ROCKEFELLER JUSTIFIES RAILROAD REBATES
John D. Rockefeller in his 1909 autobiography, Random Reminiscences of Men and Events, details his reasons for promoting railroad rebates to the Standard Oil Company.
Of all the subjects which seem to have attracted the attention of the public to the affairs of the Standard Oil Company, the matter of rebate from railroads has perhaps been uppermost. The Standard Oil Company of Ohio, of which I was president, did receive rebates from the railroads prior to 1880, but received no advantages for which it did not give full compensation.
The reason for rebates was that such was the railroads' method of business. A public rate was made and collected by the railroad companies, but, so far as my knowledge extends, was seldom retained in full; a portion of it was repaid to the shippers as a rebate.
By this method of real rate of freight which any shipper paid was not known by his competitors nor by other railroad companies, the amount being a mater of bargain with the carrying company. Each shipper made the best bargain that he could, but whether he was doing better than his competitor was only a matter of conjecture. Much depended upon whether the shipper had the advantage of competition of carriers.
The Standard Oil Company of Ohio, being situated at Cleveland, had the advantage of different carrying lines, as well as of water transportation in the summer. Taking advantage of those facilities, it made the best bargains possible for its freights. Other companies sought to do the same.
The Standard gave advantages to the railroads for the purpose of reducing the cost of transportation of freight. It offered freights in large quantity, carloads and trainloads. It furnished loading facilities and discharging facilities at great cost. It provided regular traffic, so that a railroad could conduct its transportation to the best advantage and use its equipment to the full extent of its hauling capacity without waiting for the refiner's convenience. It exempted railroads from liability for fire and carried its own insurance. It provided at its own expense terminal facilities which permitted economies in handling. For these services it obtained contracts for special allowances on freights...
The profits of the Standard Oil Company did not come from advantages given by railroads. The railroads, rather, were the ones who profited by the traffic of the Standard Oil Company, and whatever advantage it received in its constant efforts to reduce rates of freight was only one of the many elements of lessening cost to the consumer which enabled us to increase our volume of business the world over because we could reduce the selling price.
I well remember a bright man from Boston who had much to say about rebates and drawbacks. He was an old and experienced merchant, and looked after his affairs with a cautious and watchful eye. He feared that some of his competitors were doing better than he in bargaining for rates, and he delivered himself of this conviction:
"I am opposed on principle to the whole system of rebates and drawbacks unless I am in it."
Source: John D. Rockefeller, Random Reminiscences of Men and Events, (New York: Doubleday, 1909) pp. 107 109.
ROCKEFELLER BREAKS A COMPETITOR
George Rice, a Pennsylvania oil refiner, was a victim of John D. Rockefeller's consolidation efforts. In testimony before the United States Industrial Commission in 1899, he describes how the Standard Oil Trust bankrupted his refining company.
I am a citizen of the United States, born in the state of Vermont. Producer of petroleum for more than thirty years, and a refiner of same for twenty years. But my refinery has been shut down during the past three years, owing to the powerful and all prevailing machinations of the Standard Oil Trust, in criminal collusion and conspiracy with the railroads to destroy my business of twenty years of patient industry, toil, and money in building up, wholly by and through unlawful freight discriminations.
I have been driven from pillar to post, from one railway line to another, for twenty years, in the absolutely vain endeavor to get equal and just freight rates with the Standard Oil Trust, so as to be able to run my refinery at anything approaching a profit, but which I have been utterly unable to do. I have had to consequently shut down, with my business absolutely ruined and my refinery idle.
This has been a very sad, bitter, and ruinous experience for me to endure, but I have endeavored to the best of my circumstances and ability to combat it the utmost I could for many a long waiting year, expecting relief through the honest and proper execution of our laws, which have [has] as yet, however, never come. But I am still living in hopes, though I may die in despair...
