In 1903 a merger of the leading meat packers was proposed, but it did not come to pass. Instead the National Packing Company was organized, and through it a community of interest was effected, or, perhaps one should say, maintained.

The organization of trusts seems to have come rather definitely to an end by the close of 1903. The stock market panic of 1903, ascribable to the large mass of "undigested securities"; the popular opposition to trusts that was reflected in the creation of the Bureau of Corporations in 1903, the Northern Securities decision in 1904, casting by implication grave suspicion on the legality of trusts-all combined to dull the public appetite for trust stocks, and thus to make their manufacture no longer particularly profitable. Moreover, by the close of 1903, most of the industries that were at all adapted to monopolization, and many that were not, had been "trustified"; and accordingly the period that followed was mainly characterized by the endeavor, often unsuccessful, of the trusts to hold the position they had gained.

Whereas up to 1900 the most common form of trust organization was a single corporation owning the various properties outright,' after 1900 and up to the Northern Securities decision the holding company form vied with it in popularity. The steel trust was a holding company trust; the cigarette and plug tobacco trusts were tied together through a holding company; and holding companies were made use of in the gunpowder, whisky, and meat industries. On the other hand the harvester, tin can, and glucose trusts took the property owning form; and the powder trust proceeded to substitute this form for the holding company. But in 1904 the Supreme Court in the Northern Securities case 2 held the combination of two competing railroads through a holding company to be illegal, and thereafter the other type of organization came into renewed favor. In the tobacco industry, for example, there was straightway formed the second American Tobacco Company, which proceeded to acquire the property of the concerns formerly controlled by the

1 See Industrial Commission, I, p. 10 (Review of Evidence). 2 See p. 399.

Consolidated Tobacco Company, the holding company organized in 1901. Yet the property holding corporation, like the holding company, could not pass the legal tests, when entered into, as in this instance, to effect an illegal object. In 1911 the Supreme Court held the tobacco merger illegal. In the same year the Supreme Court adjudged the Standard Oil Company of New Jersey illegal, not because it was a holding company, but because it had effected a restraint of trade. From these decisions it clearly appears that neither the holding company nor the merger is legal, when used to effect an illegal object.

CHAPTER V

THE STANDARD OIL COMPANY 1

Mr. G. H. Montague in the preface of his book "The Rise and Progress of the Standard Oil Company" observes that the oil business, in its early phase, was the reflex of prevalent railway methods, and that it is not fair to attempt to judge the situation without first ascertaining the standards set by the railway management of the time. It does not fall within the province of this treatment to judge the Standard Oil Company, but merely to point out some of the methods by which it acquired its power.

The first successful oil well was drilled at Titusville, Pennsylvania, in 1859. This great event was followed by the discovery of other oil deposits, and by the rapid development of the demand for refined petroleum products. At that time Mr. John D. Rockefeller, only twenty years of age, was engaged in the produce commission business on the Cleveland docks. But Mr. Rockefeller early foresaw the possibilities in the oil business, and in 1862 he and his partner, who had made excellent profits in the

1 On the Standard Oil Company see: Report of the Commissioner of Corporations on the Transportation of Petroleum, May 2, 1906; Report of the Commissioner of Corporations on the Petroleum Industry, part I, Position of the Standard Oil Company in the Petroleum Industry (May 20, 1907), and part II, Prices and Profits (August 5, 1907); Report of the Federal Trade Commission on Pipe-Line Transportation of Petroleum; Report of the Federal Trade Commission on Price of Gasoline in 1915; Brief for the United States, in two volumes, in Standard Oil Company v. United States (no. 725); Brief for Appellants (Standard Oil Company et al.), in two volumes, in Standard Oil Company v. United States (no. 725); 173 Fed. Rep. 177-200; 221 U. S. 1-106; House Report no. 3112, 50th Cong., 1st Sess.; Industrial Commission, vol. I, pp. 261–800; 49 Ohio State Reports 137-189; 218 Missouri Reports 1-507; Tarbell, The History of the Standard Oil Company, in two volumes; Lloyd, Wealth Against Commonwealth; Montague, the Rise and Progress of the Standard Oil Company. (For full titles see the Bibliography.)

produce business as the result of the unusual demands created by the Civil War, invested $4,000 in an oil refinery, which one Samuel Andrews was anxious to start. Mr. Andrews proved to be a mechanical genius, and the little refinery at Cleveland became quite profitable. In 1865 Mr. Rockefeller disposed of his interest in the commission house, and entered into a partnership with Mr. Andrews. The partnership of Rockefeller and Andrews associated itself also with Mr. William Rockefeller in the firm of William Rockefeller and Company, and this new firm built another refinery on property adjacent to the works of Rockefeller and Andrews. These two concerns then organized the firm of Rockefeller and Company, a selling agency with headquarters at New York City. Mr. Rockefeller was one of the first to see that by producing on a larger scale improvements in the process of refining could be brought about, and the by-products more effectively utilized. In 1867, therefore, the three Rockefeller firms united with the firms S. V. Harkness and H. M. Flagler into a new concern called Rockefeller, Andrews and Flagler.

In 1870 (June) the Standard Oil Company of Ohio was incorporated with a capital stock of $1,000,000. This company took over the properties of the partnership to which it succeeded. The Standard Oil Company was, even at this time, the largest oil concern in the country. It produced about 10 per cent of the country's output of refined oil. But it operated no refineries outside of Cleveland, was not engaged in the production of crude oil, and had as competitors some 250 concerns.2 By 1879, however, the Standard Oil Company, according to the statement of its officials, controlled from 90 to 95 per cent of the refining business of the country.3 By what means was a company occupying such a modest position in 1870 able so effectively to eliminate its competitors? According to the Commissioner of Corporations, "unquestionably, the most important single element in this early extension of the company's power

1 Report of the Commissioner of Corporations on the Petroleum Industry, part I, p. 48. Referred to hereafter as Report on the Petroleum Industry. 2 Report on the Petroleum Industry, part I, p. 48.

3 Report of Hepburn Committee (New York), pp. 2615, 2695.

was the railroad rebate." It is true that the progress of the industry in the seventies necessitated production on a considerable scale, and that the refiners who were not able to expand their operations were doomed in the competitive struggle. But the economies of large-scale production were secured by a considerable number of refiners, and hence the ability to produce on a large scale does not explain the growing preeminence of the Standard Oil Company-and especially since advantages in freight rates easily more than offset unusual economies in production.

The real struggle in the seventies, therefore, was to secure special railroad rates. And the railroad situation was such that the opportunities in this direction were exceptional. There had been rate wars between the Pennsylvania Railroad and the New York Central Railroad as early as 1869, the year in which both of these roads secured connection with Chicago. With the entrance into Chicago during the seventies of other railroads― notably the Baltimore and Ohio and the Grand Trunkcompetition among the railroads for traffic became still more intense. The Standard Oil Company, as it happened, was well situated to demand special rates on its oil traffic. Its refineries at Cleveland were served by two railroads to New York Citythe New York Central and the Erie-and also had water communication to the East by way of the Great Lakes and the Erie Canal. If railroad rates were unsatisfactory, there was this alternative water route. The railroads thus found themselves compelled to grant greater and greater concessions to the refiners at Cleveland, and the Standard Oil Company being the largest refining concern naturally received at least its share. But the Standard Oil Company was ambitious, apparently, to secure a still larger share; and through the South Improvement Company scheme was successful in effecting this end.

The South Improvement Company was a Pennsylvania corporation organized in January, 1872, under a charter granted in 1870, conferring almost unlimited powers.2 The South 1 Report on the Petroleum Industry, part I, p. 22.

2 Ibid., p. 55.