by Ron Chernow
On January 1, 1872, the Standard Oil executive committee, bracing for the tumultuous events ahead, boosted the firm’s capital from $1 million to $2.5 million and then to $3.5 million the next day.16 Among the new shareholders were several luminaries of Cleveland banking, including Truman P. Handy, Amasa Stone, and Stillman Witt. An intriguing new investor was Benjamin Brewster, a direct descendant of Elder Brewster of the Plymouth colony, who had made a fortune with Oliver Jennings during the California gold rush. It was a sign of Rockefeller’s exceptional self-confidence that he gathered strong executives and investors at this abysmal time, as if the depressed atmosphere only strengthened his resolve. “We were gathering information which confirmed us in the idea that to enlarge our own Standard Oil of Ohio and actually take into partners with us the refining interest would accomplish the protection of the oil industry as a whole.” 17 On January 1, 1872, the executive committee made its historic decision to purchase “certain refining properties in Cleveland and elsewhere.” 18 This seemingly innocuous resolution was the opening shot of a bloody skirmish that historians came to label the Cleveland Massacre.
The mayhem in Cleveland began when Rockefeller struck a clandestine and richly ironic deal with Tom Scott, the overlord of the Pennsylvania Railroad. As noted, the Pennsylvania had threatened to blot out Cleveland as a refining center, prompting Rockefeller to solidify his ties with the Erie and New York Central systems. Rockefeller had no personal love of Scott and later branded him “perhaps the most dominant, autocratic power that ever existed, before or since, in the railroad business of our country.” 19 Like many railroad executives, Scott had made his reputation during the Civil War by keeping railroad lines open between Washington and the North and winning appointment as an assistant secretary of war. A shrewd, dashing man with long, curling side-whiskers, he wore an enormous felt hat and exuded an aura of power. Of this master political manipulator, Wendell Phillips observed that “as he trailed his garments across the country the members of 20 legislatures rustled like dry leaves in a winter’s wind.”20 Though Andrew Carnegie was a protégé of Scott before going into the iron and steel business, the railroad executive didn’t appeal to the sanctimonious Rockefeller.
In business matters, however, Rockefeller stood ready to strike a deal with the devil himself. Since he dreaded an alliance between the Pennsylvania Railroad and Pittsburgh and Philadelphia refiners, he wanted to drive a wedge between them. “They went on their knees to [Scott] for rates,” Rockefeller said disparagingly of his rivals. “They reverenced the Pennsylvania Railroad administration; would do anything at their beck; would do anything to get in return help in the transportation of oil.” 21 So Rockefeller was receptive to an overture from Scott, which came unexpectedly from Peter H. Watson, an official of the rival Lake Shore Railroad and an intimate ally of Commodore Vanderbilt. As president of a Lake Shore branch that joined Cleveland to Oil Creek, Watson had a personal stake in advancing the fortunes of his largest customer, Standard Oil. When Standard Oil expanded its capital in January 1872, Watson quietly pocketed five hundred shares in another example of the growing back-scratching between Rockefeller and the railroads. It was probably through Watson that Commodore Vanderbilt discreetly invested $50,000 in Standard Oil that year.
On November 30, 1871, Watson met Rockefeller and Flagler at the Saint Nicholas Hotel in New York and presented an audacious scheme devised by Tom Scott, who proposed an alliance between the three most powerful railroads—the Pennsylvania, the New York Central, and the Erie—and a handful of refiners, notably Standard Oil. To implement this, Scott had obtained a special charter for a shell organization bearing the blandly misleading name of the South Improvement Company (SIC). After the Civil War, the venal Pennsylvania legislature had created dozens of such charters by special enactment. These improvement companies possessed such broad, vague powers— including the right to hold stock in companies outside Pennsylvania—that some economic historians have christened them the first real holding companies. The Pennsylvania Railroad had a special purchase on these instruments of corporate power and sometimes traded them for favors.