Outside of rebates or freight discriminations, I had no show with the Standard Oil Trust, because of their unlawfully acquired monopoly, by which they could temporarily cut only my customers' prices, and below cost, leaving the balance of the town, nine tenths, uncut. This they can easily do without any appreciable harm to their general trade, and thus effectually wipe out all competition, as fully set forth. Standard Oil prices generally were so high that I could sell my goods 2 to 3 cents a gallon below their prices and make a nice profit, but these savage attacks and [price] cuts upon my customers' goods...plainly showed...their power for evil, and the uselessness to contend against such odds....
Source: Report of the U.S. Industrial Commission, I (1899), 687, 704.
WILLIAM GRAHAM SUMNER ON TRADE UNIONS
In 1878, William Graham Sumner, professor of political and social science at Yale College, testified before a congressional committee investigating the conditions of employment at various industrial plants around the country. Sumner, an outspoken opponent of labor unions used this forum to criticize attempts by government to regulate industrial working conditions. His argument reflects the basic beliefs of the Social Darwinists.
Question: What is the effect of machinery on those laborers whom for the time being it turns out of employment?
Sumner: For the time being they suffer, of course, a loss of income and a loss of comfort...
Question: Is there any way to help it?
Sumner: Not at all. There is no way on earth to help it. The only way is to meet it bravely, go ahead, make the best of circumstances; and if you cannot go on in the way you were going, try another way, and still another until you work yourself out as an individual...
Question: Do you admit that there is what you call distress among the laboring classes of this country?
Sumner: No sir: I do not admit any such thing. I cannot get evidence of it... I do not know of anything that the government can do that is at all specific to assist labor to assist non capitalists. The only things that the government can do are generally things such as are in the province of a government.
The general things that a government can do to assist the non capitalist in the accumulation of capital (for that is what he wants) are two things. The first thing is to give him the greatest possible liberty in the directing of his own energies for his own development, and the second is to give him the greatest possible security in the possession and use of the products of his own industry. I do not see any more than that a government can do....
Society does not owe any man a living. In all cases that I have ever known of young men who claimed that society owed them a living, it has turned out that society paid in the State prison. I do not see any other result...
The fact that a man is here is no demand upon other people that they shall keep him alive and sustain him. He has got to fight the battle with nature as every other man has; and if he fights it with the same energy and enterprise and skill and industry as any other man, I cannot imagine his failing that is, misfortune apart...
Source: Howard H. Quint, Milton Cantor and Dean Albertson, Main Problems in American History, (Chicago: The Dorsey Press, 1987) p. 50.
THE ROAD TO BUSINESS SUCCESS
Andrew Carnegie's life was the epitome of upward mobility. He arrived in the United States, an impoverished immigrant and later became one of the nation's leading industrialists. Carnegie was also an articulate spokesman of the new cult of success and promoted it through his most famous book, The Gospel of Wealth, published in 1901. In the passages below he describes the price of economic progress. He also discusses the need to redistribute the accumulated incomes of the wealthy.
Today the world obtains commodities of excellent quality at prices which even the preceding generation would have deemed incredible. In the commercial world similar causes have produced similar results and the race is benefited thereby. The poor enjoy what the rich could not before afford. What were the luxuries have become the necessaries [sic] of life...
The price we pay for this salutary change is, no doubt, great. We assemble thousands of operatives in the factory, and in the mine, of whom the employer can know little or nothing... All intercourse between them is at an end. Rigid castes are formed and, as usual, mutual ignorance breeds mutual distrust. Each caste is without sympathy with the other, and ready to credit anything disparaging in regard to it. Under the law of competition the employer of thousands is forced into the strictest economies, among with the rates paid to labor figure prominently, and often there is friction between the employer and the employed...
