by Ron Chernow
Nevertheless, if he didn’t create the crisis, as many producers believed, Rockefeller never passed up a chance to exploit a legitimate advantage against his beleaguered rivals. With its tanks overflowing, Standard Oil issued a sweeping edict that it would no longer accept oil for temporary storage but only for immediate shipment to refineries. Standard Oil quoted a purchase price for crude oil a full 20 percent below prevailing prices, then stalled on payments to desperate producers. One market letter caustically described this policy as a “bull issued by his infallible holiness Rockefeller.” It was a terribly high-handed and insensitive way to respond to the crisis. 2 But even by oil-industry standards, the producers reacted with exceptional fury. Every day, sullen mobs lined up at the Standard Oil office and grudgingly negotiated their oil shipments. With wide room for partiality, Standard Oil favored shipments to its own refiners—a fact that struck Rockefeller as eminently fair—while producers argued that the pipeline network was a common carrier and obligated to treat everyone equally. Producers felt that their fortunes, their very lives, hung in the balance. As one Standard Oil lawyer recalled, “Arson and murder were threatened by the producers, who marched in masked bands at midnight uttering their threats.” 3 One of O’Day’s men reminisced, “They paraded at night in big gangs, covered with sheets from head to foot in regular ku-klux fashion, groaning and booing the Standard.”4 Orators urged the burning of Standard pumping stations, the skulls and crossbones appeared on Standard buildings, and vandalism spread.
To mollify producers, the state of Pennsylvania deputed William McCandless, its commissioner of internal affairs, to study the petroleum industry. Officials of the Standard pipelines, who now arrogantly behaved as if they owned the oil industry, ignored his subpoenas and boycotted testimony. Nevertheless, when McCandless issued a report in October 1878 that exonerated Standard Oil, the producers erupted in hysterical protest. It was widely rumored that McCandless had been bribed, and on the Bradford streets he was hung in effigy with a big, bogus $20,000 check, signed by Rockefeller and endorsed by the Pennsylvania Railroad, protruding from his pocket. Newspapers told how one Bradford man invited Rockefeller to the region but then, remembering the imbroglio, warned him instead, “Don’t you do it, for if you do, you will never come back alive.”5
William Rockefeller, brother of John D. and a leading Standard Oil executive. (Courtesy of the Rockefeller Archive Center)
The immediate-shipment controversy engendered mutual enmity, for Rockefeller saw the producers as so many ingrates and malcontents whose oil was worthless without his superefficient United Pipe Lines system, which would soon be connected to twenty thousand wells. He mockingly described his foes’ attitude as follows: “We have disregarded all advice, and produced oil in excess of the means of storing and shipping it. We have not built storage of our own. How dare you refuse to take all we produce? Why do you not pay us the high prices of 1876, without regard to the fact that the glut has depressed every market?”6 The episode convinced Rockefeller that the producers nursed an unreasonable hostility against him, and this inoculated him against even valid criticism. But unlike the producers, Standard Oil paid no real penalty for the Bradford crisis and in 1878 declared an impressive $60 dividend on shares with a $100 par value. Rockefeller had positioned himself exactly where he wished to be—poised to profit from either surplus or scarcity and all but immune to the vagaries of the marketplace.
As masses of drillers descended upon Bradford, this major shift in the geography of oil awakened dormant ambitions in Rockefeller’s foe, Tom Scott of the Pennsylvania Railroad. As Standard Oil erased the surviving independent refiners, competing pipeline and railroad officials were petrified that Standard might soon be in a position to eliminate their oil traffic at whim. Since it had tracks near the Bradford wells, the Pennsylvania spotted a chance to loosen Standard Oil’s grip and win new business. Its vehicle for this challenge was its assertive subsidiary, the Empire Transportation Company, which owned five hundred miles of pipeline and one thousand tank cars. Empire had had the temerity to threaten Standard Oil in its refining strongholds, buying up rivals in New York, Philadelphia, and Pittsburgh and trying to win over new refining customers with bargain transportation rates. Now, as if spoiling for a fight, the Empire began to lay pipes for pumping crude oil from Bradford to the seaboard refineries—a direct challenge to Standard Oil dominance.
