by Ron Chernow
[Rockefeller] feels that an institution of learning should be far more conservatively managed than, for instance, a bank, or even a savings bank or a trust company. These companies need only assure the depositor or investor that his funds will be duly cared for during the limited time in which they may be deposited. But a university invests the funds of those who are seeking to make an investment of money for the good of humanity, which shall last, if possible, as long as the world stands.88
Like Dr. Augustus H. Strong before him, Harper had fundamentally miscalculated in approaching Rockefeller for money. Gates noted that Rockefeller had long ago planned to found a great university and had ample resources to do so. It was the cavalier, high-handed way that Harper dunned him for money that rankled. “Mr. Rockefeller comes instinctively to feel that the methods of securing his assistance are too often methods of compulsion,” said Gates. “The appeals come to him in the shape almost of forced contributions.”89
Though the meeting ended with Gates acknowledging Harper’s accomplishments, he had delivered a humiliating rebuke to his leadership. After reading a stenographic transcript of the meeting, Rockefeller asked that every university board member read it and took the unusual step of having it deposited in his safe as a personal testament of his future wishes for the school. Two months later, the University of Chicago trustees instituted drastic changes. Henceforth, Rockefeller would be notified of new expenditures and given a chance to protest. Gates had joined the board the year before, and Junior followed a year later, giving John D. direct representation in the university’s management.
The breach that had opened up between the university’s patron saint and its charismatic president was distressing to both men, who had enjoyed an intimate, father-son relationship. Now proscribed from asking Rockefeller for more money, Harper forfeited the easy access he had long cherished. For the emotional Harper, prone to both wild elation and inconsolable gloom, it was hard to be muzzled in his patron’s presence. According to legend, when prohibited from talking about money directly to Rockefeller, Harper circumvented the ban by praying aloud for money in his presence. The story, if true, suggests that he still had not absorbed the lesson that Rockefeller had reluctantly and repeatedly tried to teach him.
The powerful Eastman Johnson portrait of John D. Rockefeller, painted in 1895. (Courtesy of the Rockefeller Archive Center)
CHAPTER 18
Nemesis
Even as Rockefeller tried to shift his attention away from business in the 1890s, the political backlash against him gained fresh momentum, making it impossible for him to sever himself from his brilliant but tarnished record. As he tried to move ahead, his past loomed ever larger in the public imagination. During the next twenty years, it kept returning to haunt him, like an inescapable shadow.
The Sherman Antitrust Act had proved an ineffectual piece of legislation. The real threat to Standard Oil arose in an improbable spot: a small bookstore in Columbus, Ohio. In 1889, the state’s young Republican attorney general, David K. Watson, wandered into the shop one evening and happened upon a slim volume by William W. Cook, cheaply bound in imitation leather and bearing the title Trusts: The Recent Combinations in Trade. He took the book home and perused it late into the night. In the appendix, Watson was fascinated to discover Standard Oil’s trust deed, which he had never seen before. He was aghast to learn that for the past seven years Standard Oil of Ohio had violated its state charter by transferring control of the organization to mostly out-of-state trustees in New York. Capitalizing on this discovery, Watson filed a quo warranto petition against Ohio Standard in the state supreme court in May 1890, seeking nothing less than the dissolution of Standard Oil.
Standard Oil executives reacted, as always, by denigrating such measures as transparent harassment by their business enemies. Frank sent a letter to John saying that he was “not sure as to who the instigators are but believe Cleveland refiners have a hand in it” and conjectured that Watson was feeding off information from John Sherman.1 In rebutting the charges, Standard’s attorney, Samuel C. T. Dodd, offered the same legal fig leaf that the combine had exploited for years: that Ohio Standard shares had been transferred by individual stockholders, not the company itself, to its New York trustees. By now, the ruse was wearing thin.