The price which society pays for the law of competition, like the price it pays for cheap comforts and luxuries, is also great; but the advantages of this law are also greater still than its cost--for it is to this law that we owe our wonderful material development... But, whether the law be benign or not...it is here; we cannot evade it...and while the law may be sometimes hard for the individual, it is best for the race because it insures the survival of the fittest in every department. We accept and welcome...great inequality of environment; the concentration of business, industrial and commercial, in the hands of a few; and the law of competition between these, as being not only beneficial but essential to the future progress of the race... Objections to the foundations upon which society is based are not in order, because the condition of the race is better with these than it has been with any other which has been tried...
Why should men leave great fortunes to their children? If this is done from affection, is it not misguided affection? Observation teaches that, generally speaking, it is not well for the children that they should be so burdened. Neither is it well for the State. Beyond providing for the wife and daughters moderate sources of income, and very moderate allowances indeed, if any, for the sons, men may well hesitate...for great sums bequeathed often work more for the injury than the good of the recipients... The growing disposition to tax more and more heavily large estates left at death is a cheering indication of the growth of a salutary change in public opinion. The State of Pennsylvania now takes--subject to some exceptions--one tenth of the property left by its citizens... Of all forms of taxation this seems the wisest... By taxing estates heavily at death the State marks its condemnation of the selfish millionaire’s unworthy life...
Source: Andrew Carnegie, The Gospel of Wealth, (New York, 1901) pp. 3-5, 9, 11.
CARNEGIE AND MORGAN: A CONVERSATION ABOUT STEEL
In 1900 J.P. Morgan bought out Carnegie Steel and created U.S. Steel, the largest corporation in America at the time. Capitalized at $1.4 billion (America's first billion dollar corporation) a figure three times larger than the annual budget of the United States. Here is part of the conversation between the two men which finalized the deal.
It was a cold winter's night in December 1900, seventy-five of the richest, most influential American businessmen gathered at the New York University Club. They met for a testimonial dinner in honor of Charles Schwab, president of Carnegie Steel Company. Seated to the honoree's right was J.P. Morgan, the powerful investment banker and consolidator of industry. Charles Schwab...in his speech rhapsodized over low prices and stability for steel. This future was to be ushered in by a scientifically integrated firm which would supplant numerous companies--many of which produced more stock certificates than steel.
Morgan did not miss the point. For several years he and others had been busily creating trusts [which] they hoped to unite or eliminate competition in order to raise prices. Andrew Carnegie's company was the largest supplier of raw steel to such companies, and he hated trusts... Morgan and his cohorts soon realized that depending on Carnegie for raw steel would doom their consolidation schemes... They were going to produce their own steel or but it from others--and put Carnegie out of business.
Rather than surrender, Carnegie telegraphed instructions to his company's officers: "Crisis has arrived, only one policy open; start at once hoop, wire, nail mills....Have no fear as to result, victory certain..." Carnegie know he could produce superior products at cheaper prices... The overcapitalized, antiquated, and scattered plants of his competitors would have been no match for Carnegie's new ones. Panicked promoters scurried to J.P. Morgan in the weeks before the testimonial dinner. Few doubted Federal Steel president Elbert Gary's assertion that Carnegie could "have driven entirely out of business every steel company in the United States." Carnegie, however, wanted to retire, and Schwab's speech was aimed at producing a bargain, not a war. After the dinner Morgan fired dozens of questions at Schwab. Later they held an all-night session at Morgan's house. In the early hours of the next day Morgan finally said, "Well, if Andy wants to sell, I'll buy. Go find his price."
Schwab approached Carnegie on the golf course, where he might be more inclined to cooperate. Carnegie listened and asked Schwab to return the next day for an answer. At that time Carnegie handed him a slip of paper with his asking price of $480 million written in pencil. When Schwab gave Morgan the offer, he glanced at it and replied, I accept the price." A few days later Morgan stopped by Carnegie's office, shook hands on the deal and stated, "Mr. Carnegie, I want to congratulate you on being the richest man in the world."
Source: James K. Martin, America and its People, Vol. 2, (Glenview, Illinois, 1989), 512.
