The History of the Standard Oil Company/Volume 1/Appendix/Number 11
NUMBER 11 (Sec page 82)
EXTRACTS FROM THE TESTIMONY OF W. G. WARDEN
[From "A History of the Rise and Fall of the South Improvement Company," pages 30-41.]
Washington, D. C., March 30, 1872.
William G. Warden affirmed and examined.
By Mr. C. Heydrick (Counsel).
Q. Are you an officer of the South Improvement Company?
A. Yes, sir; or rather, I was.
Q. What office did you hold?
A. I held the office of secretary during all the previous meetings, and was a director of the company.
Q. When was the company organised?
A. Our minutes will show that, if you will allow me to refer to them, and I desire to put them in as evidence. On referring to the minutes I find that the corporators' meeting was held January 2, 1872. As I understand that these minutes are to go in as a part of the evidence, they will furnish you all the information you desire in regard to the organisation and proceedings of the company.
[The chairman stated that the witness could refer to the minutes as memoranda, and that the committee would determine hereafter as to whether they should be received as evidence.]
By Mr. Heydrick.
Q. For what object or business was the company organised?
A. For refining oil.
Q. That meeting was under the charter which has been presented?
A. That was the first meeting held after we got the charter.
Q. The gentlemen who attended that meeting on the second of January were those named in the act of the incorporation?
A. Yes, sir; they met and transferred the company under the charter over to tr stockholders.
Q. Did the incorporators named in the act transfer their interest to the stockholders, as you have stated on that occasion?
A. Yes, sir.
Q. What refining capacity does this company possess? State the amount of capital and stock subscribed and put in?
A. At that time 1,100 shares, at £100 per share, was subscribed, and twenty per cent, thereon paid into the treasury.
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Q. Where did that company intend to refine oil?
A. Their calculation was to get all the refineries in the country into the company.
Q. Was it the design of the stockholders to include all the oil refineries in this country?
A. Yes, sir; every one of them.
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Q. Can you give us a list of the stockholders?
A. I can give you them from the minutes. They are as follows:
10 shares 10 shares“ 10 shares“ 10 shares“ 10 shares“ 475 shares“ 475 shares“ 100 shares“ 180 shares“ 180 shares“ 180 shares“ 180 shares“ 180 shares“
2,000 shares By Mr. Sheldon.
Q. What was the idea of getting all the refineries of the country into one organisation?
A. The idea when the company started was this: There is a large number of refineries in the country—a great deal larger than is required for the manufacture of the oil produced in the country, or for the want of the consumers in Europe and America; the capacity of the oil refineries in the country is, I think, 45,000 or 50,000 barrels a day; we completed our organisation, and when we met together it was discovered that the parties present represented, in one way or another, a large portion of the refining interest in the country; of course all of us had our friends in the matter, who must be taken care of if any arrangement at all was made; and after discussing the matter at considerable length, it was decided to include within our company every refinery we could possibly get into it. We also had considerable discussion with the railroads in regard to the matter of rebate on their charges for freight; they did not want to give us a rebate unless it was with the understanding that all the refineries should be brought into the arrangement and placed upon the same level; there was no difference made as far as we were concerned, in favour of or against any refinery; they were all to come in alike; that was the understanding from the first to the last.
Q. Where are the refineries situated?
A. Situated in New York, Philadelphia, Baltimore, Boston, on the sea-board, and in the Oil Region, Pittsburg, and Cleveland.
Q. You say you made propositions to railroad companies, which they agreed to accept upon the condition that you could include all the refineries?
A. No, sir; I did not say that; I said that was the understanding when we discussed this matter with them; it was no proposition on our part; they discussed it not in the form of a proposition that the refineries should be all taken in, but it was the intention and resolution of the company from the first that that should be the result; we never had any other purpose in the matter.
Q. In case you could take the refineries all in, the railroads proposed to give you a rebate upon their freight charges?
A. No, sir; it was not put in that form; we were to put the refineries all in, upon the same terms; it was the understanding with the railroad companies that we were to have a rebate; there was no rebate given in consideration of our putting the companies all in, but we told them we would do it; the contract with the railroad companies was with us.
Q. But if you did form a company composed of the proprietors of all these refineries, you were to have a rebate upon your freight charges?
