and in return was to receive a rebate of 10 per cent on all freight after May 1, 1878 (when the contracts of the Pennsylvania with its shippers were to expire).1

In the same year (1877) the Standard Oil Company acquired the Columbia Conduit Company, the only important independent pipe-line remaining in the oil regions. By the close of the year, therefore, the Standard Oil interests had obtained control, through stock ownership, of substantially all the pipe-lines in the oil region.2 Hardly a barrel of oil could be brought to the railroads without the consent of the Standard organization. Mr. Rockefeller had begun with an ambition to be the only oil refiner in the country, but he had found it necessary in carrying out this purpose to secure control of the pipe-line system. The result, incidentally, was the acquisition of great power over the railroads, power which was to assist in the maintenance of the monopoly which he had succeeded in building up.

3

The independents, however, died hard. To free themselves from the dominance of the Standard Oil Company, they organized in November, 1878, the Tide Water Pipe Company to construct a pipe-line from the oil fields of northwestern Pennsylvania to the seaboard, a distance of 109 miles. The oil was to be pumped over the Alleghany Mountains. Up to this time oil had never been pumped more than 30 miles, and no considerable elevation had been overcome. The project was deemed quite impracticable both by the Standard Oil Company and by the railroads. Nevertheless, success crowned the venture. In June, 1879, oil flowed over the mountains, and into the receiving tank located on the eastern side. A new era in the oil business seemed to be at hand. Clearly it was but a matter of time before the Tide Water Pipe Company would pump oil into New York City, where there were a number of refiners anxious to free themselves of their dependence on the Standard Oil Company and the railroads. To meet this situation the Standard Oil Company acted

1 Montague, The Rise and Progress of the Standard Oil Company, pp. 56-59.

2 Brief for the United States (no. 725), vol. I, p. 46.

Tarbell, The History of the Standard Oil Company, vol. II, p. 4.

with its usual dispatch and skill. The local pipeage rate was reduced by the Standard pipe-lines; and the through rate on crude oil was reduced by the railroads, in order to prevent this traffic from being lost to them,-the traffic would no longer bear the former rate. The railroad rate from the oil fields to New York Harbor, for example, was reduced from $1.15 per barrel to 30 cents. The Standard Oil Company was given an even lower rate-20 cents-but in spite of this discrimination in its favor it remained at a disadvantage. According to an estimate of the engineer who built the independent pipe-line, oil could be piped to seaboard for 16 2/3 cents per barrel.2 Apparently the day of the railroad as a long distance transporter of crude oil was past.

The Standard Oil interests, however, did not delay action until the outcome of the struggle between the railroads and the long distance pipe-line was known. Hardly had the new line proven a success, when the Standard interests began to build pipe-lines from the oil fields to Bayonne, New Jersey, to Philadelphia, and to the inland refining points at Pittsburg, Cleveland, and Buffalo. To carry on this vast program-destined to make the Standard Oil Company independent of the railroads with respect to the transportation of crude oil-the National Transit Company was incorporated in April, 1881, with a capital of $5,000,000.3

Meanwhile, the Standard Oil Company acquired most of the independent refineries about New York Harbor which the Tide Water Pipe Company proposed to feed. To protect themselves, the supporters of the Tide Water Pipe Company at once began to build several refineries on the seaboard, the oil being stored pending their completion. Subsequently the Standard Oil Com

1 Report of the Commissioner of Corporations on the Transportation of Petroleum, p. 86. Referred to hereafter as Report on the Transportation of Petroleum.

2 Tarbell, The History of the Standard Oil Company, vol. II, p. 1I.

3 Report on the Petroleum Industry, part I, p. 53. The United Pipe Lines, a system of local gathering lines, was transferred to the National Transit Company-the trunk line system-in 1884.

* Report on the Petroleum Industry, part I, p. 53.

1

pany contrived to acquire a minority of the company's stock.1 This action, together with the determined opposition of the railroads, led to a practical surrender on the part of the Tide Water concern, and an agreement was reached in October, 1883, by which the Tide Water Company became for all practical purposes a part of the Standard Oil System.2 The Standard Oil Company and its ally now collected practically all the crude oil produced, and independent enterprise was once more effectually discouraged.

By 1879, as we have seen, the Standard Oil Company had attained a position of supremacy in the refining industry. In that year, as explained in chapter III, the first "trust agreement" was entered into, an agreement which was revised and elaborated in 1882. Ten years later (in 1892) this agreement was declared illegal by the Ohio courts. For several years thereafter a community of interest arrangement was relied upon. But this arrangement was likewise attacked in the Ohio courts as not representing an honest attempt to comply with the order of the court, and hence in 1899 a decision was made to reorganize in New Jersey as a holding company.