CHANGING WORLD INDUSTRIAL BALANCE, 1860 1980
Leading Industrial Nations
1860 1900 1980 2000
Great Britain United States United States United States
France Germany Soviet Union Japan
United States Great Britain Japan Germany
Germany France West Germany Great Britain
Nations in 2000 with the Largest GDP (in Trillions of Dollars)
United States 8.4 Trillion France 1.3 Trillion Spain 552 Billion
Japan 4.1 Trillion Italy 1.1 Trillion India 442 Billion
Germany 2.1 Trillion China 1.0 Trillion Mexico 429 Billion
Great Britain 1.4 Trillion Brazil 743 Billion
Manufacturing in the United States, 1860 1900
Date Number of Factories Number of Employees Capitalization Value of Products
1860 140,433 1,311,246 $ 1,009,855,715 $ 1,885,861,676
1870 252,140 2,053,996 1,694,567,015 3,385,860,354
1880 253,852 2,732,595 2,790,272,606 5,369,579,191
1890 355,405 4,251,535 6,525,050,759 9,372,378,843
1900 512,191 5,306,143 9,813,834,390 13,000,149,159
Gross National Product and Total Per Capita Income
Date Gross National Product Per Capita Income
1873 $ 9,100,000,000 $ 223
1876 11,200,000,000 254
1881 16,100,000,000 327
1886 20,700,000,000 374
1891 24,000,000,000 388
1893 27,300,000,000 424
1896 29,600,000,000 434
1901 37,100,000,000 496
Steel Production in the United States, 1870 1905
Average Production (in Tons) Per Establishment
THE SHERMAN ANTI TRUST ACT, 1890
The Sherman Anti Trust Act, reprinted below, was intended to halt the proliferation of business trusts. Its language on this question was clear but it was not enforced by American presidents until Theodore Roosevelt used the measure to breakup the Northern Securities Trust.
Sec. 1 Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is hereby declared to be illegal. Every person who shall make any such contract or engage in any such combination or conspiracy, shall be deemed guilty of a misdemeanor, and, on conviction thereof, shall be punished by fine not exceeding five thousand dollars, or by imprisonment not exceeding one year, or by both said punishments, in the discretion of the court.
Sec. 2 Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a misdemeanor, and on conviction thereof, shall be punished by fine not exceeding five thousand dollars, or by imprisonment not exceeding one year, or by both said punishments, in the discretion of the court.
NUMBER OF TRUSTS FORMED, 1891 1903
1891 4 1896 10 1900 33
1892 8 1897 7 1901 71
1893 9 1898 12 1902 88
1894 3 1899 88 1903 25
MAJOR INDUSTRIAL TRUSTS, 1904
Date % of
Leading Company* Formed Plants Capitalization Industry
Standard Oil Trust 1882 400 97,500,000 97%
American Sugar Refining 1891 55 145,000,000 100
Amalgamated Copper Trust 1899 11 175,000,000 100
American Smelting Trust 1899 121 201,550,000 98
Consolidated Tobacco 1901 150 502,915,000 100
United States Steel 1901 785 1,370,000,000 76
*Dominant Corporation in the Trust
J. P. MORGAN DENIES A MONEY TRUST
In testimony before a Congressional Committee in 1913, J. Pierpont Morgan denied claims that he and other bank directors attempted to control major American corporations.
...There have been spread before your Committee elaborate tables of so called interlocking directorates, from which exceedingly mistaken inferences have been publicly drawn. In these tables it is shown that 180 bankers and bank directors serve upon the boards of corporations having resources aggregating $25,000,000,000, and it is implied that this vast aggregate of the country's wealth is at the disposal of these 180 men.
But such an implication rests solely upon the untenable theory that these men, living in different parts of the country, in many cases personally unacquainted with each other, and in most cases associated only in occasional transactions, vote always for the same policies and control with united purpose the directorates of the 132 corporations on which they serve.