Ironically, this sortie against Standard Oil came in a conservative, industrial state where its influence was pervasive. As a rock-ribbed Republican contributor, Rockefeller felt betrayed by such ingratitude and protested to a Cleveland friend that “we have not received fair treatment from the Republican party.”2 Never one to mince words, Mark Hanna, the party kingpin, sent a strongly worded message to Watson, telling him that “the Standard Oil Company is officered and managed by some of the best and strongest men in the country. They are pretty much all Republicans and have been most liberal in their contributions to the party, as I personally know, Mr. Rockefeller always quietly doing his share.”3 Although Hanna urged him to drop the suit, Watson would not relent. While Rockefeller blandly denied knowledge of Hanna’s action, his memory was conveniently faulty, for on April 7, 1891, Hanna had written to him, “I caught our distinguished Attorney General Watson here the other day and gave him a piece of my mind.”4 Watson’s successor, Frank Monnett, alleged that on six occasions Watson was offered bribes to terminate the case—in one instance as much as $100,000 in cash—but Monnett never provided corroborating evidence, perhaps fearing Standard Oil reprisals against his sources.
Such intimidation, if it did occur, only stiffened Watson’s resistance to pressure. On March 2, 1892, he won a famous victory when the Ohio Supreme Court ruled that Standard Oil of Ohio was indeed controlled by trustees at 26 Broadway and had to renounce the trust agreement. The trust was also accused of trying to monopolize every phase of the petroleum business. One enterprising reporter who rushed to 26 Broadway was assured that the decision would in no way affect the trust. When a reporter showed up on Samuel Dodd’s doorstep, the Standard counsel was a model of urbanity: “The [trust] agreements were not really necessary,” he said. “They were simply made as a matter of conscience. The only effect of the decision will be to inconvenience us a little.”5
This insouciance was only partly studied. In responding to legal challenges, the combine had reconstituted itself many times, like some mythical, protean creature that could metamorphose into infinite shapes to elude lawmakers. For several years, Dodd and Rockefeller had studied possible responses in case the trust had to be dissolved in an antitrust suit. They had taken note of an 1889 New Jersey law that permitted corporations resident in the state to hold stock in other corporations. This revolutionary development opened the possibility of forming holding companies that could operate nationwide and provided a critical escape hatch for embattled trusts. As a result, Standard Oil calmly greeted the 1892 Ohio decision less as a mortal threat than an opportunity for a long-overdue reorganization.
For several days, Standard executives tried to figure out how best to comply with the ruling. Their minds were focused by the knowledge that if they didn’t act, the New York attorney general was poised to file antitrust papers. On March 10, 1892, one week after the Ohio decision, Samuel Dodd announced that the trust would be dissolved. The next day, a mailing went out to all holders of Standard Oil trust certificates, summoning them to a March 21 meeting and inviting them to exchange their certificates for proportionate shares of twenty constituent companies. The distribution of power, money, and dividends within the Standard Oil empire would remain exactly the same, a deft maneuver that would be copied by other corporations harried by antitrust laws.
As the holder of 256,854 of 972,500 outstanding shares of the Standard Oil trust, John D. Rockefeller chaired the March 21 meeting. Even though 300 people were jammed into a room designed to hold only 200, the stage-managed event was brief and businesslike; the unanimous vote to dissolve the trust was a foregone conclusion. Though designated one of eight liquidating trustees, Rockefeller had just recuperated from the break
down in his health and wanted to transfer the burden of reorganization to his colleagues. He was spared a terrible ordeal, since the liquidation proved highly contentious. Small shareholders balked at trading in trust certificates for fractional shares that paid no dividends and could not be redeemed in any secondary market. In the eyes of Standard’s detractors, the exchange dragged on for a suspiciously long time.
Aided by changes in New Jersey’s incorporation law, Standard Oil of New Jersey took on a unique status in the transformed company. Renamed Standard Oil (New Jersey), it bought in whole or in part huge blocks of stock in the other Standard companies and thus legally held stock in properties from coast to coast, functioning as both an operating and holding company. Standard of New York also attained new status in a reorganization that initiated the seven-year period of the so-called Standard Oil Interests.
