the robe of the senator, their aggregation in one man of wealth so enormous as to make Croesus seem a pauper.

"The poor fisherman, told of in the Arabian Nights, threw his net into the sea, and drew up a casket covered with rust and slime and closed down with the seal of Solomon. He took it in his hands, and, holding it to his ear, he heard the voice of a spirit imprisoned within, telling in tones of enchanting sweetness how he, the poor, miserable fisherman, if he would release the prisoner, might sway the scepter of power, might revel in all sensuous delights, might command all the riches hidden by earth or sea. The foolish fisherman broke the seal by which the wisest of men had confined the enemy of mankind, and lo! there rose from the casket a cloud unformed, which towered to heaven, and which, at last, condensed into an awful malignant demon, who stood dilated to the skies. The fisherman lured the devil into his prison, closed the seal upon him, and threw him back into the depths. A similar task is laid upon the present generation."

THE RISE AND SUPREMACY OF THE STANDARD

OIL COMPANY.

BY GILBERT HOLLAND MONTAGUE.

[Gilbert Holland Montague, lawyer and economist; born Springfield, Mass., May 27, 1880; graduated from Harvard university and Harvard Law school; began the practice of his profession in New York city immediately after graduation; author of several contributions to the study of trusts in economic reviews, the article printed below having appeared originally in the Quarterly Journal of Economics. Author of Trusts of To-day.] Copyright 1902 by George H. Ellis Company

The rise and progress of the Standard Oil company, from its inception in 1865 till its control, in 1878, of 95 per cent of the oil business of the United States, has presented itself to different critics in somewhat different characters; certain conservative writers think it was largely the result of discriminations in freight rates, extorted by more or less questionable practices from the easy virtue of the railroads. But just why the railroads found it expedient to grant such unusual favors, and why this particular group of men, above all others, proved best able to extort such favors, no one has satisfactorily explained. Corruption of the railway officials has been vaguely suggested; but it has not been shown whence this group of men had the means to suborn the railways, and no writer has been able to point to a piece of precise evidence, found by any court or investigating committee in the United States, which proved such subornation of railway officials, though it is not inconceivable that some evidence may exist. Congressional and legislative committees, on the other hand, and the more cautious writers on trusts, have been equally put to it to find in those acts of the railways which eventually made the Standard Oil company supreme any self interested motives. The fact of the discrimination in freight rates seems to account for the supremacy of the Standard Oil company. But why those refiners identified with the Standard Oil company, instead of some other group of refiners, should persistently have obtained the best rates, has been, to these investigators, a baffling mystery.

The secret of this strange success with the railways is not, however, completely insoluble. If the episodes in the progress of the Standard Oil company from 1865 till 1877 be carefully studied, the motives of every act, both of the company and of the railways, will certainly be revealed. The materials for this study are not lacking. A vast amount of evidence showing the ability of the Standard Oil company to turn these possibilities to advantage has been gathered by various commissions and investigating committees. With such sources of information as these available, an intelligible narrative may readily be put together. Not only may each act of the company and of the railways be authenticated, but also, at each step in the progress, the increasing efficiency and importance of the company may be estimated, and the momentary opportunities of railway and industrial conditions may be gauged. And so in what seems at first sight an unaccountable and suspiciously rapid growth may be discerned signs of inevitable development-the operation of motives which are, at any rate, explicable.

In 1865, when Mr. John D. Rockefeller began in a small way to refine petroleum at Cleveland, Ohio, the oil industry was in a singularly inchoate state. With the success of Drake's oil well at Titusville, Pennsylvania, in 1859, refiners had been released from the necessity of distilling coal into petroleum before refining petroleum into kerosene; and at the same time the sources of petroleum were shown to be enormously greater than they had ever before been guessed. This discovery stimulated consumers to increased use of lubricants and burning oils and in this way rapidly increased the demand in the arts for the refined product. In even greater measure it encouraged the production of crude petroleum. Within a year after Drake's success, wells had been sunk all around Oil City and along the Allegheny river. In 1864 had occurred the Cherry "run," followed by the Benninghoff and the Pioneer "runs," and the sensational exploitation of Pithole creek. While Mr. Rockefeller was erecting his little refinery, Pithole City-now a field sown with wheat-had a postoffice nearly as large as that of Philadelphia. From Manitoulin island to Alabama and from Missouri to Central

New York, wells had been bored for oil. So rapid had been the increased demand for the products of petroleum, and so unexpected had been the increase of supply, that in 1865 existing refineries proved quite inadequate to the business suddenly thrust upon them.