The driving force behind this incursion was a man who was almost a match for Rockefeller but who fancied that, had Rockefeller only played fair, he would have been much more than a match: Colonel Joseph D. Potts, president of Empire Transportation. A civil engineer descended from a family of Quaker iron-masters, Potts was a capable man who had attained a colonel’s rank in the Civil War. He had a prominent nose and a long preacher’s face, fringed by a white beard. Gravely earnest, no less conversant with the Bible than with the oil industry, Potts aspired to be Rockefeller’s equal. If Rockefeller respected Potts’s “indomitable will,” he also patronized him as “a shrewd oily man, as smooth as oil.” 7 Potts repaid the compliment, castigating Rockefeller as a merciless predator. Of Rockefeller’s current refiners’ cartel, the Central Refiners’ Association, Potts said memorably, “It resembled the gentle fanning of the vampire’s wing, and it had the same end in view—the undisturbed abstraction of the victim’s blood.”8
When Potts poached on his territory, Rockefeller demanded a meeting with Tom Scott and A. J. Cassatt of the Pennsylvania Railroad. As his private reminiscences attest, Rockefeller was cynical about Empire, which he thought a transparent front for corrupt Pennsylvania officials to line their pockets with profits that belonged rightly to shareholders; it was also, he saw, a handy vehicle for the railroad to cheat on pooling agreements while escaping detection. In confronting the railroad officials, Rockefeller struck a characteristic tone of injured innocence: “Here, I have gone out of my way to be friendly to the Pennsylvania in the allotment of oil shipments and now you gentlemen are permitting your associate, Colonel Potts, actually to invade the Central Association’s field. Why, it is nothing less than piracy! You must call off this poacher, Potts.”9 Although nearly two-thirds of the oil carried by the Pennsylvania Railroad now originated with Standard Oil, Scott decided to flout his biggest customer and, if not annihilate Rockefeller, chop him down to size.
Rockefeller interpreted Scott’s intransigence as a declaration of war. In taking on the Pennsylvania Railroad, he was battling America’s most powerful corporation, yet he proceeded with unwavering confidence. In spring 1877, Rockefeller told railroad officials point-blank that if Empire didn’t retreat from refining, Standard Oil would divert its shipments to other railroads. When they didn’t flinch, Rockefeller launched an all-out attack. To starve out the railroad, he idled all his Pittsburgh refineries and ordered corresponding increases in output in his Cleveland refineries. He sent out word that Standard Oil refineries should fiercely undersell Empire refineries in every market where they vied for kerosene sales. Turning to the two railroads long solidly in his corner, the Erie and the New York Central, Rockefeller had them trim rates to ratchet up the pressure on the Pennsylvania Railroad. To handle the extra volume expected on these two railroads, Flagler negotiated a deal with William Vanderbilt to build another six hundred tank cars. With blazing speed, Rockefeller was on his way to humbling the world’s largest freight carrier, a company long thought invincible in the business and political world. Afterward, A. J. Cassatt admitted that the railroad had to grant such large rebates to keep up with Standard Oil that it ended up literally paying shippers to transport their oil.
In the end, providence itself conspired in the railroad’s comeuppance. As he slashed rates to withstand the Standard onslaught, Tom Scott fired hundreds of workers and reduced wages 20 percent. When he doubled the length of trains without expanding their crews, trainmen walked off the job in protest. After the Baltimore and Ohio Railroad announced comparable wage cuts in 1877, the protest flamed up into a general railroad strik
e, one of the bloodiest battles in American labor history, resulting in dozens of fatalities. In Pittsburgh alone, 500 tank cars, 120 locomotives, and 27 buildings were torched by union vandals, sabotage so costly that Pennsylvania officials tapped Wall Street for a large emergency loan from Drexel, Morgan and Company. As state governors ordered out their militias and President Rutherford B. Hayes supplemented them with federal troops, the country watched the insurrection in horror. However pleased by the railroad’s travails, Rockefeller must have felt a dreadful chill as rumors circulated that two thousand pistol-packing radicals would march down Euclid Avenue. After the riots ended, one Titusville reporter disclosed that the Oil Creek citizenry had nearly exploited the upheavals to take revenge against Standard Oil: “Had certain men given the word there would have been an outbreak that contemplated the seizure of the railroads and running them, the capture and control of the United Pipe Line’s property, and in all probability the burning of all the property of the Standard Oil Company in the region.”10 Though after burning more than two thousand freight cars the strikers capitulated, their revolt inaugurated a new age of labor militance in American industry.
