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The Petroleum Industry in Transition: Antitrust and the Decline of Monopoly Control in Oil

Published online by Cambridge University Press:  11 May 2010

Joseph A. Pratt
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Extract

The discovery of vast oil fields in Texas after 1901 encouraged competition in an industry previously dominated by Standard Oil of New Jersey. The manner in which the state of Texas enforced its antitrust and corporation laws hastened the growth of several major new oil companies, most notably Gulf Oil and The Texas Company, by constraining the activities of Standard in the new fields. In so doing, these Texas laws shaped the transition from near monopoly to near oligopoly in the oil industry. Such beneficial results of state laws were, however, largely accidental, since weaknesses in the government's capacity to monitor changes in the burgeoning industry undermined its ability to define and implement systematic regulatory policies. Problems of adjustment that accompanied government's early efforts to regulate market structure in oil have continued to hamper subsequent efforts to regulate other aspects of the industry's operations.

Type
Articles
Information
The Journal of Economic History , Volume 40 , Issue 4 , December 1980 , pp. 815 - 837
Copyright
Copyright © The Economic History Association 1980

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References

1 For several strong proponents of antitrust, see Blair, John, The Control of Oil (New York, 1976)Google Scholar and Medvin, Norman, The Energy Cartel (Washington, D.C., 1976)Google Scholar. For a history of antitrust in oil, including documents, see Kaufman, Burton, The Oil Cartel Case (Westport, CT, 1978)Google Scholar.

2 For a collection of views on recent attempts at divestiture in the oil industry, see Reigeluth, George and Thompson, Douglas, eds., Capitalism and Competition: Oil Industry Divestiture and the Public Interest (Baltimore, 1976)Google Scholar.

3 For a detailed account of both federal and state antitrust cases against Standard Oil at the turn of the century, see Bringhurst, Bruce, Antitrust and the Oil Monopoly: The Standard Oil Cases, 1890–1911 (Westport, CT, 1979)Google Scholar.

4 Works that reflect reform views are discussed briefly in Williamson, Harold and Andreano, Ralph, “Competitive Structure of the American Petroleum Industry, 1890–1911: A Reappraisal,” Staff of Business History Review, eds., Oil's First Century (Boston, 1960), pp. 71–84Google Scholar.

5 The three volumes of the History of Standard Oil Company (New Jersey) are: Hidy, Ralph and Hidy, Muriel, Pioneering in Big Business, 1882–1911 (New York, 1955)Google Scholar; Gibb, George and Knowlton, Evelyn, The Resurgent Years, 1911–1927 (New York, 1956)Google Scholar; and Larson, Henrietta, Knowlton, Evelyn, and Popple, Charles, New Horizons, 1927–1950 (New York, 1971)Google Scholar. See also Larson, Henrietta and Porter, Kenneth, The History of Humble Oil and Refining Company (New York, 1959)Google Scholar. The citation for the two-volume history of the American petroleum industry is as follows: Williamson, Harold and Daum, Arnold, The Age of Illumination, 1859–1899 (Evanston, IL, 1959)Google Scholar and Williamson, Harold, Andreano, Ralph, Daum, Arnold, and Klose, Gilbert, The Age of Energy, 1899–1959 (Evanston, IL, 1963)Google Scholar.

6 In particular, see McLean, John and Haigh, Robert, The Growth of Integrated Oil Companies (Boston, 1954)Google Scholar; Staff of the Business History Review, eds., Oil's First Century, and Johnson, Arthur, “The Early Texas Oil Industry-Pipelines and the Birth of an Integrated Oil Industry, 1901–1911,” Journal of Southern History, 32 (Nov. 1966), 516–28Google Scholar.

7 Andreano, Ralph, “The Emergence of New Competition in the American Petroleum Industry” (Ph.D. diss., Northwestern Univ., 1960)Google Scholar. See also Harold Williamson, et al., The Age of Energy, p. 5.

8 The size of the field, its location near the Gulf coast, and Texas laws prohibiting Standard's open entry into Texas are cited as reasons for Spindletop's importance. See Pratt, Joseph, The Growth of a Refining Region (Greenwich, CT, 1980), pp. 33–60Google Scholar. See also Henrietta Larson and Kenneth Porter, History of Humble Oil, p. 13; Harold Williamson, et al., The Age of Energy, pp. 16 and 97. For a general account of the development of the Spindletop field, see Clark, James and Halbouty, Michel, Spindletop (New York, 1952)Google Scholar.