The difficulties besetting refiners in 1865 were chiefly such as could be cured by an increase of capital. In 1861 the best wells had been thirty miles from the railroads. Because of the lack of barrels and the difficulty of transportation, petroleum had fallen from $20 a barrel to almost nothing. By 1863 boats had begun transporting petroleum down Oil creek, and small pipe lines and branch railway lines had been built. In 1866 a more efficient cylinder refining still was invented, casing and torpedoes were coming to be used in drilling, the tank car began to replace the clumsy flat car with its wooden tubs, and pipe lines regularly transported petroleum from the wells to the railroads. To secure these economies in refining, small concerns must either increase their capital to about $500,000 or else combine into this larger and more efficient unit of production. Mr. Rockefeller was among the first to see the exigency; and in 1867 he united into the firm of Rockefeller, Andrews & Flagler the refineries of William Rockefeller & Co., Rockefeller & Andrews, Rockefeller & Co., S. V. Harkness, and H. M. Flagler. The reasons for this union, as he afterwards stated them, must even then have been evident: "The cause leading to the combination was the desire to unite our skill and capital, in order to carry on a business of some magnitude and importance in place of the small business that each had separately heretofore carried on."

With the reorganization of the firm of Rockefeller, Andrews & Flagler, in 1870, into the Standard Oil company of Ohio, with capital stock of $1,000,000, the first period of the oil industry may be said to close. No company had sought, or, indeed, has since sought, to control the oil fields. So far as may be known, no refiner had yet organized the pipe lines to his exclusive advantage or exacted of the railroads better freight rates than were granted to his competitor. The transportation of oil by rail and by pipe line was left to independ

ent companies, and it was only by the competition and by the improvements of such companies that the cost of the transportation had been reduced. Till 1870 the competition of refiners was solely concerned with efficiency of production; and, since this was to be gained only by refineries of $500,000 capitalization or more, there was concentration among the stronger concerns and extermination of the weaker. By its process of concentration, and solely on account of its superior efficiency, the Standard Oil company of Ohio became in 1870 larger than most of its competitors, and produced 4 per cent of all the oil refined. After 1870 the progress of the oil industry, generally, and the precedence of the Standard Oil company, in particular, was to lie in the direction of cheaper transportation exacted of the transportation companies by

the refiners.

Opportunities for discriminating freight rates presented themselves early. How the Standard Oil company availed itself of the unique railway conditions and of the practices common in the freight traffic of that time is one of the most sensational episodes in the history of American railroads. By 1871 the New York Central, the Erie, and the Pennsylvania railroads had completed connections that afforded them entrance to Chicago, and the great struggle for the traffic of the west had set in. The roads were so poor, and the necessity for revenue so great, that rate wars had begun as early as 1869, when the New York Central and the Pennsylvania roads had secured connection with Chicago. With the entrance of the Erie road, and, in 1874, of the Baltimore and Ohio, into Chicago, the competition for traffic throughout the region of the trunk lines became more imbittered. During the years from 1869 till 1873 the agents of the roads met annually at New York to agree upon freight rates; and afterwards, in order to get traffic, they regularly broke their agreement. Every year during this period fourth class rates from Chicago to New York fell from about 80 cents per 100 pounds in December to about 25 cents in August and September. This reckless competition for traffic was extended to the oil regions. The Pennsylvania railroad, which had the earliest and closest connection with the center of petroleum production at Oil