcome. Finally, in May of 1 9 1 1 , at the end of a particularly tedious afternoon, a mumbling Chief Justice Edward White said, "I have also to announce the opinion of the Court in No. 398, the United States against the Standard Oil Company." The stuffy, somnolent, oppressively hot courtroom suddenly came to life, straining to hear. Senators and congressmen rushed over to the chamber. For the next forty-nine minutes Chief Justice White spoke, but often so inaudibly that the justice to his immediate left had to lean over several times and suggest he raise his voice so that his momentous words could actually be heard. The Chief Justice introduced a new principle—that the judicial eval­ uation of restraint of trade under the Sherman Act should be based upon the "rule of reason." That is, "restraint" would be subject to penalty only if it was unreasonable and worked against the public interest. And, in this case, it ob­ viously did. "No disinterested mind," the Chief Justice declared, "can survey the period in question [since 1870] without being irresistibly drawn to the con­ clusion that the very genius for commercial development and organization . . . soon begat an intent and purpose to exclude others . . . from their right to trade and thus accomplish the mastery which was the end in view." The justices upheld the Federal court decision. Standard Oil would be dissolved. At 26 Broadway, the directors had gloomily gathered in the office of William Rockefeller to await the verdict. Little was said as the minutes went by. Arch­ bold, his face taut, bent over the ticker, scanning for some word. When the news came, everybody was shocked. No one had been prepared for the dev­ astating extent of the Supreme Court's decision; Standard was given six months to dissolve itself. "Our plan" was to be shattered by judicial fiat. There was dead silence. Archbold started to whistle a little tune, just as he had done many years earlier when, as a boy, he had waded through the deep mud of Titusville to buy and bargain for oil. Now, he walked over to the mantel. "Well, gentlemen," he said after a moment's further consideration, "life's just one damn thing after another." Then he began to whistle again. 9 10 109 The Dissolution In the aftermath of the decision, the directors of Standard faced an immediate and momentous question. It was one thing for a court to order a dissolution. But how exactly was this vast, interconnected empire to be broken up? The scale was simply enormous. The company transported more than four-fifths of all oil produced in Pennsylvania, Ohio, and Indiana. It refined more than threefourths of all United States crude oil; it owned more than half of all tank cars; it marketed more than four-fifths of all domestic kerosene and was responsible for more than four-fifths of all kerosene exported; it sold to the railroads more than nine-tenths of all their lubricating oils. It also sold a vast array of by­ products—including 300 million candles of seven hundred different types. It even deployed its own navy—seventy-eight steamers and nineteen sailing vessels. How was all this to be dismembered? There was only silence from 26 Broadway and the rumors were many. Finally, in late July of 1 9 1 1 , the company announced its plans for dismantling itself. Standard Oil was divided into several separate entities. The largest of them was the former holding company, Standard Oil of New Jersey, with almost half of the total net value; it eventually became Exxon—and never lost its lead. Next largest, with 9 percent of net value, was Standard Oil of New York, which ultimately became Mobil. There was Standard Oil (California), which eventually became Chevron; Standard Oil of Ohio, which became Sohio and then the American arm of BP; Standard Oil of Indiana, which became Amoco; Conti­ nental Oil, which became Conoco; and Atlantic, which became part of ARCO and then eventually of Sun. "We even had to send out some office boys to head these companies," one Standard official sourly commented. These new entities, though separated and with no overlapping boards of management, nonetheless generally respected one another's markets and carried on their old commercial relationships. Each had rapidly growing demand in its own territory, and com­ petition among them was slow to develop. That lassitude was reinforced by one legal oversight in the breakup. Apparently, no one at 26 Broadway had given any thought to the ownership of trademarks and brand names. So all the new companies started out selling under the same old brand names—Polarine, Per­ fection Oil, Red Crown gasoline. That fact greatly limited the ability of one company to encroach on another's territory. Public opinion and the American political system had forced competition back into the transportation, refining, and marketing of oil. But, if the dragon was dead, the rewards of dismemberment were to prove considerable. The world had been changing too fast for Standard Oil; its system of controls had become too rigid—especially for the men in the field. With dissolution, they would have the opportunity to run their own shows. "The young fellows were given the chance for which they had been chafing," recalled the man who was to become head of Standard of Indiana. For executives of the various successor companies, it was a great liberation no longer to have to petition 26 Broadway for approval of every capital expenditure over five thousand dollars—or any hospital donation over fifty dollars. 11 no The Liberation of Technology Among the other consequences of the dissolution was the unexpected liberation of technological innovation from the rigid and controlling grip of 26 Broadway. Standard of Indiana, in particular, moved quickly with a breakthrough in refining to help support the still-infant auto industry at a critical moment, and thus to preserve what would become oil's most important market in the United States. With existing refining know-how, the highest yield of natural gasoline that could be wrung out of a barrel of crude naturally was 15 to 18 percent of the total refined product, or, at most, 20 percent. That did not matter when gasoline was virtually a waste product, an explosive and flammable fraction for which there was hardly any market. But the situation had changed quickly with the rapid growth in the number of gasoline-powered motorcars. It was becoming evident to some in the oil industry that the supply of gasoline would soon become very strained. Among those who saw the problem most clearly was William Burton, the head of manufacturing for Standard of Indiana. He was a Johns Hopkins Ph.D. in chemistry, one of the very few scientists working in American industry. He