Under the terms of the proposed pact, the railroads would sharply raise freight rates for all refiners, but refiners in the SIC would receive such substantial rebates—up to 50 percent off crude- and refined-oil shipments—that their competitive edge over rivals would widen dramatically. In the most deadly innovation, the SIC members would also receive “drawbacks” on shipments made by rival refiners—that is, the railroads would give the SIC members rebates for every barrel shipped by other refiners. On shipments from western Pennsylvania to Cleveland, for instance, Standard Oil would receive a forty-cent rebate on every barrel it shipped, plus another forty cents for every barrel shipped to Cleveland by competitors! One Rockefeller biographer has called the drawback “an instrument of competitive cruelty unparalleled in industry.”22 Through another provision, Standard Oil and other SIC refiners would receive comprehensive information about all oil shipped by their competitors— invaluable in underpricing them. The SIC members were naturally sworn to secrecy about the inner workings of this alarming scheme. All in all, it was an astonishing piece of knavery, grand-scale collusion such as American industry had never witnessed.
Though Rockefeller and his coconspirators contended that all refiners were impartially invited to join the SIC, the group excluded refiners from Oil Creek and New York, and Standard Oil was indisputably the driving force. Of the 2,000 shares issued, over one-fourth were held by John and William Rockefeller and Henry Flagler; counting Jabez Bostwick and Oliver H. Payne (soon to be a leader of Standard Oil), the Rockefeller group controlled 900 of 2,000 shares. The SIC president was Peter H. Watson, who held 100 shares and was also now a Standard Oil shareholder, thus ensuring the supremacy of Cleveland refiners over the Pittsburgh and Philadelphia members of the group.
Why did the nation’s leading railroads offer Rockefeller and his confederates terms so generous as to render them all but omnipotent in oil refining? How did they benefit from this association? First, the railroads had engaged in such fierce, internecine price wars that freight rates had fallen sharply. No less than the oil producers, they needed somebody to arbitrate their disputes and save them from their own cutthroat tactics. The cornerstone of the SIC was a provision that Standard Oil would act as “evener” for the three railroads and ensure that each received a predetermined share of the oil traffic: Forty-five percent of the oil shipped by SIC members would travel over the Pennsylvania Railroad, 27.5 percent on the Erie, and 27.5 percent on the New York Central. Unless the railroads had greater control over the oil business, Rockefeller knew, they “could not make the divisions of business necessary so as to prevent rate-cutting.”23 Rockefeller would become their official umpire and try to govern their pool in a fair, disinterested fashion. As mentioned, the railroads also had an economic interest in greater consolidation among refiners to streamline their own operations. One other factor tempted the railroads to come to terms with Rockefeller: In a farsighted tactical maneuver, he had begun to accumulate hundreds of tank cars, which would be in perpetually short supply.
The SIC—soon exposed as an infamous conspiracy—was a masterful move in Rockefeller’s quest for industrial domination. Both refiners and railroads were struggling with excess capacity and suicidal price wars. Rockefeller’s supreme insight was that he could solve the oil industry’s problems by solving the railroads’ problems at the same time, creating a double cartel in oil and rails. One of Rockefeller’s strengths in bargaining situations was that he figured out what he wanted and what the other party wanted and then crafted mutually advantageous terms. Instead of ruining the railroads, Rockefeller tried to help them prosper, albeit in a way that fortified his own position.
Later on, trying to distance himself from the SIC fiasco, Rockefeller scoffed at charges that he had been the ringleader. All along, he insisted, he knew it would fail and had gone along simply as a tactical maneuver. “We acceded to
it because [Tom Scott] and the Philadelphia and Pittsburgh men, we hoped, would be helpful to us ultimately. We were willing to go with them as far as the plan could be used; so that when it failed, we would be in a position to say, ‘Now try our plan.’ ”24 Rockefeller’s plan was to unify the industry under Standard Oil. By his own admission, he had not opposed the SIC on ethical grounds but solely as a practical matter, convinced it wouldn’t apply the needed discipline to member refiners. The scheme never bothered his conscience. “It was right,” an unreconstructed Rockefeller said in later years. “I knew it as a matter of conscience. It was right before me and my God. If I had to do it tomorrow I would do it again the same way—do it a hundred times.”25 Even in hindsight, he couldn’t tolerate doubts about his career but had to present it as one long, triumphal march, sanctified by his religion.