A. No; we were to have the rebate anyhow; but were to give all the refineries the privilege of coming in.
Q. You were to have the rebate whether they came in or not?
A. Yes, sir.
Q. Were you to have a rebate upon the same freight charges that had been in existence before ?
A. No; the whole object of the railroad authorities was to get better freight prices.
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Q. What effect was this arrangement to have upon the producer or upon the refineries that did not go into your combination?
A. According to our opinion of it that is the way we have got into this trouble; we have been misconstrued and misrepresented as to our purposes all over the country; the whole object was, and our whole talk was, as far as any of my friends came into the matter, or as far as I myself was concerned, that the producers should receive a better price for their oil; we calculated to get five or six dollars a barrel for crude oil; that was from the beginning of our talk until the end of it; we had not our company organised, or at least the organisation was not completed, nor the contract signed, until all these disturbances commenced to be gotten up; we thought the matter would quiet down and we would get a chance to explain our position and put ourselves right; we asked for the opportunity to do so; we have evidence of that in the telegrams we sent, and I can say, under oath, that they were sent in good faith; there was never an idea in my mind that they were not. . . . I will state further that this matter was discussed with Mr. Scott by myself, personally, and in very great length, and also with Mr. Potts, who never has had any interest and never any part in this contract, and who spoke of this very matter from the start, expressing the opinion that it could not succeed unless the producers were taken care of. That was understood by us all from the start in every discussion we had, and by the railroad people as far as I heard from them. I can only answer for the railroad people from the conversation I had personally with Mr. Scott and Mr. Potts, in which it was perfectly understood that we could not succeed in carrying out these measures for our own benefit and the benefit of the railroads without the co-operation of the producers, and the only point we discussed was whether it should be a combination or co-operation. I took the ground personally against forming a combination inasmuch as the interests of the producers were in one sense antagonistic to ours, one as the seller and the other as the buyer. We held in argument that the producers were abundantly able to take care of their own branch of the business if they took care of the quantity produced. They were only liable to depression from our production, therefore they had in their own hands directly the power of holding the market at six or eight dollars a barrel.
Q. You did not take into consideration the good of the consumers of the country, which is by far the larger part of the population of the country?
A. Yes, we did.
Q. You wanted to put up the price of oil?
A. In answer to that I will state that the producers and refiners were both suffering under the depression that existed. The refiners were not getting enough to pay their expenses. All we asked was a fair refiner's profit.
Q. What effect were these arrangements to have upon those who did not come into the combination or co-operation, as you have termed it, as to the price to be charged for transporting their oil, both refiners and producers?
A. I do not think we ever took that question up.
Q. Were the railroad companies to charge the same increase of freights to those who did not come into the combination that they did to you without giving them a rebate?
A. Yes, sir.
Q. Now in case you could control the oil produced by these people in any combination that you made, were you not to have a rebate upon the oil?
A. We were not to have a rebate, we were to have a drawback.
Q. What is the difference between a rebate and a drawback?
A. There is not much difference in one sense. A rebate is made at the time we pay our freight; a drawback is made afterward.
Q. That is a technical, rather than a real, difference, is it not?
A. I want to state it as you will find it in the contract.
Q. The effect was that those who did not go into the combination could not get their oil as cheaply as you could?
A. No, sir; they could not; I want to explain in what relation that occurred and why this arrangement was made. I may say that it never entered into my head that the refineries would not all be brought in; a fair manufacturer's profit was all we wanted. They were all to be brought in on equal terms, and the object of the drawback was not to cover all the oil to be refined in this country, but only the oil that was to be exported.
Q. If all had gone into the combination, then the result would not have been to injure the producers and refiners, but to injure the consumers of the country?
A. No, sir; the purpose was not to injure them.
Q. Would it not have been to increase the price of oil, if you had increased the cost of freight?
A. Yes, sir.
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Q. You say the railroad companies were going to increase the rate of freight anyhow; they had the right to do that if they were carrying too low, but would that justify them in increasing the rates of freight to such an extent that they could afford to give you a sum of money for it?
A. I will tell you how that was done. The men in our trade are a very hard kind of men to hold. Those of us who deal in oil know that when we have purchased a lot, they would deliver it in New York for less than anybody could afford to deliver it. That has been the fact almost continuously ever since 1869. Oil has been delivered in the East for less money than was apparent from any rates known to the market; less than even we who refined it could deliver it for. The railroads were kept constantly besieged by one or another, and they were continually cutting under other routes for New York or for Cleveland, so that nobody knew what the rates were. They have been paying rebates, more or less, for the last two years.
