CHAPTER 16

A Matter of Trust

For twenty-five years after Drake’s discovery, no major oil field was discovered in America beyond the Pennsylvania borders, so that it was never clear whether Rockefeller’s empire rested on terra firma or quicksand. When somebody told John D. Archbold in 1885 that traces of oil had been found in what later became Oklahoma, he reacted with incredulity. “Are you crazy, man?” he scoffed. “Why, I’ll drink every gallon of oil produced west of the Mississippi!”¹ Though small amounts of crude were being pumped in California and Kentucky, one expert solemnly assured Archbold that the chances of finding another bonanza on the scale of the Bradford field were one in a hundred; in alarm, Archbold liquidated some of his Standard Oil shares. Writing to Rockefeller that September, he mused gloomily that “we have opened nothing of importance in the way of production this summer, and next winter must see a great reduction in the old Bradford and Allegheny fields, from which the bulk of the production is yet obtained.”² The American oil business seemed headed toward premature extinction.

Rockefeller and his associates had long been haunted by two antithetical nightmares: Either the oil would dry up, starving their network of pipelines and refineries, or they would drown in a sea of cheap oil that would drag prices below their overhead costs. At one panicky executive-committee meeting in the early 1880s, it was even suggested that Standard Oil should exit the business and enter something more stable. After listening quietly to such defeatist talk, Rockefeller stood up, pointed skyward, and intoned, “The Lord will provide.”³ Rockefeller tended to see a heavenly design in all things and was convinced that the Almighty had buried the oil in the earth for a purpose.

In retrospect, it seems peculiar that Standard Oil—omnipotent in refining, transportation, and distribution—owned just four producing properties in the early 1880s. Thousands of Standard Oil employees had never seen a well. Why had Rockefeller not taken over the oil fields and completed his mastery of the industry? One must recall that in its formative years, the business suffered more gluts than shortages, giving Rockefeller the option of sitting back and watching producers slash prices in chaotic competition. He had long profited from the juxtaposition of cooperation in refining and competition in production. Political tact also dictated that he tread warily. As late as 1884, Archbold vigorously opposed any move into production as overly provocative: “I think if the name of the Standard Oil Co. were to go forth coupled with the movement, it would make new food for demagogues, politicians, papers, and howlers of all descriptions.”⁴

Why, then, did a radical policy shift occur within a year or two? Partly, this derived from the trust’s entry into natural gas, which put it, willy-nilly, in the drilling business, but the more compelling reason was that Standard Oil had built up a huge global machinery with a ravenous thirst for crude oil. As the Pennsylvania fields were depleted, Rockefeller feared that he might have to turn to Russian crude, and it seemed certain that the Russians would exploit their control of the oil fields to weaken or even eradicate Standard Oil. Already by 1884, an anxious Rockefeller was badgering associates to create a crude-oil reserve beyond their immediate needs, and he invested in some West Virginia producing properties. As he warned a skeptical colleague, “We must keep in sight always a large volume of the raw material, and better that this stock be somewhat excessive than run the risk of Russian competition shutting us out.”⁵

Then came a turning point almost as momentous as Drake’s discovery. In May 1885, a group of small operators, searching for natural gas in northwest Ohio, tapped a pocket of oil instead. This threw the industry into a wild uproar, providing incontestable proof that substantial deposits existed in the United States outside of Pennsylvania. By year’s end, more than 250 derricks had sprouted around the town of Lima, spilling across the border into Indiana. Yet the cheering was restrained, for the chemical content of Lima crude had intractable quality problems that threatened to destroy its value. For one thing, it contained less kerosene than Pennsylvania petroleum and that kerosene spread a film over lamps. Even more troublesome, its high sulfur content corroded machinery and gave off a deadly smell. (Pennsylvania crude had a paraffin base.) As one newspaper put it, “The chief fault found with Ohio stuff is the fact that it smells like a stack of polecats and is only worth forty cents a barrel.”⁶ For a household item, this stench was a fatal drawback, and the standard practice of cleansing crude with sulfuric acid was not enough to disinfect it.

It was, arguably, Rockefeller’s supreme inspiration that he believed in the Ohio-Indiana fields—one of those flashes of vatic power that made him a business legend. As he said, “It seemed to us impossible that this great product had come to the surface to be wasted and thrown away; so we went on experimenting with every process to utilize it.”⁷ To solve the problem, in July 1886 Rockefeller imported a distinguished, German-born chemist named Herman Frasch and gave him simple marching orders: Banish the odor from Lima crude and turn it into a marketable commodity. While Frasch burrowed away at this problem, the Standard Oil board faced an excruciating dilemma: Should they assume Frasch would succeed and buy up huge leases along the Ohio-Indiana border; or should they wait until Frasch had finished and risk losing the choicest properties?

