[Proceedings in Relation to Trusts, House of Representatives, 1888. Report Number 3112, pages 351-356.]
Sir: The undersigned, members of a committee appointed by the General Council of the Petroleum Producers' Union for that purpose, address to you, as the official head of the Commonwealth, a plain statement of facts, to a great extent known to be true from personal knowledge, and all material parts of which are susceptible of proof by competent evidence.
We address you, not only as individuals whose personal interests have been affected, whose property has been rendered comparatively valueless, and whose capital and labour are bound against their consent, to increasing the gains of grasping corporations, but as citizens of the great Commonwealth of Pennsylvania, apparently prostrate and powerless to control one of its greatest products, and the immense business that annually flows from it.
The petroleum production of Pennsylvania is confined geographically to the Northwestern portion of the state, extending from its border upon New York State nearly to Pittsburg, and is the chief interest in the counties of McKean, Warren, Forest, Crawford, Venango, Clarion, Butler and Armstrong.
The amount of money invested in well property, constantly to be renewed and kept good, represents at least twenty millions of dollars, and while the value of the lands upon which the wells are located is not easily determined, it represents many times the value of the well property.
Petroleum should yield at the wells, with its transportation and sale unfettered, twenty-five to thirty-five million dollars annually, while as an article of export, it ranks third among the products of the nation, and as first among its manufactured exports.
For transportation outlets, it has the Pennsylvania Railroad to the seaboard at an average distance therefrom of less than 400 miles. The New York Central and Lake Shore Railroads reach Oil City by way of Cleveland, Ohio, 764 miles from the seaboard, and Titusville, by way of Dunkirk, New York, 571 miles to the seaboard, and the New York, Lake Erie and Western, and Atlantic and Great Western Railways reach Oil City by way of Meadville, 550 miles to the seaboard.
At that time the lines of the Pennsylvania Railroad in the Oil Region were dotted with refineries located at Tidioute, Henry's Bend, Oleopolis, Oil City, Corry, Titusville, Miller Farm, Rouseville, and other points on the Oil Creek Railroad, at various points on the Philadelphia and Erie Railroad, and on the Allegheny Valley Railroad, these roads being tributaries of and controlled by the Pennsylvania Railroad, while upon its main line extensive refineries were located at Pittsburg and Philadelphia. The refineries at Cleveland, Ohio, confined themselves in a measure to the Western domestic trade, and those of Portland, Boston and New York had generally specialties in the trade.
The markets were filled with buyers of crude and refined; information as to stocks, production and consumption was open and obtainable, and values were regulated by the law of supply and demand.
In its relation to this trade, Western Pennsylvania almost exclusively possessing this product, with ample refineries in its midst, with its great state railroad penetrating the producing region, and by it, having the shortest route to the seaboard, with the Allegheny River as an additional means of transportation to Pittsburg, the Western terminus of the Pennsylvania Railroad, and with Philadelphia, its Eastern terminus as an exporting point, Pennsylvania had, and was entitled to, the control of the refining and transportation of its own product.
Now, this is all changed! The refineries on the lines of the Pennsylvania Railroad have been demolished, excepting where reached by rival railroads, and this business has been transferred to Cleveland and New York, the refineries remaining in this state having passed into the ownership and control of a foreign organisation, as has also the local transportation from the wells, by means of pipe-lines to the lines of the railways.
The transportation of every nature is subject to its dictation; it possesses every avenue of information; it affixes its own value to the crude product when purchasing and the refined products when selling; it establishes its own rates of compensation to be paid the railways, and the laws of commerce which govern values in other products are in this a part of the history of the past. So far as the petroleum trade is concerned an enterprise or investment therein is only a wager as to what step the Standard Oil combination will next take. With the world consuming double the amount of our petroleum that it did in 1871, the thirty millions which should be received from the crude product has dwindled to its half; the fifteen millions which should be the profit of Pennsylvania refineries has been transferred to Ohio and New York, and the twenty millions which should have swelled the earnings of the railways have gone — no one dare say where — but the colossal fortunes acquired since 1872 by every member (so far as its members are known) of this now world-renowned organisation, are proofs of the success attendant upon a scheme, no less unlawful than gigantic, and which has all the outward and visible signs of inward and spiritual corruption. To-day a foreign corporation is the absolute master of the production and its value, of transportation by pipe-lines, transportation by railroad and the compensation therefor, of storage and refining, and the profit thereof, and dictates prices through the world of the first, or among the first, of the products of Pennsylvania, and of the United States, and this to the impoverishment of thousands of citizens, and the destruction of each of these interests within the state. That this has been accomplished through and by means of the co-operation of the Pennsylvania Railroad, its management and influence, is matter of record.
