Little as the Oil Regions knew of the real meaning of the Central Association, the news of its organisation raised a cry of monopoly, and the advocates of the new scheme felt called upon to defend it. The defense took the line that the condi tions of the trade made such a combination of refineries necessary. Altogether the ablest explanation was that of H. H. Rogers, of Charles Pratt and Company, to a reporter lof the New York Tribune : "There are five refining points in the country," said Mr. Rogers, "Pittsburg, Phila delphia, Cleveland, the Oil Regions and New York city. Each of these has certain local advantages which may be briefly stated as follows: Pittsburg, cheap oil; Phila delphia, the seaboard; Cleveland, cheap barrels, and canal as well as railroad trans portation; the Oil Regions, crude oil at the lowest figure; and all the products of petroleum have the best market in New York city. The supply of oil is three or four times greater than the demand.* If the oil refineries were run to their full capacity, the market would be overstocked. The business is not regular, but spasmodic. When the market is brisk and oil is in demand, all the oil interests are busy and enjoy a fair share of prosperity. At other times, the whole trade is affected by the dullness. It has been estimated that not less than twenty millions of dollars are invested in the oil business. It is therefore to the interest of every man who has put a dollar in it to have the trade protected and established on a permanent footing. Speculators have ruined the market. The brokers heretofore have been speculating upon the market with effects upon the trade, and this new order of things will force them to pursue their legitimate calling, and realise their profits from their industry and perseverance. Two years ago an attempt was made to organise an oil refiners' association, but it was subsequently abandoned. There was no cohesion of interests, and agreements were not kept. The movement at the present time is a revival of the former idea, and, it is believed, has already secured fully nine-tenths of the oil refiners in the country in its favour. I do not believe there is any intention among the oil men to 'bull' the market; The endeavour is to equalise all around and protect the capital invested. If by common consent, in good faith, the refiners agree to reduce the quantities to an allotment for each, made in view of the supply and demand, and the capacity for production, the market can be regulated with a reasonable profit for all. The price of oil to-day is fifteen cents per gallon. The proposed allotment of business would probably advance the price to twenty cents. To make an artificial increase, with im mense profits, would be recognised as speculative instead of legitimate, and the oil interests would suffer accordingly. Temporary capital would compete with permanent investment and ruin everything. The oil producers to-day are bankrupt. There have been more failures during the last five months than in five years previously. An organi sation to protect the oil capital is imperatively needed. Oil to yield a fair profit should be sold for twenty-five cents per gallon. That price would protect every interest and cover every outlay for getting out the crude petroleum, transporting by railroad, refining and the incidental charges of handling, etc. The foreign markets will regulate the price to a great extent, because they are the greatest consumers. The people of China, Germany, and other foreign countries cannot afford to pay high prices. Kerosene oil is a luxury to them, and they do not receive sufficient compensation for their labour to enable them to use this oil at an extravagant price. The price, therefore, must be kept within reasonable limits." The Oil Regions refused flatly to accept this view of the situation. The world would not buy refined at twenty-five cents, they argued. "You injured the foreign market in 1872 by putting up the price. Our only hope is in increasing con sumption. The world is buying more oil to-day than ever before, because it is cheap. We must learn to accept small profits, as other industries do." "The formation of the Refiners' Association has thrust upon the trade an element of uncer tainty that has unsettled all sound views as to the general out look," said the Derrick. "The scope of the Association," wrote a Pittsburg critic, "is an attempt to control the refining of oil, with the ultimate purpose of advancing its price and reaping a rich harvest in profits. This can only be done by reducing the production of refined oil, and this will in turn act on crude oil, making the stock so far in excess of the demand as to send it down to a lower figure than it has yet touched." "The most important feature of this contract," said a "vet eran refiner," "is perhaps that part which provides that the Executive Committee of the Central Association are to have the exclusive power to arrange with the railroads for the carrying of the crude and refined oil. It is intended by this provision to enable the Executive Committee to speak for the whole trade in securing special rates of freight, whereby inde pendent shippers of crude oil, and such refiners as refuse to join the combination, and any new refining interest that may be started, may be driven out of the trade. The whole general purpose of the combination is to reap a large margin by depressing crude and raising the price of refined oil, and the chief means employed is the system of discrimination in railroad freights to the seaboard." "The veteran refiner" was right in his supposition that Mr. Rockefeller intended to use the enormous power his combina tion gave him to get a special rate. As a matter of fact he had seen to that before the "veteran refiner" expressed his mind. It will be remembered that in April, 1874, Mr. Rockefeller
had made a contract with the Erie by which he was to ship fifty per cent. of hii refined oil over that road at a rate as low as any competing line gave any shipper and he was to have a lease of the Weehawken oil terminal. Now this contract remained in force until the first of March, 1875, when a new one was made with the Erie guaranteeing the road the same percentage of freight and giving the Standard a ten-per-cent. rebate on whatever open tariff should be fixed. This rebate Mr. Blanchard says was quite independent of what the Cen tral might be giving the Standard. He says that one reason the Standard was given the rebate was that it was suspected the Pennsylvania was allowing the Empire Transportation Com pany an even larger one. If true, this would not affect any refiner necessarily as the Empire was not a refiner in March, 1875. The real reason, of course, was what Mr. Blanchard gives later—that by this rebate they kept the Standard trade, now greatly increased by the purchase of the outside works already mentioned, although it should be noticed the Erie officials knew nothing of the Standard having control of any other refinery than that of Charles Pratt and Company.