Q. And you contemplated an increase of rates for the simple purpose of having the railroads divide with you?
A. There was no divide.
Q. A rebate is a divide to a certain extent, is it not? The proposition was that there should be taken out of the producers and consumers of this country a certain percentage of the freight for you?
A. It was done to prevent this cutting of roads one under another, and to prevent speculation.
Q. Was it not done for the purpose of oppressing the producers and consumers of this country?
A. I can only deny that such was the object, or that such would have been the effect.
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Q. Has it been the practice of both the producer and refiner to make combinations from time to time by storing oils, and by large shipments abroad to affect the general price in the market?
A. The producers have made such combinations on the creek, and a few of the refiners and merchants made two combinations in 1868, which was known as the Deboe combination, and in 1869 and 1870 the Bull Ring, as they called it; but there was no combination that I knew of on the part of the producers, except among themselves; they have several times combined among themselves.
Q. Have there not been combinations of producers, refiners, and merchants to affect the price of oil?
A. There have been all kinds of combinations.
Q. Is there not at this time, if not invalidated by a change of directors of the Erie Railroad Company, a combination between officers of that road and certain parties in New York by which they control the price of coal?
A. If I were allowed to say what I think, I should reply in the affirmative and to say that one great reason why we went into this arrangement was to stop that Erie combination, which was a great source of difficulty; we could not get hold of the matter; we would ship a cargo of oil at a fair price to-day, and would be compelled to sell it to-morrow at a much less price; this arrangement did break up that combination entirely, so that there is no combination of that sort to-day.
By the Chairman.
Q. I understand that your larger combinations swallowed up the Erie combination.
A. It destroyed it at the time.
Q. Yours was somewhat in the direction of the Erie combination, but larger?
A. No, sir; it was not; the Erie was with some merchants, ours embraces the whole refining interest in the country; that was different; I will state that since I came into this Capitol I have been told that the very men engaged in prosecuting this investigation have a combination by which they intend to run up the price of their oil; I hope they will; I do not care what means are used, so that we can carry on our business, and pay just what others have to pay.
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Q. I understand you to say that under your arrangement the cost of crude oil might be increased $1.25 a barrel, and that there is produced about 18,000 barrels daily in the Oil Regions of Pennsylvania, but not that on an average; can you state from memory about the amount of annual production?
A. I have a circular here which gives the statement as 5,775,000 barrels.
Q. So that the production in round numbers for last year was 6,000,000 barrels; now, of this $1.25, how much were you to get as your drawback if you had carried out your arrangement?
A. The maximum we would have been entitled to receive is one dollar a barrel.
Q. Then on this production you would have received $6,000,000 a year, and the railroad companies an additional sum of $1,500,000; in other words, under your arrangement the public would have been put to an additional expense of $7,500,000 a year.
A. What public do you refer to? They would have had to pay it in Europe.
By Mr. Negley.
Q. Were there not at the same time combinations upon the part of producers to affect the price of oil in the market?
A. There were not at the time we started this matter; I do not know of any just at that moment; there have been over and over again. I want to state that a large portion of our oil product goes to Europe—of this very crude oil which Mr. Sheldon talks about; I have here a circular to which I call the attention of the committee, which bears out our position in this matter; I desire to put it in evidence because it gives the general opinion of merchants connected with the exportation of crude oil. It has been the impression of everybody in the trade that the oil exported should pay us an additional amount in this country, to be divided between those interested in the handling of it and the producing of it, to the extent of eight or ten millions a year; I have had that figured out three, or four, or five successive years. We have shown over and over again that that amount ought to be retained in this country. I have been engaged for several years in the oil business, and I have yet to sell one barrel to bear the market. I have always been upon the bull side of the market; I believe there ought to be in this country a better price for oil to every one engaged in it. In 1868, 1869, and 1870, there were movements in oil which brought to this country millions of dollars; and if the producers had refrained from sending forward their oil beyond the requirements of the market, the price would have been sustained. That has been the trouble always in making movements for a higher price. There is no man in this country who would not quietly and calmly say that we ought to have a better price for these goods.
By the Chairman.
Q. Do you mean a better price here, or a better price for that exported?
A. You could not get a better price for that exported without having a better price here.
Q. That is what the committee wants to know, whether it is necessary, in order to keep up the price abroad, to keep up the price at home?