was initiated by the conveyance, by R. D. Barclay, Thomas A. Scott's private secretary, and S. S. Moon, the legislative agent of the Pennsylvania Railroad, to a party composed principally of Cleveland and New York men, headed by an agent of the New York Central and Erie Railways, of a charter granted by the Legislature of Pennsylvania for a different purpose, under which they organised for the seizure of the petroleum trade, retaining the charter title of
the then managers thereof being the managers of the organisation now known as the Standard Oil Company.
With the South Improvement Company, not a member of which lived in the Oil Region, or was an owner of oil wells or oil lands, the Pennsylvania Railroad hastened to execute a contract (January 18, 1872), giving it the sole and exclusive control of all petroleum shipments thereon, regardless of ownership, and securing this by the payment by the railroad of a rebate or drawback to the South Improvement Company of such a sum as would have inevitably driven all others out of the trade, and lest there might be doubt as to the intent to so do, it was expressly stipulated in the fourth article thereof that that was the result aimed at, and the Pennsylvania Railroad therein bound itself, so far as it legally might, to aid in accomplishing it.
The action of the Legislature and of Congress, and the uprising of the people against this unparalleled iniquity, destroyed the combination for the time being, the railroads having pledged themselves to never attempt a similar outrage.
The local transportation of crude petroleum had been gradually changing from movement by barrels to carriage in
from the wells to tankage located on the lines of railway, the principal of which pipe-lines, at this time known as the Pennsylvania Transportation Company (formerly Allegheny Transportation Company), was under special charters of the Legislature and owned and controlled by Messrs. Scott, of the Pennsylvania, and Fisk and Gould, of the Erie Railways. The Legislature had been petitioned at various times since 1866 to pass a Free Pipe Law, but the various bills introduced for that purpose could never overcome the opposition of the Pennsylvania Railroad in the Legislature. During the excitement attendant upon the rise and fall of the South Improvement Company scheme, the effort was renewed, and the Legislature enacted a law, restricted to the eight oil producing counties, but the Pennsylvania Railroad influence was strong enough to exclude Allegheny County from the operation of the Act, thus shutting out Western Pennsylvania from Pittsburg, the terminus of the Pennsylvania Railroad, the natural outlet of the Oil Region, and the natural refining point of the United States.
The succeeding efforts to pass a Free Pipe Law, either general in its nature or to permit construction of pipe-lines to lines of railway within the state, or to include Allegheny County in the law of 1872, have been defeated invariably by the opposition of the Pennsylvania Railroad, and the law of 1874, known as the Wallace Act, was so framed and enacted as to leave it doubtful whether it had not succeeded in withdrawing from the eight counties referred to all the rights conceded to them by the Act of 1872, a wrong which no subsequent Legislature has been able to redress.