Despite his prudent style, Rockefeller could exhibit visionary daring and undertake colossal gambles. He was now prepared to wager an enormous amount on Lima oil, a decision that tested his belief in management by consensus, for a conservative board clique headed by Charles Pratt obstinately resisted him. Rockefeller had always derided Pratt as weak-kneed and fainthearted, a “small man” who contributed little beyond the marketing area. ⁸ Yet far from imposing his will, Rockefeller tolerated prolonged debate about Lima crude, producing “a continual wrangle in the Board of the Standard Oil Company, day by day, month by month, year after year.” ⁹

A thin man with a Vandyke, active in his Baptist church, Pratt shared Rockefeller’s puritanical style. “Waste neither time nor money” was his favorite motto.¹⁰ A donor to many causes, Pratt was the first president and principal donor of the Adelphia Academy in Brooklyn and later bequeathed several million dollars to found the Pratt Institute, which offered classes in manual trades, the arts, and domestic economy. Despite their similarities, Pratt was a timid executive who lacked Rockefeller’s audacity and often felt slighted by him. He now turned the Lima debate into a referendum on his own business acumen. At every meeting, when Rockefeller proposed purchasing Ohio leases, Pratt and his faction objected. As Rockefeller said in mockery, they “held up their hands in holy horror.”¹¹ Finally, to break the deadlock, Rockefeller took an incalculable gamble. At one board meeting, after Rockefeller made his standard pitch for a Lima investment, Pratt lost his temper, threw back his head in agitation, and shouted “No!” Whereupon Rockefeller replied coolly, “I will build this improvement out of my own funds and underwrite it for two years.” He astonished his colleagues by pledging $3 million—about $47 million in 1996 dollars. “At the end of that time if it is a success the company can reimburse me. If it is a failure, I will take the loss.”¹² Whether impressed by Rockefeller’s unflinching resolve or realizing that he had lost, Pratt capitulated. “If that’s the way you feel about it, we’ll go it together,” he replied. “I guess I can take the risk if you can.”¹³

Standard Oil spent millions of dollars to buy oil properties, build tank cars, and construct pipelines in Lima. Daniel O’Day had never seen an oil field that he didn’t want to crosshatch with pipes, and when the trust started the Buckeye Pipe Lines Company to gather Lima crude in March 1886, he informed producers with more force than subtlety that they had to give Buckeye all their crude. Any driller who struck oil was accosted on the spot by one of O’Day’s determined agents. As he told Rockefeller, “I believe it is for the best interest of our company that as soon as we learn of any new development either oil or gas that we have a man there at once and have him stay there ready to take hold of anything that may turn up.” ¹⁴ An irresistible force, O’Day soon cornered 85 percent of the Lima oil. Even though no market yet existed for the “skunk oil,” the trust bought every single barrel offered by producers and by 1888 had over forty million barrels in storage tanks. By that point, the foul-smelling fluid sold for fifteen cents per barrel.

In taking his gamble, Rockefeller hadn’t entirely trusted to the Lord and the Standard Oil chemists and was casting about for a new application for the malodorous oil. He found the answer in fuel oil. The trust sent out teams of salesmen and technicians to persuade railroads to burn oil instead of coal in their locomotives and to suggest to hotels, factories, and warehouses that they switch from coal furnaces to oil burners. Although this effort flourished, the resulting business still didn’t equal the scale of the kerosene industry and only marginally diminished the fierce pressure weighing on Herman Frasch in his laboratory.

Nicknamed the Wild Dutchman, the vainglorious Frasch conformed to the stereotype of the eccentric scientist. A short man of explosive temper, he had immigrated to the United States after the Civil War. In the mid-1870s, Rockefeller brought him to Cleveland, where he did splendid work with paraffin, producing a new wax for British candle makers and a new ingredient for Cleveland’s chewing-gum magnate, William J. White. Afterward, Frasch set up shop in Canada and patented a process for eliminating sulfur from sour Ontario oils. Since the Ontario fields lay across Lake Erie from northwest Ohio, Rockefeller must have assumed a high likelihood of success when he hired Frasch to work on a kindred problem. By February 1887, Frasch had achieved partial success with Lima crude, introducing copper oxides to remove the sulfur. Then came the big breakthrough of October 13, 1888, when Feargus Squire wired Rockefeller with the historic news he had eagerly awaited for two years: “We are pleased to advise you that by experimenting with the Frasch process we have succeeded in producing a merchantable oil.”¹⁵

Frasch’s feat did more than vindicate Rockefeller’s reputation as an uncanny prophet of industry trends. Had Frasch not figured out how to use Lima crude, a critical shortage of American oil would have arisen between the depletion of western Pennsylvania crude and the Texas and Kansas booms of the early 1900s. For fifteen years, Frasch’s patents furnished dazzling profits for Rockefeller and Standard Oil and boosted the status of research scientists throughout the industry. The original oilmen were self-made roughnecks, biased against science and prone to operate by intuition, whereas Rockefeller brought a rational spirit to the business, and this counted among his greatest contributions. As the philosopher Alfred North Whitehead said, “The greatest invention of the nineteenth century was the invention of the method of invention.”¹⁶ When Frasch cracked the riddle of Lima crude, he was probably the only trained petroleum chemist in the United States. By the time Rockefeller retired, he had a test laboratory in every refinery and even one on the top floor of 26 Broadway. This was yet another way in which he converted Standard Oil into a prototype of the modern industrial organization, its progress assured by the steady application of science.

