Later on, in 1880, General J. H. Devereux, who had granted secret rebates as vice-president of the Lake Shore Railroad in 1868, offered a defence of his conduct by means of an affidavit which he made in the case of the Standard Oil Company v. William C. Scofield et al. in the Court of Common Pleas, Cuyahoga County, Ohio, November 13, 1880. This affidavit states that " such rates and arrangements were made by the Pennsylvania Railroad that it was publicly proclaimed in the public print in Oil City, Titusville, and other places, that Cleveland was to be wiped out as a refining centre as with a sponge ; " that the Cleveland refiners, some twenty-five in number, expressed their fears to him that they would have to give up their busi ness in Cleveland ; but that the Standard Oil Company made him a definite proposal to guarantee the Lake Shore Railroad a consign ment of sixty carloads a day in return for a rebate of 10 cents on the 42 cents per barrel rate ; and that, as this proposal "offered to the railroad company a larger measure of profit than would or could ensue from any business to be carried under the old arrangements," it was accepted by him. This was a pretty open confession. One might be permitted to think that, as the Lake Shore Railroad's profit and immunity from competition was thus secured, it would have been in a position to extend the reduced rate to the other refiners also, and thus carry out its duty as a " common " carrier. But it is obvious that it was the essence of its agreement with the Standard Oil Company to give that firm an advantage over its com petitors. The cloven hoof is apparent in the excuse tacked on at the end of the affidavit that " this arrangement was at all times open to any and all parties who would secure or guarantee a like amount of traffic." It was certainly not open in the sense of being pub lished ; it was only avowed by the affidavit in 1880, when the unjust discrimination had worked long enough to set the Standard Oil Company definitely ahead of all competition.
It is one of the Standard Oil Company's most usual contentions that it has reduced the price of illuminating oil to the consumer. Any one who takes the trouble to study the matter from the beginning will see that the Company's primary object, on which it concentrated all its early efforts, has always been to raise the price for the consumer. By 1870 the general com petition among oilmen, together with the vast additional supplies of oil discovered, had brought prices down enormously since the time oil was first struck in 1859. Whereas Mr. Rockefeller had received on an average 581 cents (2s. 50.) a gallon for the oil he exported in 1865, the year he went into business, in 1870 he received only 261 cents (1s. led.). It was proved beyond doubt by competent testimony during the Missouri suit of the United States v. the Standard Oil Company of New Jersey that a wholesale price of 1 cent (id.) a gallon allows an excellent margin of profit for an oil refiner. But in 1870 everybody in the American oil trade simply despised an " honest livelihood." They were " out for the dollars," to use Mr. H. H. Rogers's expressive indication of his own inten tions before the Industrial Commission in 1899. When Mr. J. J. Vandergrift, one of the Standard Oil directors, was questioned under oath as to what they meant to do, he replied, " Simply to hold up the price of oil—to get all we can for it." And Mr. Rogers declared to the Industrial Commission in 1875 that " oil to yield a fair profit should be sold for 25 cents per gallon I " Prices being " ruinously low " from the oil man's point of view, Mr. Rockefeller and his friends came forward with a scheme, in January, 1872, for the purpose of holding them up. They had originated the idea among themselves of the industrial " trust," and the date is conse quently a momentous one in the world's com mercial history. This, the first of all industrial
trusts, was originally floated by taking over the charter of an existing company, the South Improvement Company, a name which had no earthly connection with that company's object, but was an excellent one for Mr. Rockefeller's purpose, as his object had to be strictly con cealed in order to be workable. This object, as may be gathered from the text of the contract secretly signed by the Company and the railroads on January 18, 1872, was to destroy the business of all others than itself who engaged at any time in the refining trade. The railroads were to carry the South Improvement Company's products for such lower rates than those of other firms as would inevitably cause the latter to come a financial cropper. The consideration held out to the railroads for this service was an all-round rise in freight rates of about 100 per cent. and the abolition of competition among themselves by fixing the proportion of oil freight each road was to get, or to be paid for whether it got it or not. The discrimination in favour of the South Improvement Company was to be effected by a secret return to it of from 25 to 50 per cent. of all the money paid to the roads for oil freight either by itself or by any firm or com pany in the trade. How this iniquitous idea could ever have been developed, much less acted upon, it is difficult t7-4Tagine from a bald recital of the facts. But the railroads, I find from evidence before the Hepburn Committee in 1879, either believed, or affected to believe, that the South Improvement Company repre sented practically the whole oil trade, was the oil trade in fact ; other firms were, or were to be regarded as, merely unrecognised, unquali fied practitioners, who carried on their avocation at their own risk and peril, and whom society could not take into account in making its arrangements.
Whatever the genesis of the idea, there could be no doubt as to its efficacy in disposing of a trade rival when reduced to practice. Suppose a competitor consigns as much freight as your self, with a 50 per cent. rebate to you and a 50 per cent. drawback paid to you as an involuntary bounty by the competitor, you can regard a 100 per cent. rise in freight rates with equanimity, for it leaves your expenditure under this head exactly what it was before, to say nothing of the bounty, while your competitor pays exactly twice as much as he used to do. While in this position he can be reduced to a state of hopeless impotence by price-cutting, which can be effected at relatively small expense. On the supposition that the competitor's consignments bulk larger than yours, the bounty received from them becomes larger, till a point is arrived at when your own shipments cost you nothing at all, and you are in the enviable position not only of carrying on business without working ex penses, but of being paid handsomely by your rivals for doing so. Something like this reductio ad absurdum in trading must have been actually approached in the case now under consideration, for as a matter of fact the South Improvement Company did not control one-tenth of the re fining business of the United States when its contract was signed by and with the railroads on January 18, 1872. Mr. W. G. Warden, of Philadelphia, secretary of the South Improve ment Company, admitted to the Congressional Investigating- Committee which sat in March and April following that the aggregate refining business of the United States amounted to from 45,000 to 50,000 barrels daily capacity, while the stockholders of the South Improvement Com pany when formed owned a combined capacity of not over 4,600 barrels—less than one-tenth. This they increased, as we shall see, in three months' time, to a capacity of one-fifth.