The announcement of the Central Association put an alto gether new feature on oil transportation. If this organisation succeeded, and the refiners in it claimed nine-tenths of the capacity of the country—it gave Mr. Rockefeller "irrevoca ble authority" to negotiate freights. The Pennsylvania road immediately felt the pressure. The oil they had carried for big firms like those of Charles Lockhart in Pittsburg and of Warden, Frew and Company in Philadelphia was in the hands of the Standard Oil Company, and Mr. Rockefeller asked a rebate of ten per cent. on open rates. The road de murred. Colonel Potts objected strenuously. Three years later in a paper discussing this rebate and its consequences he said: "The rebate was a modest one, as was its recipient. Yet the railway Cassandras prophesied from it a multitude of evils—a gradual destruction of all other refiners and a gradual absorption of their property by the favourite, who, with this additional armament, would rapidly progress towards a control of all cars, all pipes, all pro duction, and finally of the roads themselves. Their prophecies met but little faith or consideration. The Standard leaders themselves were especially active in discourag ing any such radical purpose. Their little rebate was enough for them. Everybody else should prosper, as would be shortly seen. They needed no more refineries; they had already more than they could employ—why should they hunger after greater burdens ? It was the railroads they chiefly cared for, and next in their affections stood the roo rival refineries. Such beneficent longings as still remained (and their bosoms overflowed with them) spread out their steady waves toward the poor producers whom, not to be impious, they had always been ready to gather under their wings, yet they would not.
"This unselfish language soothed all alarm into quiet slumbering. It resembles the gentle fanning of the vampire's wings, and it had the same end in view—the un disturbed abstraction of the victim's blood." Colonel Potts's argument against the rebate—doubtless clothed in much less picturesque language in 1875 than his feelings stirred him to in 1878, for a good enough reason, too, as we shall see—failed to convince the Pennsylvania officials. They decided to yield to the Standard. Mr. Cassatt, then third vice-president of the road, in charge of transportation, said in 1879 that the rebate was given because they found the Standard was getting very strong, that they had the backing of the other roads, and that if the Pennsylvania wanted to retain its full share of business and at fair rates they must make arrangements to protect themselves.
No_o_ne of the roads knew certainly what the others were doing for the Standard until October 1, 1875. The freight agents then met to discuss again the freight pool they had formed in 1874. It had not been working with perfect satisfac tion. The clause granting the rebate of twenty-two cents to the pipe-lines which sustained an agreed rate of pipage had been abandoned after about five months' experiment. It was thought to stimulate new pipes. The roads in making a new adjustment made no effort to regulate pipe-line tariffs. The rebate" as it was called—carrying oil to a for nothing—was left in force. At this meeting Mr. Blan chard found that both of the Erie's big rivals were grant ing the Standard a ten per cent. rebate. He also found that he was not getting fifty per cent. of the Standard's business as the contract called for—that the Standard controlled not only the Cleveland and New York works of which he knew, but large works in Pittsburg and Philadelphia.* Mr. Rockefeller was certainly now in an excellent condition to work out his plan of bringing under his own control all the refineries of the country. The Standard Oil Company owned in each of the great refining centres, New York, Pittsburg and Philadelphia, a large and aggressive plant run by the men who had built it up. These works were, so far as the public knew, still independent and their only relation that of the "Central Association." As a matter of fact they were the "Central Association." Not only had Mr. Rockefeller brought these powerful interests into his concern ; he had secured for them a rebate of ten per cent. on a rate which should always be as low as anyone of the roads gave any of his competitors. He had done away with middlemen, that is, he was "paying nobod_y_a__profit." He had undeniably a force wonderfully constructed for what he wanted to do and one made practi cally impregnable as things were in the oil business then, by virtue of its special transportation rate.