had joined Standard in 1889 to work on the problem of getting the "skunk juice" smell out of Lima crude. In 1909, two years before the dissolution decree, Burton, anticipating the coming gasoline shortage, had directed his small re­ search team, staffed by other Johns Hopkins Ph.D.s, to tackle the problem of increasing gasoline output. He also made a critical decision: He began his re­ search without authorization by 26 Broadway and even without the knowledge of the Indiana subsidiary's directors in Chicago. The lab, he told his scientists, was to try every conceivable idea. The aim was to "crack"—or break down— the larger hydrocarbon molecules of less desirable products into smaller mole­ cules that could provide auto fuel. The blind alleys were many. But, finally, the researchers experimented with "thermal cracking"—putting a relatively low-value product, gas oil, simulta­ neously under high pressure and high temperatures—up to 650 degrees and beyond. It had never been done before. The scientists were cautious, and rightly so, for danger was ever present. There was precious little knowledge about how oil behaved under such conditions. Practical refinery men were frightened. As the experiments progressed, the scientists had to clamber around the burninghot still, caulking leaks, at considerable personal risk, because the regular boiler men refused to do the job. But Burton's idea worked; the gas oil yielded up a "synthetic gasoline" product, which more than doubled the share of usable gasoline from a barrel of crude—up to 45 percent. "The discovery of this thermal cracking process was destined to be one of the great inventions of modern times," wrote a student of the industry. "As a result the petroleum industry was the first big industry to be revolutionized by chemistry." Discovery was one thing; there was still the question of commercializing the innovation. Burton had applied to Standard Oil headquarters in New York City for a million dollars to build a hundred stills for thermal cracking. But 26 Broadway had turned him down flat, without even an explanation. New York in thought the whole idea was foolhardy. Privately, one director said: "Burton wants to blow the whole state of Indiana into Lake Michigan." Immediately after dissolution, however, the directors of the now-independent Standard of Indiana, who had much more direct contact with and personal confidence in Bur­ ton, gave him the green light—although one director joked, "You'll ruin us." The go-ahead came just in time. With the extraordinary growth of the automobile fleet, the world was already on the edge of a gasoline famine. In 1910, gasoline sales had exceeded kerosene for the first time, and demand was galloping ahead. The Gasoline Age was at hand, but the developing shortage of the fuel was a great threat to the nascent auto industry. The price of gasoline rose from nine and a half cents in October 1911 to seventeen cents in January 1913. In London and Paris, motorists were paying fifty cents a gallon, and in other parts of Europe, up to a dollar. But, by early 1913, within a year of Standard Oil's dissolution, the first of Burton's stills was in operation, and Indiana announced the availability of a new product—"motor spirits"—gasoline made from thermal cracking. Looking back, Burton recalled: "We took some awful risks, and we were awfully lucky not to have any smash-ups early in the game." His thermal cracking process introduced flexibility into refinery output, something the industry had never had before. The refiner's output was no longer arbitrarily bound by the atmospheric distillation temperatures of the different components of crude oil. Now he could manipulate the molecules and increase the output of more desirable products. Moreover, cracked gasoline actually had a much better antiknock value than natural gasoline, which meant more power and allowed for higher-compression engines. The success of the process created a dilemma for Standard of Indiana. A great internal debate raged over whether or not to license its patents. Some said it would simply strengthen competitors. But in 1914, Standard of Indiana did begin to license the process to companies outside its own markets, on the premise that the resulting revenues would be "all velvet." The velvet proved substantial, as the royalties flowed from fourteen companies between 1914 and 1919. Indiana licensed the process to all companies on the same terms. But one company kept trying to cut a better deal—Standard of New Jersey. The former parent thought it deserved sweeter terms, and that it could force them out of Indiana. But Standard of Indiana would not budge. Finally, in 1915, Jersey capitulated and became a licensee on Indiana's terms. For many years after, it was said that the most galling thing the president of Jersey Standard had to do each month was to sign the fat royalty checks—made payable to Standard of Indiana. 12 The Winners A new era had quickly come into existence in the oil industry, around the turn of the century. It was born of several coincidences: the rapid rise of the auto­ mobile; the discovery of the new oil provinces in Texas, Oklahoma, California, and Kansas; new competitors; and technological advances in refining. Added to all these, of course, were the far-reaching implications of the break-up of Stan­ dard Oil and the resulting restructuring of the industry. 112 Just before the dissolution, one of John D. Rockefeller's advisers had thought that Rockefeller should sell some of his Standard Oil shares, as the price he assumed was at its top and would fall with the breakup. Rockefeller refused; he knew better. The stock shares in the successor companies were distributed pro rata to the shareholders of Standard Oil of New Jersey. But if the dragon had been dismembered, its parts would soon be worth more than the whole. Within a year of the dissolution of Standard Oil, the value of the shares of the successor companies had mostly doubled; in the case of Indiana, they tripled. Nobody came out of this better or richer than the man who owned a quarter of all the shares, John D. Rockefeller. After the break-up, because of the increase in the price of the various shares, his personal worth rose to $900 million (equivalent to $9 billion today). In 1912, Theodore Roosevelt, four years out of office, was making a new run at the White House, and Standard Oil was once again his target. "The price of stock has gone up over one hundred percent, so that Mr. Rockefeller and his associates have actually seen their fortunes doubled," he thundered during the campaign. "No wonder that Wall Street's prayer now is: 'Oh Merciful Prov­ idence, give us another dissolution.' " 13 113