Under the law of 1872, pipe-lines owned by citizens in the Oil Region had been organised and were in operation, giving free access to the railways, but after the passage of the Wallace Act (April 29, 1874), the Standard Combination, which had never really abandoned the South Improvement scheme, systematically undertook their destruction by forcing them into insolvency and then absorbing them. This required railway co-operation, and various means were employed therein, notably among which is the scheme adopted by the ring and promulgated by the railroads October 1, 1874. An explanation is necessary to understand why the railroads should unite: First, to carry oil received by them through pipe-lines that had combined to maintain a given rate for pipage twenty-two cents per barrel cheaper than on oil received from pipe-lines not so combining, and Second, to further weaken the refineries remaining in Western Pennsylvania by depriving them of their geographical advantage of proximity to the crude product, to the coal used as fuel, and to the exporting ports by free transportation of crude petroleum to the ring refineries in other states. Various pipe-lines had already been forced out of existence, had been bought up and united under the name of "The United Pipe Lines," which was owned, one-third by the Standard Oil Company, one-third by the Lake Shore and New York Central Railroads, and one-third by individuals who were members of and directors in the Standard Oil Company. The Pennsylvania Railroad had as its particular feeder a similar organisation, known as the "Empire Pipe Line." This explains the first point referred to above. The second, so far as the Pennsylvania Railroad is concerned, is inexplicable upon any ordinary hypothesis or under any known theory in railroad politics. The scheme was a success, pipe-lines one after another succumbed, and refiner after refiner was bankrupted and his works absorbed.
This effected, the monopoly, backed by the New York railroads, in one of which it exercised unlimited power, felt strong enough to demand of the railroads that it should be given the future sole conduct of the trade under the old South Improvement plan. Upon this the Pennsylvania Railroad apparently awoke to its danger, resisted the demand, and in July, 1877, President Scott announced as the policy of the Pennsylvania Railroad open and free trade to all shippers of petroleum. It was then conducting its oil traffic through its ally, the Empire Transportation Company, which possessed a system of pipe-lines (before referred to) extending over the Oil Region, controlling a large portion of the production, with ample tankage, with a large rolling stock upon the Pennsylvania Railroad, and owning or controlling a refining capacity nearly equal to one-half the consumption of the world. In the following month (August, 1877), immediately after the riots at Pittsburg, which were in their extent the natural outgrowth of railroad freight discrimination against that city, the monopolists succeeded in convincing the officials of the Pennsylvania Railroad that it was to their or its interests to force the Empire Company, its cars, its pipe-lines, its tankage and its refineries into their hands. The people of Western Pennsylvania protested in a communication to the president and directors of the Pennsylvania Railroad in September, before the extent of the proposed iniquity had become fully known to the public, which communication seems never to have reached the board of directors. The outrage was finally consummated October 17, 1877, and the Pennsylvania Railroad was left without the control of a foot of pipe-line together, a tank to receive, or a still to refine a barrel of petroleum and without the ability to secure the transportation of one except at the will of men who live and whose interests lie in Ohio and New York.
Into those hands had now passed the last refineries of Pennsylvania, the last means of transportation from the wells to the railroads, and the last means of carriage to the markets of this country and of the world. The South Improvement scheme (less its chartered organisation as in 1872) was at last an accomplished fact, and in the successful designing, prosecution, consummation and operation of which it is impossible not to believe that railroad officials were personally interested.
As the conspiracy was evidently gaining strength, the people of Pennsylvania united in an effort to induce Congress to again interfere as in 1872, and in 1876 it directed an investigation, which was conducted in a dilatory manner by a committee, a prominent member of the Standard Oil Company, and not a member of Congress, presiding behind the seat of the chairman. Vice-President Cassatt, of the Pennsylvania Railroad, was the only prominent railway official who appeared in obedience to the subpœnas of the Speaker of the House of Representatives, and he refused to give the committee any information as to the matter under investigation, and the counsel of the Pennsylvania Railroad, ex-Senator Scott, appeared before the committee in justification of his so doing. The financial officer of the Standard Oil Company appeared before the committee, accompanied by a member of Congress — also a member of that Company, and promptly refused to give the committee any information as to the organisation, or the names of its members, or its relations with the railroads. The influence and power of the combination was apparent; the committee never reported, never complained of the contempt of its witnesses, and all the evidence and record of its proceedings effectively disappeared. In 1877-78, a bill was introduced by Representative Watson, of Western Pennsylvania, seeking to prevent discrimination in interstate commerce, which has been reported by a committee, but which can hardly overcome the covert opposition which it meets.