Among the twenty principal companies comprising the Standdard Oil organization was the Standard Oil Company of New Jersey, with a capital of $10,000,000. The charter of this company was now amended, and power obtained to engage in all kinds of mining, manufacturing, and trading, and to hold stocks and bonds. On June 14, 1899, the capital stock of the Standard Oil Company of New Jersey was increased to $110,000,000 through the issuance of $100,000,000 of common stock, the existing $10,000,000 being changed into preferred stock. The New Jersey concern proceeded to exchange its stock for the stocks of the concerns which had formerly been controlled by the trustees,1 but which now, upon the tardy liquidation of the trust certifi

1 Report on the Petroleum Industry, part I, p. 54.

2 Ibid.

3 Ibid., p. 84.

4 A list of the companies controlled by the Standard Oil Company of New Jersey is in Report on the Petroleum Industry, part I, pp. 85 seq.

cates, were in the hands of the former holders of the trust certificates. Through this process of exchange the Standard Oil Company of New Jersey within a short period of time had outstanding all told about $97,250,000 of stock; and this was practically the amount of "trust certificates" issued and outstanding at the time of the dissolution in 1892.1 The $10,000,000 of preferred stock of the Standard Oil Company of New Jerseythis preferred stock represented the total capital stock of the Standard Oil Company prior to the increase above noted-was given the same privileges of exchange as applied to the stocks of the other nineteen constituent companies, and it was readily exchanged for common stock in the Standard Oil Company of New Jersey, since under this company's amended charter dividends on the preferred stock were limited to 6 per cent, whereas it was practically certain that the common stock would receive much higher dividends. The preferred stock, after this exchange, was cancelled.

This reorganization, however, was one in form only. The Standard Oil Company of New Jersey (a holding company) became the owner of the stocks previously held by the trustees; the trustees (liquidating) were made directors of the holding company; and the holding company itself was controlled by the same individuals who had formerly held a controlling interest in the old trust certificates.2 The trust had simply hung out a new sign.

The Standard Oil Company of New Jersey was thus principally a holding company. But it also refined and marketed oil on its own account. It owned the large refineries at Bayonne and Constable Hook, New Jersey, and it operated the Standard refineries at Baltimore, Maryland, and at Parkersburg, West Virginia. The refineries directly operated by the Standard Oil

1 Report on the Petroleum Industry, part I, p. 84. There was no watered stock issued as the result of the reorganization of 1899. What water there was, if any, resulted from the issuance of the trust certificates in 1882.

2 Mr. Rockefeller himself held 26.4 per cent of the stock of the Standard Oil Company of New Jersey. Report on the Petroleum Industry, part I,

Company of New Jersey produced in 1904 approximately onethird of all the illuminating oil produced by the Standard organization.

The history of the Standard Oil Company and the forms of organization adopted by it have been briefly outlined. It is now proposed to consider in more detail the position attained by the Standard Oil Company, and the principal factors in its success. The treatment will deal in the main with the period from 1904 to 1906, the years which served as the basis for the reports of the Commissioner of Corporations.

In 1904 illuminating oil, or kerosene, was the most important product derived from crude oil, both in quantity and value. According to the United States Census the total production of refined oil 1 in 1904 was 27,135,094 barrels, or 1,356,754,700 gallons. Of this amount the Standard Oil Company produced at plants controlled directly by it, 21,341,179 barrels, or 78.65 per cent of the total.2 The other refineries affiliated with it produced about 2,143,100 barrels, which, added to the Standard Oil output of 21,341,179 barrels, made a total of 23,484,279 barrels, or 86.55 per cent of the country's output. This left 3,650,805 barrels as the output of the remaining concerns, or 13.45 per cent of the total. But not all of this remainder could properly be considered as independent. Some of the so-called independent refiners were unable to obtain crude oil except from the Standard itself. The Standard, of course, allowed them only as much crude oil as it chose, and in this way was able to prevent them from extending their business, and from becoming really effective competitors. It appears that of the total of about 3,650,000 barrels of refined oil produced by the companies not affiliated with the Standard Oil Company, some 1,160,000, or nearly one-third, were produced in refineries dependent for

1 In customary usage the term "refined oil" refers to illuminating oil only, and it is so used in the Report of the Commissioner of Corporations.

2

* Report on the Petroleum Industry, part I, p. 265.

3 Brief for the United States (no. 725), vol. I, p. 144, places the percentage at 87.30, and states that an employee of the Standard Oil Company verified the correctness of the computation.