"The Way it was done in America"
[Twenty-first century Russian views on big business in the USA "Progressive Era" (ID) ]
[SAC editor has corrected the most significant confusions caused by the poor English translation in the source]
The fall of Rockefeller
John Davison Rockefeller's entrepreneurial career began during the US Civil War. Like many businessmen of that time, Rockefeller made big profits from military procurement. He sold the Union petroleum products at exaggerated prices. Right after the war was over, Rockefeller and his partner, Henry Flagler, merged their capital in order to start a petroleum production company. In 1870 the company was named Standard Oil [ID]. The company was engaged not only in oil extraction, but also in oil refining. They established a clear monopoly position in the market. Newspapers revealed that Rockefeller made a deal with a railway company owner to reduce transportation rates for Standard Oil petroleum. In exchange, Standard Oil agreed to transport huge quantities of petroleum on that rail line. This assured that the railroad company's rolling stock would be not be idle. Therefore, Rockefeller petroleum received preferential and priority treatment on this railway's lines. In addition, Standard Oil actively manipulated petroleum prices, lowering them below market values in order to bankrupt competitors. For instance, in 1872 Rockefeller sharply lowered prices on kerosene in the Cleveland area bringing 22 out of 26 local petroleum companies to the brink of bankruptcy. Rockefeller subsequently bought these [devalued] companies. The public viewed these activities of Rockefeller‘s company with sincere disgust. Newspapers published long articles which exposed Standard Oil and its owner. Nevertheless, authorities found Standard Oil to be of some use, for the time being, because the company brought some order in a disorganized American petroleum market. The atmosphere around Standard Oil began to heat up in the beginning of 1880s. The state wanted to get involved in the petroleum business on its own. At once several states proposed plans to build state-owned oil-refineries. [Here we might note that the Russian author of this piece is emphasizing parallels with recent Russian experience of contest between privatized energy companies and state-dominated energy companies. CF=Two paragraphs below.] Prisoners were going to be used as a labor force. However, these plans could not be carried out because of Standard Oil's dominant position in the market.
First attempts of authorities to break down Rockefeller’s monopoly failed. Standard Oil easily overcame the 1887 law on trade between states which sought to put an end to railway privileges [ID]. Standard Oil managed to bypass the well-known anti-trust law passed in 1890 [ID]. Standard transformed the Standard Oil Trust into the Standard Oil Company of New Jersey, which controlled the shares of all the companies which the Trust had absorbed earlier.
Seemingly Rockefeller had won. However, in 1904 a formal
investigation of Standard Oil Company of New Jersey activity was begun.
President Theodore Roosevelt's election campaign had promised a vigorous fight
against trusts, and he now personally urged the investigation of Standard Oil. In
1906 investigation files were presented at court. The Company was now
in courts at all jurisdictional levels. President Theodore Roosevelt named
Rockefeller the most dangerous criminal in the USA. In 1911 the Supreme Court of
USA ruled that Standard Oil activity had to be terminated. Authorities
celebrated the victory. However, it would be absolutely wrong to assume that
Rockefeller was destroyed as a businessman. He retained possession of his shares
in all the companies that were created as a result of
redistribution of Standard Oil assets. His wealth even multiplied. Since America
was not Russia [of our time (ID)], all shares Rockefeller was forced to sell were compensated
according to prevailing market prices.
The middle of the 19th-century was marked by a railway construction boom in America. The railway market was controlled by two persons — Cornelius Vanderbilt, who died in 1877 as the richest American of that time [ID], and his main competitor, Jay Gould, director of Erie Railroad Co. [ID] In their struggle against each other and the other competitors, Gould and Vanderbilt used all available means, ranging from stock market manipulations to armed attacks. It is said that both maintained gangster armies which plundered competitors’ trains and blew up bridges. Their influence was so great that even authorities did not attempt to interfere.
In these years thousands of kilometers of railway were laid annually in USA, but even the largest railway companies were compelled to approach bankers for loans. Banker J.P. Morgan became the creditor of the largest American railway companies. According to historical accounts, Morgan informed company managers who fell into even the briefest arrears in payment on their debts, “Now your company belongs to my clients”. Often he, Morgan, was his own client. As a result, “the railway wars” in USA started to fade, and John P. Morgan began to control practically all railway companies in the northwest of USA.
In the beginning, authorities were subservient to Morgan, just as they had been to Rockefeller [ID]. They even relied on Morgan's help, for instance, when they needed him to bring an end to the 1902 miners strike in Pennsylvania [ID]. However, that very year 1902 was a turning point. In the beginning of the year Morgan intended to establish the Northern Securities Company as the owner of railway companies in the northwest of USA. Unexpectedly for Morgan, the state opposed this move. Theodore Roosevelt, citing the anti-trust law of 1890 [ID], ordered the Justice Department to begin liquidation of the newly formed company. Anxiously Morgan sought a meeting with Attorney General Philander Knox [ID]. Morgan reproached the Roosevelt administration for not notifying him before it took action against his company. He assured Knox that, with forewarning, he could have corrected the situation so that the Anti-Trust Act would not have been infringed. Knox answered with an unusual frankness, “We do not want to correct the situation, we want the situation to end”.
It wasn’t a secret to anybody that Morgan was penalized for his far too extensive control over American national life. The legal case of the United States vs. Northern Securities, Great Northern Railway, Northern Pacific Railway, and John P. Morgan [ID] was settled quickly. By the middle of March the Supreme Court of USA declared that the establishment of Northern Securities was illegal, and the company was dissolved.
Nor was this the end of Morgan’s prosecutions. Authorities moved ahead with an unprecedented investigation of Morgan’s company and its broad influence and control. Federal investigators alleged that J.P. Morgan and Co. had a hand in the management of the whole national financial establishment. Morgan and Co. had accumulated $25 billion, an amount at that time equal to two-thirds of the US GNP. Just as with Rockefeller, Morgan was allowed to hold on to his wealth. However his influence was profoundly shaken. At the end of 1912, addressing a senatorial committee, 75–year-old Morgan confessed that he “didn’t want to administer anything”, and that he no longer had any authority even within his own company. Soon after, J.P.Morgan died.