All efforts to obtain a Free Pipe Law in this state having through a series of years proved unavailing, although New York, in its efforts to control the trade in Pennsylvania petroleum, had enacted such a law, a bill was prepared enforcing in this state the Third and Seventh Sections of the Seventeenth Article of its Constitution. This bill, known as
provided that shippers of property by car-load from any point on a railroad within the state to any other point within the state, should be charged equal rates and given equal facilities. Copies of the proposed law were sent to the prominent railroad officials in the state, but its provisions were so fair and protective to every citizen of the state, and to every legitimate railroad interest, that neither before the Judiciary Committee of the Senate, which reported it favourably by an unanimous vote, nor in the Senate, which passed it with but one dissenting voice, nor before the Judiciary Committee of the House, which reported it unanimously, did any railroad stockholder, official, or legislative agent appear to offer an objection to its becoming a law. Yet it was killed in the House by the familiar means employed by legislative agents in disposing of measures objectionable, but not debatable. Had the bill become a law, it would have rebuilt the refineries of the state, with Philadelphia (whose petroleum trade under the monopoly has gradually dwindled to a fraction of its former magnitude) as the exporting point, with the Pennsylvania Railroad as the transporter thereto, and the people of Western Pennsylvania might have arisen from a community of miners, working for the benefit, and under the rule, of a foreign corporation, to their former conditions as citizens of a prosperous mining and manufacturing section of the state.
Upon or with the New York railroads no appeal or representation of the people of this section would have any weight or influence. Their managers reside in Cleveland and New York, and are subject to the daily manipulations of the monopoly managers, while in our own state, to all efforts for emancipation or toward the restoration of trade to its natural channels the Pennsylvania Railroad and its power is as a Chinese wall. Its president and vice-president admit the preferences in rates given to the monopoly, and boldly announce their intent to continue in so doing; they claim the legal right to so do, and challenge resistance; they obstruct all efforts of producers, shippers and refiners by delaying or restricting facilities; by threatening other railroads with severance of connections and deprivation of general traffic if they transport petroleum for parties outside the monopoly; they refer applicants for rates and facilities over the Pennsylvania Railroad to the Standard Oil Company, and offering their personal service as negotiators for such rates and facilities, assure all that there is no hope of success in the trade unless by a coalition with the Standard.
We have thus far given not more than an outlined sketch of this enormous monopoly, its plan, its growth, and its results. We have not burdened your Excellency with details of individual oppression and outrage, but we should fail to discharge our duties to ourselves and as citizens if we neglect to recite some of the means by which the most deplorable results are produced to our state and section. Wrong is constantly perpetuated and right driven from us. True it is that in many things the monopoly has been unwittingly aided in its schemes by unwary concessions as to the management of its business, by producers of petroleum themselves, but they had a right, as men pursuing an honest calling, to believe that they were dealing with honest men, and not with a gang of public plunderers, leagued together by no better tie than the sordid desire of gain, to be acquired by methods of corruption and lawlessness.
By the theory of the law, corporations derive their powers from the people of the Commonwealth in General Assembly convened; they have no powers not delegated to them by the people; they take nothing by implication; they are public servants, invested for the public benefit with extraordinary privileges, and their charters may be taken from them when they cease to properly perform the duties of their creation. The railroad and pipe-line companies are common carriers of freight for all persons, are bound to receive it when offered at convenient and usual places, and to transport it for all, for reasonable compensation, without unreasonable discrimination in favour of any. These are but simple statements of well established legal principles, never doubted in any court, but affirmed by every tribunal that has ever considered them. Yet the people who granted these special privileges are now upon the defensive, their rights denied by these corporations, and they are challenged to enter the courts to establish them, while in the meantime they are inoperative to the irreparable injury of their business. They have yielded to the railways that they have created a part of their sovereignty, and given them the right to take private property for public use, but restricting such taking, strictly to such use. Yet where the narrow strip of land used as a railway roadbed runs through valuable oil lands, this combination is strong enough to demand from the railways its transfer to them, that they may and do thereon sink their own oil wells, and thereby drain the oil from the adjoining lands whose owners gave the strip for public use by a railroad.