Once Rockefeller had an insight, it often gripped him with the irresistible force of an epiphany, and he now decided that Standard Oil must guarantee its crude-oil supply. After Frasch certified the worth of Lima crude, the trust moved into oil production with all the formidable resources within its reach. In 1889, a production committee was formed under the aegis of John D. Archbold, and it spent money at such a torrid pace that within two years it had disbursed $22 million—a figure that strained even Standard Oil’s budget, prompting more anguished howls from Charles Pratt. Rockefeller’s faith was vindicated, however, as the Ohio-Indiana field overtook the waning Pennsylvania industry and became the country’s crude-oil leader in the 1890s.

Rejuvenated by Lima, Rockefeller embarked on a buying binge such as the industry had never seen. Swallowing up Union Oil and three other big producing firms in 1890, he took over three hundred thousand acres of Pennsylvania and West Virginia—huge chunks of acreage that encompassed whole counties. The most feared man in the Oil Regions now became their dominant landlord and producer. “Hitherto the attention of the big Octopus has been largely directed toward crushing out all opposition in the refining of oil,” noted one agitated newspaper. “This latest deal shows that it has started to crush out the producers of the crude oil and obtain control of their property.” ¹⁷ By 1891, Rockefeller had gained control of a majority of the Lima fields and a quarter of American oil production. (The trust’s share of American crude production peaked at 33 percent in 1898.) By narrowing the range of competition in oil production, the move hastened the day of political reckoning for Standard Oil.

In future years, the discovery of new fields both at home and abroad provided openings for upstart competitors, but the trust’s swift, complete control of the Lima field gave it unchallenged control of American oil in the 1890s. The only major competitor spawned by the new territory was the Sun Oil Company, started by J. N. Pew in 1886. In spring 1891, Archbold visited Lima, cast a proprietary eye over oil fields stretching more than one hundred miles, and gloated in a letter to Rockefeller, “We undoubtedly have, as the case stands, well in reserve the greater part of the defined territory, and we will certainly be able to produce oil in the Ohio field more cheaply than anybody else, owning, as we do, great bodies of territories which we can drill judiciously.”¹⁸ Now that Rockefeller had scored such a gratifying triumph in production, he instructed Archbold to grab anything that could still turn a profit with crude at fifty cents a barrel. “If so would buy all we can get,” he wired.¹⁹ In this rush into exploration and production, Rockefeller created the model for the vertically integrated oil giants that would straddle the globe in the twentieth century.

The discovery of oil in Ohio radically redrew the map of the Standard universe, for it was senseless to ship crude oil to eastern refineries only to ship kerosene back to markets in the Midwest and Far West. In 1886, even before Frasch had completed his work, O’Day scouted northwest Ohio for an appropriate refinery site and chose the charming town of Lima itself, which was served by four railroads. The emergence of the giant Lima refinery accelerated the demise of Cleveland and Pittsburgh as refining centers, and by 1896 Standard Oil phased out its largest Cleveland refinery.

The Lima refinery was a mere preamble to the main event in the Midwest. In June 1889, the trust organized Standard Oil of Indiana, which would build America’s premier oil refinery at Whiting, Indiana, seventeen miles from downtown Chicago. During his 1891 tour, Archbold, trembling at the magnitude of this undertaking, told Rockefeller that the plant’s ability to process 36,000 barrels of crude oil daily struck him as “almost impossible to comprehend.”²⁰ The refinery remained a wonder of world oil for many years. At Whiting, Dr. William M. Burton produced his revolutionary discovery of how to “crack” petroleum, vastly increasing its yield of gasoline—an essential precondition of the auto age.

It took time for Standard Oil to wipe away the stigma of Lima crude, for just enough sulfur remained in the kerosene to clog chimneys and lamps in damp weather. In a confidential letter to Rockefeller, Archbold confessed that for the first time their competitors could justly claim a superior product. The trust was now a victim of its own dirty tricks. After the Ohio oil was discovered but before Rockefeller had won over Pratt, Standard had engineered a propaganda campaign to convince consumers that Lima oil was inferior to Pennsylvania oil. This strategy had now boomeranged on them, Archbold told Rockefeller, “so that it is necessary, until this prejudice is gotten out of the way, that the greatest possible care must be taken to have every shipment from both Lima and Whiting absolutely beyond the possibility of legitimate complaint. ”²¹ The original slander was refuted with difficulty.

As Standard Oil secured complete control of the oil industry, many ordinary citizens were frightened by its gargantuan size, rapacious methods, and inexorable growth, and it came to symbolize all the disquieting forces reshaping America. It was the “parent of the great monopolies which at present masquerade under the new-found name of ‘Trusts,’ ” said one newspaper, and it served as shorthand for the new agglomerations of economic power. A business system based on individual enterprise was creating combinations of monstrous size that seemed to threaten that individualism. And modern industry not only menaced small-scale commerce but appeared to constitute a sinister despotism that endangered democracy itself as giant corporations overshadowed government as the most dynamic force in American society.