Reeling from these blows, the Pennsylvania Railroad skipped its dividend, sending its share price tumbling on the stock exchange. Though Potts wished to fight on, Scott was inclined to relent. Although the railroad didn’t wholly own Empire, it had an option to buy the remaining shares, and, faced with Potts’s recalcitrance, Scott did just that. It amused Rockefeller how agilely Scott switched direction when it served his interest and how—without notifying Potts, who would resent his treachery—he dispatched A. J. Cassatt to Cleveland to tell Rockefeller and Flagler that he was “anxious for a settlement.”11 Rockefeller gloated over Potts’s crushing defeat: “The effort of Colonel Potts to make it appear that he was the great Moses failed, utterly failed.”12
Empire’s capitulation represented a greater boon than Rockefeller had envisaged, for the spoils were bountiful. The cash-strapped Scott didn’t simply agree to stop refining oil but offered Standard Oil a huge fire sale of assets—refineries, storage tanks, pipelines, a fleet of steamships, tugboats, barges, loading docks—in fact, far more than Standard could afford. During negotiations with Rockefeller at a Philadelphia hotel in October 1877, Scott swept in with a selfconfident panache that thinly camouflaged his defeat. As Rockefeller recalled, “I can see [Scott] now with his big soft hat, marching into the room in that little hotel to meet us; not to sweep us away as he had always done, but coming in with a smile, walking right up to the cannon’s mouth. ‘Well, boys, what will we do?’ ” In the ensuing talks, Scott drove a tough bargain and refused to budge on two conditions: that Standard Oil buy all of Empire’s assets, including its antiquated lake vessels; and that within twenty-four hours it pay $2.5 million of the $3.4 million offering price by certified check.
This last demand taxed even Standard Oil, which had only about half the necessary cash in its coffers. Rockefeller raced back to Cleveland and flew through local banks in a hectic tour such as he hadn’t made in years. Climbing into his buggy, he approached one bank president after another and told them breathlessly, “I must have all you’ve got! I need it all! It’s all right! Give me what you have! I must catch the noon train.”13 Unable to persuade his Standard Oil confrères to buy the steamships—Rockefeller always operated by consensus— he had the nerve to borrow several hundred thousand dollars on his own account and buy the ships himself. Although these money-losing ships drained him for years, their purchase was dictated by the larger interest of Standard Oil, and he never regretted his snap decision.
In dueling with Scott, Rockefeller didn’t try to demolish him—as Scott might have done to him—but called a truce to strengthen their alliance. His constant aim was to be conciliatory whenever possible and extend his range of influence. In a new pooling arrangement, Standard Oil agreed to ship at least two million barrels yearly over the Pennsylvania Railroad and restore its faded luster in the oil trade; in exchange, Standard would pocket a 10 percent commission (read: rebate) on its shipments over the road. More important, Standard was designated as the evener—that is, the enforcer—of a new master plan brokered by the railroads whereby the railroad would receive 47 percent of all oil traffic; the Erie and the New York Central 21 percent apiece; and the B&O 11 percent. Tightening the vise, Rockefeller’s pipeline chieftain, Daniel O’Day, informed the Pennsylvania Railroad in February 1878 that Standard would henceforth want at least twenty cents for every barrel of crude oil the railroad shipped—an arrangement Standard Oil had foisted upon the Erie and the New York Central. Having outsmarted the largest railroad, Rockefeller had acquired a stranglehold on the three major roads, and his taming of the imperious Tom Scott guaranteed that no railroad president would ever dare to tangle with him again.
The defeat left Colonel Potts a broken, humiliated man. As his son recalled, “He always believed some of the Pennsylvania directors had been approached by the Standard and bought out. Others talked of bribery; of course nothing could be proved.”14 In all likelihood, Potts didn’t want to admit that he had been outwitted by Rockefeller. Ida Tarbell, in her romanticized view of some of Rockefeller’s foes, converted Colonel Potts into an incorruptible martyr, the Abraham Lincoln of the oil industry, crucified by Standard Oil, when he was just an able, aggressive businessman who lost out in a power struggle to a shrewder, bolder opponent. In the early 1880s, Potts renounced his principled opposition to Standard Oil and became an active director of the National Transit Company, a Standard Oil pipeline subsidiary.