The owners of lands along the line of the Allegheny Valley Railroad, producing petroleum from those lands, with their own pipe-line running to their own shipping racks by the side tracks of that railroad, are unable to obtain cars in which to load their product for transportation, at any rate of freight, while their tanks overflow. Shippers of petroleum are refused cars, or are promised them, only to find the promises broken, and their contracts rendered impossible of fulfillment, while the monopoly demands and is given all the cars belonging to the railroads, it permitting its own private cars to meantime stand idle, so that the railroads may assert its inability to accommodate all.
Owners of tanks connected with the monopoly pipe-lines, with ample storage therein for their own product, are refused transportation from their own wells upon the ground that "their tanks are full," a barefaced and daily demonstrated falsehood. Other producers of petroleum are refused transportation by the pipe-lines, on the plea of want of capacity to carry, and at the same time are informed that their oil will be carried if they will sell it to the ring, "immediate shipment."
If the applicant's tanks are overflowing, or if he needs money and complies with their terms, he is offered a price from two and a half to twenty-five cents below the market value. If he accepts and sells a fixed amount of his oil, the pipe-line removes all but five or ten barrels, delays for days and weeks to take the remainder, and refuses to pay for any until all is taken. This is known as the "immediate shipment swindle."
By their use of the petroleum of others stored in their tanks and lines; by the overissue of Pipe Line Certificates; by refusal to perform their public duties; by open defiance of the law and impudent evasions of its provisions, the pipe-line and railroad companies leave to the people, whose creatures they are, but two remedies — an appeal for protection, first to the law of the land, next to the higher law of nature!
These corporations have made themselves the interested tools of a monopoly that has become the buyer, the carrier, the manufacturer, and the seller of this product of immense value. It needs no argument or illustration to convince that in such a position this foreign corporation is in direct antagonism to the producer, the labourer and the consumer.
The South Improvement conspiracy embraced in its scheme the ownership of the oil producing territory, wells and machinery. If the present course of its successor cannot be stayed, it is merely a question of time when the ownership of the entire oil production will fall into its hands through the impoverishment of thousands of our citizens and their inability to contend longer.
That monopolies are dangerous to free institutions is a political maxim so old as to have lost its force by irrelevant repetition, but if anything were needed to awaken the public sense to its truth, the immediate effect of this giant combination is before us. Throughout the Oil Region, as wherever it does business, it now has its own acid works, glue factories, hardware stores and barrel works. We have seen that it is master of the railroads, and owns and controls all the refineries, all the pipe-lines. All these enumerated industries controlled by them employ large numbers of labourers dependent for the support of themselves and their families upon the daily labour given or withheld by this powerful conspirator. At the flash of the telegraphic message from Cleveland, Ohio, hundreds of men have been thrown out of employment on a few hours' notice and kept for weeks in a state of semi-starvation and justifiable discontent, deceived meanwhile with delusive promises of work, until the autocrat of a foreign corporation, maintained and upheld by the chief among Pennsylvania corporations, gives leave from within the borders of a foreign state for the Pennsylvania labourer to earn his bread.
Along the valley of Oil Creek and the Allegheny Valley, where a few years since the smoke of busy refineries and their attendant industries darkened the air, piles of rusted iron and heaps of demolished brick work mark the results of the conspiracy; where a few years since busy men crowded to and fro in the pursuit of lawful trade in a great staple, there is now silence and emptiness. The producer, once surrounded with competitive buyers of his product, now goes with crowds of his fellow victims to wait his turn for leave to sell it at a dictated price to a single agent of a single purchaser.
To permit to stand unattacked the foul principles of such an organisation, to permit them to be fastened as lawful or right upon the policy of the Commonwealth or the nation, is to lay the foundation for the exile of capital, endless injury to the public interests, endless oppression of the labourer, riots, tumults, and the decay of the state.
So far as this public wrong is within the scope of Executive interference, we ask that immediate steps be taken to enforce by legislative enactment the wise provisions of our State Constitution, and by such legal processes as are necessary, compel obedience to law and the performance by chartered companies of their public duties.
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