The testimony failed to establish any concerted policy or harmony of action binding these 180 men together, and, as matter of fact, no such policy exist. The absurdity of the assumption of such control becomes more apparent when one considers that, on the average, these directors represent only one quarter of the memberships of their boards. It is preposterous to suppose that every "interlocking" director has full control in every organization with which he is connected, and that the majority of directors who are not "interlocking" are mere figureheads, subject to the will of a small minority of their boards.
Such growth in the size of banks in New York and Chicago has frequently been erroneously designated before your Committee as "concentration," whereas we have hitherto pointed out [that] the growth of banking resources in New York City has been less rapid than that of the rest of the country. But increase of capital, and merger of two or more banks into one institution (with the same as the aggregate of the banks merging into it), has been frequent, especially since January 1, 1908.
These mergers, however, are a development due simply to the demand for larger banking facilities to care for the growth of the country's business. As our cities double and treble in size and importance, as railroads extend and industrial plants expand, not only is it natural, but it is necessary, that our banking institutions should grow in order to care for the increased demands put upon them. Perhaps it is not known as well as it should be that in New York City the largest banks are far inferior in size to banks in the commercial capitals of other and much smaller countries...
Yet, before your Committee, this natural and eminently desirable relationship was made to appear almost sinister, and no testimony whatever was adduced to show the actual working of such relationships.
Source: Thomas A. Bailey and David M. Kennedy, The American Spirit, Vol. II, (Lexington, Mass.: D.C. Heath and Company, 1984), pp. 636 637.
THE TRUSTS: A CRITICAL VIEW
Hazen Pingree, the reform mayor of Detroit, delivered an address at the Chicago Conference on Trusts, 1900, which was highly critical of the business consolidation movement. His argument is summarized below.
Everybody has been asking whether more money can be made by trusts than by small corporations and individuals whether cost of production will be increased or decreased whether investors will be benefited or injured whether the financial system of the country will be endangered whether we can better compete for the world's trade with large combinations or trusts...
I believe that all these things are minor considerations. I think that it is of far greater importance to inquire whether the control of the world's trade, or any of the other commercial advantages claimed for the trust, are worth the price we pay for them.
The strength of our republic has always been in what is called our middle class. This is made up of manufacturers, jobbers, middle men, retail and wholesale merchants, commercial travelers and business men generally. It would be little short of calamity to encourage any industrial development that would affect unfavorably this important class of our citizen.
Close to them as a strong element of our people are the skilled mechanics and artisans. They are the sinew and strength of the nation. While the business of the country has been conducted by persons and firms, the skilled employee has held close and sympathetic relations with his employer. He has been something more than a mere machine. He has felt the stimulus and ambition which goes with equality of opportunity.
How does the trust affect them? It is admitted by the apologist for the trust that it makes it impossible for the individual or firm to do business on a small scale. It tends to concentrate the ownership and management of all lines of business activity into the hands of a very few. No one denies this. This being so, it follows that the independent, individual business man, must enter the employment of the trust. Self preservation compels it. His trusted foremen and his employees must follow him. Their personal identity is lost. They become cogs and little wheels in a great complicated machine. There is no real advance for them. They may perhaps become larger cogs or larger wheels, but they can never look forward to a life of business freedom.
The trust is therefore the forerunner, or rather the creator of industrial slavery.
The master is the trust manager or director. It is his duty to serve the soulless and nameless being called the stockholder. To the latter the dividend is more important than the happiness or prosperity of any one. The slave is the former merchant and business man, and the artisan and mechanic, who one cherished the hope that they might sometime reach the happy position of independent ownership of a business.
I favor complete and prompt annihilation of the trust, with due regard for property rights, of course.
Source: Howard Quint, Milton Cantor and Dean Albertson, Main Problems in American History, (Chicago: The Dorsey Press, 1987) p. 159 160.