As the leading figure in this consolidation, Rockefeller was the emblematic figure of the Gilded Age and hence a lightning rod for criticism. He closely followed political developments and was keenly alert to any potential threats to his business interests. In his personal campaign contributions, though, he won a well-earned reputation as a stingy giver, and some politicians even felt miffed at his paltry gifts. The clandestine payoffs made by Standard Oil were a different matter, and Rockefeller never stinted in making payments to get the job done.

At the turn of the century, reporters spilled a great deal of ink over charges that Standard Oil had bought Henry B. Payne’s election to the U.S. Senate in 1884. This putative case of political corruption received more attention from critics than any other, although little evidence was ever adduced to substantiate it. With his white hair and wire-rimmed glasses, Henry B. Payne—father of Standard Oil’s treasurer, Oliver Payne—was an affable man with a distinguished air. A Cleveland lawyer and perpetual candidate for public office, he lobbied for mandatory education in Cleveland, worked ardently for the Union cause, and helped to found the Case School of Applied Sciences, while also serving as part owner of two railroads. Unlike his wealthy Euclid Avenue neighbors, Payne was a Democrat who had campaigned for Stephen Douglas in his 1860 presidential bid against Abraham Lincoln. Ironically, in light of later allegations, when he first ran for Congress, Standard Oil supported his opponent and helped to defeat him. Ambitious for his father, the cold, haughty Oliver Payne acted as his perennial campaign manager, starting with his congressional victory in 1874. Two years later, Oliver tried unsuccessfully to capture the Democratic presidential nomination for his father—a presumptuous bid for an elderly freshman congressman. This lost cause earned Oliver a somewhat Machiavellian reputation, and one newspaper observed acidly: “He’s got a purse that is inexhaustible, a silent tongue, and a capacity for the organization and manipulation of men.” ²²

In the late 1870s, Henry Payne lost his congressional seat. Approaching seventy, he might have retired gracefully from politics, but he could not seem to shed his daydreams of higher office. When he sought the Democratic presidential nomination in 1880, his opponents cruelly baited him about his age, and one stooped to calling him “an attenuated, dried-up old fossil.”²³ To retire these charges, Payne gave a nimble spring to his step, a youthful vigor to his gestures. Possibly more harmful was Payne’s association with Standard Oil, which blemished his reputation among many Democrats. Payne received only eighty-one votes on the first ballot as General Winfield Hancock walked off with the nomination.

At the time, U.S. senators were elected by state legislatures, creating an open season for graft and influence peddling by business interests. When the Ohio legislature elected Henry B. Payne to the Senate in 1884—the legislature would go down in history as the infamous “Coal-oil Legislature” for its obeisance to Standard Oil—it was widely rumored that Oliver had sat behind a desk in a Columbus hotel room and doled out bills to legislators, the final tab reaching $100,000. These bribery allegations, though never proved, shadowed Senator Payne and provoked a firestorm of abuse against Standard Oil. Whether Oliver Payne bought the election is uncertain, but it seems far-fetched that Rockefeller or Standard Oil conspired with him. Henry Payne was a staunch Democrat, and Standard Oil was a Republican stronghold. Rockefeller likely spoke the literal truth when he said, “I was opposed to the election of Senator Payne, as a Republican and never anything else but a Republican. And not one farthing of the money of the Standard Oil Company went to his election; nor were the Standard Oil Company favorable to his election, as a company.”²⁴

Aside from his father, Oliver Payne gave Standard Oil a second important link to the Democratic Party through his brother-in-law, William C. Whitney. Even though Oliver had been two years older and infinitely richer than Whitney at the time, the two were fast friends at Yale. To an extent that some observers found unhealthy, Oliver doted on his lovely, gregarious sister Flora; when he arranged for her to meet Whitney in 1868, he already “knew that if they met, they would fall in love with each other,” he later admitted. ²⁵When they married a year later, he became their self-appointed benefactor, buying them a five-story Park Avenue brownstone. This was a mere curtain-raiser to his next gift, a showy $700,000 mansion, glistening with gorgeous paintings and Gobelin tapestries, at the corner of Fifth Avenue and Fifty-seventh Street, across from Cornelius Vanderbilt’s residence. One historian said that Oliver insouciantly “presented it to the Whitneys as one might present a poodle,” and with his sublime self-assurance, this lifelong bachelor moved into one of its sumptuous second-floor apartments.²⁶

William C. Whitney was a dashing man with a matchless talent for attracting monied patrons. Though he stayed only one year at Harvard Law School, he became a rich Wall Street lawyer, representing Commodore Vanderbilt and other railroad clients. Active in the Democratic Party, he won the patronage of Samuel J. Tilden, who, as governor, had him named New York City’s corporation counsel. In 1884, Whitney shrewdly supported Grover Cleveland, the mayor of Buffalo, for president and brokered a truce between the reform-minded Cleveland and Tammany Hall. When Whitney emerged as an influential insider in Cleveland’s presidential campaign, some critics thought him a Standard Oil tool. In reality, Rockefeller voted for James G. Blaine, a paladin of business interests, and predicted the election would be “a great calamity” if Cleveland won.²⁷ In an unprecedented step, Rockefeller allowed his name to be listed as vice president for a Republican fund-raising effort in the city of Cleveland.