The 1892 overhaul was mostly shadow play, a charade to appease the courts. The executive committee at 26 Broadway was formally dissolved, but the members lost only their titles and were soon converted, by the nicest legal cunning, into the presidents of twenty affiliated companies. In Standard parlance, these men were now the “gentlemen upstairs” or the “gentlemen in Room 1400.” Nobody had to switch seats at the lunch table, and Rockefeller and his coterie ruled as absolutely as before. Seventeen individual stockholders—almost all Standard Oil executives or family members—controlled a majority of stock in the twenty companies and elected their directors. This legal legerdemain again frustrated lawmakers who felt that the combine was so vast, slippery, and elusive that it could never be tamed or held accountable.
Standard Oil executives saw the major threat to the company in 1892 as the aging of their leadership. The organization was still piloted by the same sturdy souls who had steered it since the 1870s and were now beginning to die off or retire. The alarm bells must have sounded when Rockefeller sought retirement, a decision postponed temporarily by the economic crisis of 1893. The panic showed him functioning less as a Standard Oil executive than as a sovereign power, endowed with resources rivaling those of government. He continued, however, to operate in the shadows, a spectral figure whose presence was mostly felt, not seen.
The depression heralded by the June 1893 stock-market crash was one of such excruciating length, such grinding and unrelieved misery, that economic historians labeled it the Great Depression until that title was usurped in the 1930s. During the troubled summer of 1893, the Erie and Northern Pacific railroads failed, followed by many others bloated with debt and riddled with fraud. Mass unemployment across the nation sharpened class tensions. During the sanguinary clash a year earlier at the Homestead, Pennsylvania, steel mill, Henry Clay Frick had ordered Pinkerton detectives to fire at workers—a step that drew a rousing congratulatory telegram from John D. Such corporate truculence provoked calls by the new Populist Party for a graduated income tax, government ownership of railroad and telegraph companies, and tougher safeguards for trade unions. Rockefeller stood high on the list of bogeymen regularly berated by Populists, and legend has it that he began to sleep with a revolver by his bed. As the country grew more polarized, many people wondered whether America had paid too dear a price for the industrialization that had so quickly propelled it from an agrarian society to a world economic power.
By early 1894, the slump had toppled six hundred shaky banks, and an almost palpable threat of insurrection hovered in the air, prompting financial writer Alexander Dana Noyes to observe that “there were periods when industrial unrest seemed to assume the proportions of anarchy.” 6 In the spring of 1894, General Jacob Coxey of Ohio led his bedraggled Army of the Commonwealth of Christ in a doomed march on Washington to entreat Congress for legislative relief. Two months later, workers at the Pullman Palace Car Company struck to reverse massive layoffs and wage cuts, triggering a sympathy strike by the American Railway Union under Eugene V. Debs. When President Cleveland sent troops to Chicago, Debs was jailed, and seven strikers were gunned down. All the pent-up frustrations produced by the accelerated change of the late nineteenth century were vented in spontaneous, often violent dissent.
To the dismay of critics, Standard Oil and other trusts fared quite well during the prolonged downturn. Demand for illuminating oil and lubricants—now necessities of life—remained healthy, leading Standard Oil to prosper amid the general austerity. Meanwhile, a new source of future profits beckoned in the middle distance. In the early 1880s, Gottlieb Daimler strapped light gasoline engines onto bicycles, tricycles, and other vehicles, experiments that culminated in the motorcar, while another German inventor, Karl Benz, patented a three-wheeled automobile with a single-cylinder engine in 1886. In 1892, the Duryea brothers were tinkering with their first automobile. Recognizing a fantastic market in the offing, Standard Oil sent a representative to attend the test of a new gasoline engine for a streetcar motor. The next year, Henry Ford tested a two-cylinder auto that sped along at thirty miles an hour, resuscitating fears that existing oil supplies might fall short of needs—an anxiety somewhat assuaged by oil discoveries in Los Angeles and elsewhere in California in the 1890s. So remarkable was this West Coast boom that it soon furnished more oil than the old Pennsylvania and Ohio fields that had formed the basis of Rockefeller’s wealth. The advent of the automobile was a godsend for Standard Oil, for the more lightbulbs shone across America, the more kerosene was relegated to remote rural areas without access to electric power.