The Grand Guignol of the Empire battle diverted attention from another momentous drama that unfolded at about the same time: the purchase of the Columbia Conduit Company from Dr. David Hostetter. For Rockefeller, the Columbia purchase had far-reaching strategic implications, for the pipeline functioned as the B&O’s crude-oil lifeline. Columbia pumped western Pennsylvania crude to the B&O’s Pittsburgh terminal, whence it traveled by rail to Baltimore refineries. Thus, if he could smother Columbia, Rockefeller would be able to conquer the fourth and last major railroad system while also gaining uncontested control of all major pipeline systems connecting oil wells to railroad trunk lines. He would have extended his reach, in short, into every nook and cranny of the oil industry. As Ida Tarbell noted, after the Columbia Conduit fell into Rockefeller’s lap, “Practically not a barrel of oil could get to a railroad without [Rockefeller’s] consent.” 15
By this point, Standard Oil had effectively stamped out competing refiners in Cleveland, Philadelphia, and Pittsburgh and faced only a smattering of weak New York holdouts. The last major pockets of resistance lay in West Virginia and Baltimore, whose refiners relied upon the B&O. Thus, by controlling the Columbia Conduit Company, Rockefeller would be able to snuff out the last independent refiners. Conversely, if he controlled the West Virginia and Baltimore refineries, he could pressure the railroad into submission.
The man assigned to carry out this convoluted campaign was Johnson Newlon Camden, the Parkersburg, West Virginia, refiner whose company had secretly joined Standard some years earlier. Elected to Congress several times, Camden later served as a U.S. senator, but his civic involvement didn’t translate into superior business ethics. On the contrary, Camden dealt with rivals in an especially coercive manner, as he showed in early 1876 when absorbing Pittsburgh refiners. To snuff out the last competitors, he peremptorily informed Alexander McDonald, the leading supplier of barrel staves to the city’s independent refiners, “that no staves must be sold to Pittsburgh, that it was our policy to control the oil business of Pittsburgh by controlling the supply of staves and barrels at that point,” as he told Standard headquarters. Further, McDonald was under strict instructions, he said, “that he must ship no staves to Pittsburgh without [Standard Oil’s] consent.” 16 Whenever competition flared up in Pittsburgh, Rockefeller dispatched Camden to douse the flames, once telling him, “At this particular moment it is especially important that outside Pittsburgh refin
eries should have no chance whatever in any market for local trade oil. . . . Our feeling of anxiety to accomplish the object of centralization is so strong we want you to yield to it for a few days longer when we hope you will be forever relieved.” 17
Like Rockefeller, Camden had a devious talent for concocting anticompetitive practices and paralyzing the trade. To soften up local competitors, he cornered the supply of West Virginia crude, leaving independent refiners high and dry. When confronted with such shameless manipulation, Rockefeller sighed, disclaimed any knowledge, and blamed overly zealous subordinates—a recurring pose in his career. But Camden, like other subordinates, kept Rockefeller thoroughly posted about his actions and told him apropos of early negotiations with independents, “I am having interviews with all the little refinery men here [Parkersburg] and at Marietta. . . . We will either get them or starve them.”18
Camden was thwarted by the same problems that had confronted Rockefeller in forming cartels in other cities. Aware that Standard would buy ramshackle plants to shut them down, many blackmailers entered the business in order to sell out. The harried Camden groused that small refineries were “multiplying like rats” and concluded despairingly that they would be “as hard to keep down as weeds in a garden.”19 As Standard Oil succeeded in steadying kerosene prices, it drew people back into the business. At this point, Rockefeller took a tougher line with blackmailers who wanted to be bought out. In responding to several Baltimore refiners who had previously rejected fair prices from Standard Oil but now wished to sell, Rockefeller sounded like the voice of divine retribution, telling Camden that “they will be sick unto death now having failed in their wicked scheme. A good sweating will be healthy for them. If . . . these people could wait and sell out their works at a loss, thereby making a poor speculation of blackmailing, it would probably cure this batch and save you endless trouble in future.” 20 Camden’s files support Rockefeller’s contention that he bought loads of worthless junk and enriched men who knew little about refining oil but everything about extortion.