To further Grover Cleveland’s candidacy, Whitney persuaded Henry B. Payne that the growing furor over Standard Oil made it an inauspicious time for him to vie for the Democratic nomination. Instead, Henry and Oliver Payne poured $170,000 into Cleveland’s war chest. After Cleveland’s victory, it looked as if Whitney would be named interior secretary. Then the press tagged him with the sobriquet of “Coal Oil Billy” and raised the specter that Standard Oil would loot public lands. As a consolation prize, Whitney settled for an appointment as secretary of the navy. For all the baseless speculation about his links to Standard Oil, Whitney was seldom asked to perform favors for the trust and spent most of his time constructing a new steel navy. Around the time that William and Flora Whitney moved to Washington, Oliver Payne, citing the “need for a rest,” resigned from Standard Oil.²⁸

Despite its many shareholders, the Standard Oil trust was always controlled by a small clique of powerful families. “I think it is true that the Pratt family, the Payne-Whitney family (which were one, as all the stock came from Colonel Payne), the Harkness-Flagler family (which came into the Company together) and the Rockefeller family controlled a majority of the stock during all the history of the Company up to the present time,” Rockefeller commented in 1910.²⁹ Because the Harkness and Payne families were sociable and intermarried with the Vanderbilts and Whitneys, they spread a great deal of Standard Oil bounty through America’s social aristocracy.

While Standard Oil gadflies pounced on the political bonds between the Paynes and William Whitney, they missed a more flagrant case of political corruption: that of Johnson Newlon Camden, who served as a West Virginia senator from 1881 to 1887 but never severed his ties to Standard Oil. Approaching his 1881 election to the U.S. Senate as a straight business proposition, he favored a liberal distribution of cash to the West Virginia legislature to secure results. As he plaintively told Flagler that year, “Politics is dearer than it used to be—and my understood connection with the Standard Oil Co. don’t tend to cheapen it—as we are all supposed to have bushels.” This was prelude to an urgent request for “$10,000 in some turn—stocks or oil—Please keep an eye out and let me know.”³⁰ Apparently, Standard Oil obliged, for in the next letter, Camden reported victory to Flagler. “I also appreciate sincerely the substantial kindness of the Ex[ecutive] Com[mittee]—and used it without hesitation as I needed it temporarily.”³¹

Even after entering the Senate, Camden continued to correspond with Rockefeller and Flagler as if he was still an active Standard Oil executive, and he discussed the trust’s negotiations with the B&O Railroad on U.S. Senate stationery. He organized a railroad with Oliver Payne and urged Rockefeller, Flagler, and Harkness to join them. Throughout his term, Camden stood sentinel over Standard Oil interests, and when two pipeline bills inimical to the trust appeared in the Maryland legislature in 1882, he acted promptly, informing Flagler with satisfaction, “My dear Mr. Flagler, I have arranged to kill the two bills in Md. legislature at comparatively small expense.” ³²

With Grover Cleveland’s election in 1884, many businessmen braced for reform in Washington, but he turned out to be quite moderate. Nonetheless, the public revulsion against monopolies steadily gathered force, producing an Anti-Monopoly Party that condemned railroad pools and rate discrimination. Although grain elevators, meatpackers, and harvesting-machine companies were all feeding off railroad rebates, Standard Oil was thrust into the foreground of antimonopoly indictments. As the World wrote in a scorching attack against the trust in 1887, “When the 19th century shall have passed into history, the impartial eyes of the reviewers will be amazed to find that the U.S., supposed to be conservative of human liberty and human right, tolerated the presence of the most gigantic, the most cruel, impudent, pitiless and grasping monopoly that ever fastened itself upon a country. ” ³³

Nonetheless, it took time to establish the legal rationale for government regulation of private business. In 1876, in Munn v. Illinois, the Supreme Court had famously declared, “Property does become clothed with a public interest when used in a manner to make it of public consequence, and affect the community at large.”³⁴ By this point, Standard Oil wasn’t overly worried about an interstate-commerce bill against railroad discrimination. The trust ran its own pipeline system to the seaboard and was confident that if railroad regulation came it could still be bypassed. When Congress finally passed the Interstate Commerce Act in 1887, outlawing railroad pools and rebates and setting up the first regulatory commission, Senators Payne and Camden dutifully voted against the bill, but its defeat had not been assigned a high priority by the trust.