Rockefeller’s assertion that he reluctantly followed the railroads’ lead conveniently distorted the truth. Far from coyly stepping aside and waiting for a misbegotten scheme to founder, he took a leading role and promoted it zealously. We know this because of several remarkable letters he wrote to Cettie from New York, where for several agitated weeks he remained closeted with railroad officials. He knew the negotiations were controversial, since he advised Cettie on November 30, 1871, “A man who succeeds in life must sometimes go against the current.”26 While these letters confirm that he didn’t originate the scheme, they show that he soon warmed to the project, declaring on December 1, “indeed the project grows on me.”27 When Watson secured Commodore Vanderbilt’s blessing, Rockefeller was positively jubilant, and he emerged as natural leader of the group, particularly as others grew skittish. In late January 1872, trapped in New York, he wanted to return to Cleveland but told Cettie that “our men would not hear to it, they are nervous, and lean on me. . . . I feel like a caged lion and would roar if it would do any good.”28 Obviously, had Rockefeller wished the SIC to collapse, he would have renounced a leadership position and returned to Cleveland sooner.
The small batch of letters he wrote to Cettie at this time—among his few early, surviving letters to her—betray a surprisingly romantic sensibility, as if seven years of marriage hadn’t dimmed his ardor. Amid negotiations, he told her, “I dreamed last night of the girl Celestia Spelman and awoke to realize she was my ‘Laura.’ ”29 Repeatedly, Rockefeller complained about how lonely he felt in New York—“like a wandering Jew”—and reiterated his yearning to be at home. Far from being beguiled by the money, fashion, and power of New York, his Baptist soul recoiled from it. “The world is full of Sham, Flattery, and Deceptions,” he wrote, “and home is a haven of rest and freedom.”30 At this stage, Rockefeller still found his wealth wonderful and slightly unreal, telling Cettie that “we have been so prospered and placed in independent circumstances, it seems a fabulous dream but I assure you it is a solid and comforting fact—how different our condition from the multitudes, let us be thankful.”31 Perhaps this financial independence emboldened Rockefeller to undertake the risky SIC scheme, confident that it wouldn’t endanger his family’s security. And lest Cettie worry about his risky new venture, he reminded her, “You know we are independently rich outside investments in oil—but I believe my oil stock the very best.”32
By late January 1872, as the conspirators drew up and signed the last contracts while trying to preserve total secrecy, rumors of an impending jump in freight rates began to filter through western Pennsylvania. On February 22, the Petroleum Centre Record alluded darkly to a “rumored scheme of gigantic combination among certain railroads and refiners to control the purchase and shipment of crude and refined oil from this region.” 33 Definite word of the plot didn’t leak out until days later, when the local freight agent for the Lake Shore Railroad rushed off to visit a dying son and left in charge a subordinate who didn’t realize that the new freight rates hadn’t yet been enacted. Oblivious to the historic impact he would have, this minor functionary promulgated the staggering rates for outside refiners decreed by the SIC. On February 26, the stunned residents of Oil Creek read in the morning papers that freight rates had doubled overnight for everyone—everyone, that is, except a privileged group of refiners in Cleveland, Pittsburgh, and Philadelphia who belonged to a shadowy entity called the South Improvement Company.
For the horror-struck refiners in Titusville or Oil City, this wasn’t simply a new competitive threat: It was a death warrant, and they stopped work and poured into the streets, denouncing the action in strident tones. “The oil region was afire with all sorts of wild stories,” recalled Rockefeller. “There were meetings of protest, of bitter denunciation.”34 On the night of February 27, three thousand people stormed into the Titusville Opera House, waving banners that stated, “Down with the conspirators,” “No compromise,” and “Don’t give up the ship!” while Rockefeller and his cabal were denounced as “the Monster” and “the Forty Thieves.”35 Perhaps the most impassioned speaker was a short young refiner named John D. Archbold, the hard-drinking, poker-playing son of a circuit preacher. Though Peter Watson had tried to inveigle him into the SIC, Archbold had indignantly refused and now told the crowd, “We have been approached by the great anaconda, but do not desire to yield.”36 The Oil Creek refiners believed they had a God-given right to market the oil drilled in their backyards and Archbold—destined, ironically, to succeed Rockefeller at the Standard Oil helm—endorsed this view. “We believe this is the natural point for the business,” he told the cheering audience. “This is the last desperate struggle of desperate men.”37 After he was elected secretary of a new Petroleum Producers’ Union, the group agreed to retaliate by starving out the SIC conspirators, selling crude oil only to refiners along Oil Creek.