Standard Oil again benefited from hard times to extend its powerful reach. For several years, the trust had watched the exploits of Pittsburgh’s Mellon family with apprehension, and Archbold was under strict orders from Rockefeller to grab any of their oil properties that came on the market. As the Mellons emerged as a worrisome threat in the export market, Rockefeller feared they might strike an alliance with the French Rothschilds. In August 1895, having borrowed heavily against Pittsburgh real estate to build their budding oil empire, the Mellons were forced to sell their Crescent Pipe Line Company and other properties to Standard—a huge windfall that yielded 14,000 acres and 135 producing wells. It now seemed that Standard Oil owned the entire industry, lock, stock, and barrel. When the Geodetic Association announced plans to measure the earth, the World opined that the information would “enable the Standard Oil Trust and other trusts to learn the exact size of their property.”7
Soon thereafter, to everyone’s amazement, the independents, after so many hapless drubbings, rallied one last time and made a successful run at the trust. Through a new company, the Producers’ and Refiners’ Oil Company, a thousand well owners agreed to supply crude oil to fifteen independent refineries, linked by a new network of local pipelines. In the fall of 1892, that perennial Standard scourge, Lewis Emery, Jr., had organized United States Pipe Line, which now promised to give the rebels a vital pipeline to the seaboard. To lay the pipe, Emery’s men had to ward off savage harassment from the railroads; locomotives would roar by and douse them with scalding steam, boiling water, and glowing coals. Despite these obstructive tactics, independent oil began to flow in 1893. Shifting tactics, the trust then engineered a steep decline in kerosene prices—no mean trick in a period of rising crude prices. Squeezed by dwindling profit margins, three large independent refineries finally submitted to the trust’s suzerainty, but the Producers’ and Refiners’ Oil Company miraculously survived. In 1895, emboldened by a new sense of Rockefeller’s vulnerability, thirty independent refiners coalesced into the Pure Oil Company—the first enduring domestic competitor of Standard Oil. To preserve their autonomy, they sequestered half their voting stock in the hands of five men eternally sworn to keep it free of Standard influence. Thus, several years before federal trustbusters mobilized to smash the Rockefeller monopoly, serious competition had already taken root in the marketplace.
Despite this setback, Rockefeller was not hurting in the 1890s. There was now a self-perpetuating quality to his wealth. Whether he was gardening, eating, or just lying in bed, his prolific savings quietly grew around the
clock. He was receiving about $3 million yearly in Standard Oil dividends (more than $50 million in 1996 dollars) and redirecting that into a vast portfolio of outside investments that made him a one-man holding company. With $24 million now invested outside the oil and gas business, he held sizable stakes in 16 railroad companies, 9 real-estate firms, 6 steel companies, 6 steamship companies, 9 banks and financial houses, and even 2 orange groves.
The oil trust’s resilience during the depression of the 1890s, its tested immunity from market fluctuations, cheered Rockefeller, who attributed this to Standard’s large cash reserves and conservative dividend policy. The panic seemed to offer irrefutable proof to Rockefeller that cooperation was superior to the vagaries of cutthroat competition. It certainly allowed him the luxury of a benevolent paternalism at a time of labor strife in other industries. “We held things together so steady that our fortunate laboring men got their pay, though in other concerns many of them were compelled to go, and without bread,” he later told William O. Inglis. “It was a matter of congratulation with us that we could look into the happy faces of our workmen in these perilous times and hand them the wages they had earned.”8
Since the early 1880s, Standard Oil had been self-financing, very liquid at all times, and free from the thrall of Wall Street bankers. As a result, no other industrial corporation was so fearless or independent. It was one of Rockefeller’s proudest boasts that unlike other trusts, he had not needed a J. P. Morgan to forge his combine. Standard Oil anticipated a major feature of the twentieth-century economy: the tendency of sophisticated, cash-rich corporations to outgrow their traditional bankers and become financial-service giants in their own rights. As journalist John Moody perceptively wrote, “The Standard Oil Trust was really a bank of the most gigantic character—a bank within an industry, financing this industry against all competition and continually lending vast sums of money to needy borrowers on high class collateral, just as the other great banks were doing.” 9