In public, Standard Oil pretended to welcome the equal treatment mandated by the new act and vowed to accept no more rebates. As Rockefeller and Archbold later claimed in 1907 when their subsequent behavior was questioned, “Since the enactment of the interstate commerce law in 1887, the Standard Oil Co. has most carefully observed its provisions and in no case has wilfully violated the law.”³⁵ Rockefeller tended to portray himself as a hard-driving executive who went as far as the law allowed but not an inch further. Allan Nevins concurred in this view, noting that “following the Interstate Commerce Act of 1887, the Standard, as careful observers generally agree, came close to a general obedience of the new law, and asked no outright rebates.”³⁶

But there is reason to question this assertion. Right before the act’s passage, Standard had to grapple with state challenges to railroad rebates, and the ubiquitous Colonel Thompson, closeted with railway officials, found ways to skirt the new regulations. In the spring of 1886, Thompson conferred with officials of the Lake Shore Railroad after the Ohio Supreme Court had outlawed freight discriminations. They came up with a way to create the illusion that all shippers paid the identical posted rates while Standard Oil was compensated secretly through an accounting gimmick. As Thompson explained this subterfuge to Rockefeller:

Our arrangement is a very simple one: We are paying the open tariff rates to Michigan and all other points and this same is required of all other shippers. I have a distinct understanding with the proper persons that we are not required or expected to pay more than formerly and in order that we may not be out any money . . . we deduct from Chicago payments an equivalent amounting to what would have been a proper payment on all the other points, each month. You will readily see the object of this and you will observe in the situation we are in that no better or fairer arrangement could possibly have been made or one more satisfactory to us.³⁷

When the Missouri railroad commissioner ordered uniform freight rates in 1888, Thompson advised Rockefeller, “We have reason to think that this order will be withdrawn. At any rate, the roads will pay no attention to it.”³⁸

Such oral arrangements may have helped to pacify Standard Oil in the wake of the Interstate Commerce Act. Also, no governmental body could strip it of its giant tank-car fleet and the lucrative royalties they brought in; Standard Oil wasn’t compelled to supply tank cars to competitors. There were even unexpected dividends from the equality prescribed by the act. The new Interstate Commerce Commission said the railroads had to charge the same rate for oil in barrels (used by independents) and in tank cars (used by Standard Oil); as a result, the roads, for the first time, could charge for the weight of the barrels, penalizing independent shippers. For a brief period, the Interstate Commerce Act might have chilled collaboration between trusts and railroads, but they gradually figured out ways to evade the law and slip back into well-worn arrangements. The fight against the railroad rebate remained a hardy perennial of reform politics for a generation. In 1907, Standard Oil was briefly slapped with the largest fine in corporate history for a practice it had supposedly given up long before.

By the 1888 election, protests against the trusts—oil, whiskey, sugar, and a score of others—had broken out in so many places that the national platforms of both parties harshly condemned economic concentration. Agrarian reformers in the South and West agitated against the railroads as the midwives of monopoly. Protestant evangelicals deplored the moral crisis that accompanied industrialization and the lopsided distribution of wealth. There was a great upsurge of activity among organized labor as membership in the Knights of Labor soared to 700,000 in 1886. That year, policemen fired on picketers at the McCormick reaper plant in Chicago, provoking the protest at the Haymarket in which a bomb exploded, killing seven people. In 1888, Edward Bellamy published his best-selling utopian novel, Looking Backward, with its socialist version of the technocratic society overtaking America. The general public was of two minds and viewed the new entrepreneurs as alternately sinister and heroic. By 1888, Rockefeller began to pop up in fawning magazine features about rich Americans, but he was also singled out as a notorious trust king in Joseph Pulitzer’s World and other papers. The press kept up an editorial drumbeat against Standard Oil, demanding vigorous state and federal antitrust action.

Amid this crescendo of criticism, Rockefeller again came under the scrutiny of government investigators. When a New York senate committee investigated Standard Oil in 1888, it learned just how elusive he could be. When a process server came to 26 Broadway, he was told that Mr. Rockefeller was out of town. When he went to 4 West Fifty-fourth Street, he was told that Mr. Rockefeller was at home but could not be seen. At this point, the process server spent the night dozing on Rockefeller’s stoop, lest the mogul attempt an early-morning departure. Ringing the doorbell shortly after daybreak, he was told Mr. Rockefeller had left. Blandly denying that he had fled the process server, Rockefeller later explained that he had been in Ohio and hastened back when notified of the investigation. In fact, Rockefeller had also kept his visit to Cleveland a secret because he feared being served there with a subpoena in a suit by local refiners.

To coach Rockefeller for the New York senate hearings, Standard Oil hired an eminent lawyer, Joseph H. Choate. Choate was slow to appreciate his unusual client, who greeted him cordially then stretched out on a couch with a languid air. When Choate tried to sound him out on several company matters, his tight-lipped client revealed nothing. Choate was frustrated by this seemingly indolent man who kept quizzing him. “I wonder how we shall make out with Mr. Rockefeller,” Choate asked Flagler in concern. “He seems so helpless. He is asking questions all the time.” Flagler was amused. “Oh, you will find that he can take care of himself,” he replied. “You needn’t worry about him.”³⁹

Several years earlier, during testimony in Albany, Rockefeller had given identical replies to thirty consecutive questions, declining each time to answer on advice of counsel. This time, he knew he had to be, or at least seem, more forthcoming. On a frosty morning in February 1888, clad impeccably in frock coat and top hat, Rockefeller entered a packed hearing room of the superior court in New York City, flanked by Joseph Choate. Since he was fast becoming a mythical figure, his testimony drew extensive press coverage. Still handsome at forty-eight, with a full head of close-cropped hair and a neat reddish brown mustache, he strode in with a purposeful air. On closer inspection, however, one could detect lines around his eyes, and he seemed older and more tired than a few years earlier. He was now carrying a more onerous burden than he knew.