Amid this frenzied hue and cry, the local citizenry created a small army of roving protesters who moved from town to town, organizing torchlight rallies and picking up new adherents. On the night of March 1, refiners and producers jammed another tumultuous meeting at the opera house in Oil City. One featured speaker was a young producer, Lewis Emery, Jr., who supported a proposal by Archbold to cut existing production by 30 percent and suspend new drilling for thirty days. With this speech, the indefatigable Emery launched a crusade against Standard Oil that would persist for decades. By the end of the meeting, a thousand men stood ready to besiege the state capitol in Harrisburg and demand relief from the SIC.
In this warlike atmosphere, the Oil City Derrick printed a daily blacklist of the conspirators—Peter Watson, followed by Rockefeller and six other directors— in a black-bordered box on the front page. Each day, a new inflammatory caption was supplied, such as “Behold ‘The Anaconda’ in all his hideous deformity.”38 It was in the context of such hysterical emotion that the world first learned the name of John D. Rockefeller. As if his foes already intuited his special power, he was singled out for abuse, one newspaper crowning him “the Mephistopheles of Cleveland.”39 As people learned of his central place in the SIC, vandals defaced the blue Standard Oil barrels with skulls and crossbones. Two Standard employees on Oil Creek, Joseph Seep and Daniel O’Day, barricaded themselves in their offices and fended off marauding mobs. “It was a tense situation,” said Seep. “Some of my friends were actually afraid to be seen talking with me in the street. There were threats of violence. Captain John W. Jones, a big producer, wanted the people to burn the Standard Oil Company’s tanks.”40 Saboteurs attacked the railroads, raiding oil cars and spilling their contents on the ground or tearing tracks apart. A local lawyer, Samuel C. T. Dodd, said that if the protests had continued indefinitely, “there would not have been one mile of railroad track left in the County of Venango. The people had come to that pitch of desperation.”41 Few residents of Oil Creek imagined that their dread adversary was a clean-cut, churchgoing young man. This nightmarish period left an especially deep imprint upon a flabbergasted fourteen-year-old schoolgirl named Ida Tarbell. “I remember a night when my father came home with a grim look on his face and told how he with scores of other producers had signed
a pledge not to sell to the Cleveland ogre that also had profited from the scheme—a new name, that of the Standard Oil Company, replacing the name South Improvement Company in popular contempt.”42
Far from giving Rockefeller pause, the vandalism only confirmed his view of Oil Creek as a netherworld of rogues and adventurers who needed to be ruled by stronger men. He was always quick to impugn the motives of enemies while regarding his own as somehow beyond reproach. “The Standard Oil Company were a very orderly body, and these producers were a rabble of wild, excitable men, waiting for a war-cry to rush into the arena with a suitable noise.”43 Clad in the armor of self-righteousness, Rockefeller felt no need to explain his actions and turned away reporters at his door. After Flagler told reporters that Standard Oil’s opponents were “a few soreheads,” Rockefeller advised silence, and Flagler desisted from further comment. With threats being made on his life, Rockefeller posted a special detail of policemen outside both office and home and kept a revolver by his bed for good measure.
Only in the twilight of life did Rockefeller realize how poorly his taciturnity had served him in business battles. This was especially true during the SIC furor, which evolved into a political and public-relations battle. By remaining silent in the face of criticism, he thought he would seem confident and secure in his integrity—in fact, he seemed guilty and arrogantly evasive. Throughout his career, Rockefeller endured abuse with so much equanimity that Flagler once shook his head and said, “John, you have a hide like a rhinoceros!”44 He had an early Christian’s fierce defiance of critics, his boyhood with Big Bill having also taught him to disregard the malicious gossip of neighbors. He had a great general’s ability to focus on his goals and brush aside obstacles as petty distractions. “You can abuse me, you can strike me,” Rockefeller said, “so long as you let me have my own way.”45