Choate soon discovered that he didn’t need to worry about his client. Like many businessmen of his era, Rockefeller prided himself on his obfuscatory powers and excelled at fuzzy answers. Under oath, he turned into a vague and forgetful fellow, pleasant but slightly muddled, who wandered lost in the stupendous maze of Standard Oil. He was also a terrific showman, a trait he inherited from his father. When sworn in on the stand, he “kissed the Bible vehemently,” according to one reporter, underscoring which party had God on its side.⁴⁰

Rockefeller was interrogated by the committee counsel, Roger A. Pryor, a histrionic lawyer who paced back and forth, his lank black hair flying about his shoulders. He fixed Rockefeller with a penetrating eye and shook an accusatory finger at him. Rockefeller remained placid, accentuating the contrast between them in his favor. As one thunderstruck newspaper wrote of Rockefeller, “He seems the embodiment of sweetness and light. His serenity could not be disturbed. . . . In tones melodious, clear, and deliberate he gave his testimony. . . . At times his manner was mildly reproachful, at others tenderly persuasive, but never did he betray an ill temper or vexation.” ⁴¹ As Choate watched in amazement, Rockefeller maintained an unruffled exterior: His client was not exactly the absent-minded rube he had pictured.

Standard Oil’s strategy was to furnish as little information as possible. As Rockefeller’s associate Paul Babcock advised him in emphatic language, “I think this anti-Trust fever is a craze, which we should meet in a very dignified way and parry every questionwith answers which while perfectly truthful are evasive of bottom facts! I would avoid the preparation of any statistics.”⁴² True to this advice, Rockefeller economized with the truth, yet so little was known about Standard Oil that the most meager information produced sensational headlines. In his testimony, Rockefeller supplied for the first time the Standard Oil trust agreement that had been drawn up in 1882; named the eight current trustees; revealed that the trust now had seven hundred shareholders; and, most startling of all, listed forty-one companies that belonged to the trust— many of which had never publicly disclosed this association before. To refute the notion that Standard Oil was a monopoly, Rockefeller submitted a list of 111 competing refineries and gave his own stirring account of spirited competition from Russian oil.

The most controversial exchange came when Pryor turned to the darkest episode of Rockefeller’s past: the South Improvement Company. Pryor misspoke and asked if he had ever belonged to the Southern Improvement Company; Rockefeller, quick to spot a slip, denied being a member of such a company. With his superb memory, he remembered that an unused charter had been granted for a Southern Improvement Company. Pryor reacted with disbelief:

“There was such a company?”

“I have heard of such a company,” Rockefeller conceded.

“Were you not in it?”

“I was not.”⁴³

Rockefeller’s later gloss on this testimony reveals his craftiness:

I never undertake to instruct the man who asks me questions. I remember that incident as if it were this morning. . . . I did not stop to correct my questioner. There is the record to stand on. Of course, I knew what I was answering. . . . I did not testify like Mr. Brewster and Mr. Flagler, so hot-tempered that they would fly right into an argument with counsel. I was quiet and self-controlled. It was no part of my duty as a witness to volunteer testimony. While they thought they were leading me into a trap, I let them go into the trap themselves.⁴⁴

The bane of interrogators, Rockefeller had an eerie gift for catching the subtle drift of a prosecutor’s questions. A distinguished twentieth-century lawyer, Samuel Untermyer, called Rockefeller the ablest mind he had ever encountered on the witness stand, a man with a sixth sense for a legal trap. “He could always read my mind and guess what the next six or seven questions were going to be,” said Untermyer, who cross-examined Rockefeller during litigation in the early 1900s. “I would start with questions intended to lay the foundation for questions far in the future. But I would always see a peculiar light in his eyes which showed that he divined my intention. I have never known a witness who equalled him in this clairvoyant power.” ⁴⁵ At the February 1888 hearing, Roger Pryor was so impressed by Rockefeller that at the close of questioning, he came to the railing, pumped his hand heartily, and asked if he could visit Standard Oil plants with Rockefeller. As for Joseph Choate, Rockefeller asked casually during the lunch break how he was doing. The chastened lawyer replied, “I could not ask for a better witness.”⁴⁶ Choate said later that Rockefeller’s partners “seldom knew what he was thinking but he always knew what we were thinking.” ⁴⁷

However well Rockefeller handled his testimony, the committee report threw a lurid light on the workings of Standard Oil, calling it “the most active and possibly the most formidable moneyed power on the continent.” ⁴⁸ “This is the original trust,” the report stated. “Its success has been the incentive to the formation of all other trusts and combinations. It is the type of a system which has spread like a disease through the commercial system of this country. ” ⁴⁹ The trust floated free of legal restraints, the forty-one constituent companies having “turned their affairs over to an organization having no legal existence, independent of all authority, able to do anything it wanted anywhere, and to this point working in absolute darkness.” ⁵⁰ While absolving the trust of charges of rapacity, it also dissented from Rockefeller’s portrait of lively competition, calling Standard Oil “almost the sole occupant of the field of oil operations, from which it had driven nearly every competitor.”⁵¹ Standard Oil stood out as the great test case in the growing national debate on antitrust legislation. When the House Committee on Manufactures issued its report on trusts that spring, it dedicated 1,000 of 1,500 pages to the oil trust, five times the space given to the sugar trust and ten times that given to the whiskey trust.

In a sense, John D. Rockefeller simplified life for the authors of antitrust legislation. His career began in the infancy of the industrial boom, when the economy was still raw and unregulated. Since the rules of the game had not yet been encoded into law, Rockefeller and his fellow industrialists had forged them in the heat of combat. With his customary thoroughness, Rockefeller had devised an encyclopedic stock of anticompetitive weapons. Since he had figured out every conceivable way to restrain trade, rig markets, and suppress competition, all reform-minded legislators had to do was study his career to draw up a comprehensive antitrust agenda.

Standard Oil had taught the American public an important but paradoxical lesson: Free markets, if left completely to their own devices, can wind up terribly unfree. Competitive capitalism did not exist in a state of nature but had to be defined or restrained by law. Unfettered markets tended frequently toward monopoly or, at least, toward unhealthy levels of concentration, and government sometimes needed to intervene to ensure the full benefits of competition. This was particularly true in the early stages of industrial development. This notion is now so deeply embedded in our laws that it has become all but invisible to us, replaced by secondary debates over the precise nature or extent of antitrust enforcement.

During the antitrust agitation of the late 1880s, Standard Oil consistently underestimated the ability of critics to marshal public support. Small businessmen, alleging that the great corporations thwarted individual opportunity, formed a particularly potent lobby for reform. When both Grover Cleveland and Benjamin Harrison inveighed against the trusts in the 1888 presidential campaign, Archbold wrote dismissively to Rockefeller that these strident speeches were just for show. “We do not think that much will come of the talk at Washington regarding Trusts,” he reported that summer. “The demagogues are simply trying to outtalk each other for political effect. ” ⁵²

Archbold proved a poor prognosticator. In a legislative flurry, many states enacted antitrust laws in the late 1880s, while fifteen or sixteen bills circulated in Congress. From Standard Oil’s viewpoint, the most threatening bill was introduced in December 1889 by Ohio senator John Sherman, brother of General William Tecumseh Sherman. A few years earlier, Rockefeller tried to buy his way into the senator’s good graces. In August 1885, soliciting a campaign contribution for Sherman, Mark Hanna had told Rockefeller that “John Sherman is today our main dependence in the Senate for the protection of our business interests.”⁵³ Dubious at first, Rockefeller finally sent a check for six hundred dollars. Before long, the protector of business interests proved a turn-coat, flailing Standard Oil as a corporation so rich that it bought entire railroads. In debates over the senator’s antitrust bill, Standard Oil was constantly held up as a prime example of the problem to be remedied. Flushed into the open, Rockefeller took the unusual step of publicly rebuking Sherman’s legislation. “Senator Sherman’s bill is of a very radical and destructive character, proposing to fine and imprison all who directly or indirectly participate in organizations over which it is even doubtful whether Congress holds any jurisdiction.”⁵⁴

The opposition of the trusts only hastened passage of the law. On July 2, 1890, President Harrison signed the Sherman Antitrust Act, which outlawed trusts and combinations in restraint of trade and subjected violators to fines of up to $5,000 or a year’s imprisonment or both. President William Howard Taft later identified Standard Oil as the chief reason for the law’s passage. To its proponents, the law proved a severe disappointment, a stillborn piece of legislation. It was vague in meaning and poorly enforced and so riddled with loopholes that it was popularly derided as the Swiss Cheese Act. By outlawing cooperative efforts through trade associations, it forced many companies into mergers to curb excess capacity in their industries, spurring further concentration and subverting the act’s intention. As for the main target of the law, the Standard Oil juggernaut was not deflected by this nuisance. For many years, the Sherman Act was a dead letter, and big business happily went on as usual.

Rockefeller was never tempted to reconsider the issues raised by the Sherman Act. As far as he was concerned, practical, hardheaded businessmen had long ago resolved these issues to their satisfaction, and only fanciful scribblers and tendentious rabble-rousers saw the need to tamper with current practice, which had served the country well. He remained an unreconstructed believer in trusts. Never one to hold grudges in business, unfazed by the new law, Rockefeller supported the reelection of Senator Sherman in 1891.