9 Henrietta Larson, “The Rise of Big Business in the Oil Industry,” in Oil's First Century, pp. 38–40.

10 Harold Williamson, et al., The Age of Energy, p. 76.

11 Ralph and Muriel Hidy, Pioneering in Big Business, p. 394. At this point, it is essential to acknowledge the debt that any student of the history of the oil industry owes to the last generation of petroleum scholars. Their excellent research prepared the way for subsequent work by scholars with different perspectives.

12 For Chandler's treatment of antitrust, see Chandler, Alfred D. Jr., Strategy and Structure (Cambridge, MA, 1962), pp. 383–86Google Scholar. Also, Chandler, Alfred D. Jr., The Visible Hand: The Managerial Revolution in American Business (Cambridge, MA, 1977), pp. 350–53, 373–76Google Scholar.

13 Reigeluth and Thompson, eds., Capitalism and Competition, pp. 8–9. Chandler's quotation is from a paper delivered as a historical introduction to a symposium on the feasibility of antitrust as a public policy toward the oil industry in the late 1970s.

14 For general background on the passage of the Texas antitrust law of 1889, see Barr, Alwyn, Reconstruction to Reform: Texas Politics, 1876–1906 (Austin, 1971), p. 108Google Scholar. For a description of efforts to enforce the antitrust law as it applied to the Texas oil industry, see Bringhurst, Antitrust and the Oil Monopoly, pp. 40–68. See also, King, John O., Joseph S. Cullinan: A Study in Leadership in the Texas Petroleum Industry, 1897–1937 (Nashville, 1970), pp. 112–45Google Scholar; Lightfoot, Jewel, Anti-Trust Laws of Texas (Austin, 1907)Google Scholar; Seager, H.R. and Gulick, Charles Jr., Trust and Corporation Problems (New York, 1929)Google Scholar; Finty, Tom Jr., Anti-Trust Legislation in Texas: An Historical and Analytical Review of the Enactment and Administration of the Various Laws Upon the Subject (Dallas, 1916)Google Scholar; and Allison, John, “Survey of the Texas Antitrust Laws,” Antitrust Bulletin, 20 (Summer 1975), 215–308Google Scholar.

15 On the eve of the Spindletop discovery, Standard Oil dominated all phases of the oil industry in the United States. In 1899 Standard still controlled about 85 percent of crude supplies, 80 percent of refining capacity, 85 percent of the market for kerosene—the most important refined product of that time—and most of the pipeline and tanker capacity in the nation. See Harold Williamson, et al., The Age of Energy, p. 7.

16 For contemporary accounts of the controversy, see Cocke, William A., The Bailey Controversy in Texas, 2 vols. (San Antonio, 1908)Google Scholar and Crawford, W.L., Crawford on Baileyism (Dallas, 1907)Google Scholar. For historical accounts, see Acheson, Sam, Joe Bailey, The Last Democrat (New York, 1932)Google Scholar; Holcomb, Bob, “Senator Joe Bailey, Two Decades of Controversy” (Ph.D. diss., Texas Technological College, 1968)Google Scholar; and Bringhurst, Antitrust and the Oil Monopoly, pp. 40–68.

17 A summary of this investigation was published as U.S. Bureau of Corporations, Report of the Commissioner of Corporations on the Petroleum Industry, 2 vols. (Washington, D.C., 1907)Google Scholar. The records of the investigation are in Record Group 122, Records of. the Bureau of Corporations, National Archives, Washington, D.C.

18 Lightfoot, Ami-Trust Laws of Texas, p. 51.

19 Oil Investors' Journal (September 15, 1903), 4. See also undated newspaper clipping, file marked “1902-The Texas Co. (Ancient History, Clippings, etc.),” Box 14, Papers of James Lockhart Autry, Rice University, Houston, Texas.

20 See, for example, Oil Investors' Journal (December 15, 1902), 10; ibid. (November 1, 1904), 6; ibid. (May 18, 1905) 6–8; Port Arthur Herald (May 4, 1901), 1; and Beaumont Enterprise (January 17, 1901), 1.

21 Oil Investors' Journal (January 15, 1903), 3. For Texaco's statement and a response, see Arnold Schlae to Joseph Cullinan, letter dated March 6, 1903, vol. 2, Texas Company Archives, in the Texas Company Archives, White Plains, New York.

22 For the comments of local papers on Ida Tarbell's articles see, for example, Oil Investors' Journal (December 15, 1902), 5.

23 Oil Investors' Journal (January 1, 1903), 3. This journal is the forerunner of the. Oil and Gas Journal, and it established a widespread reputation for accuracy from its earliest issues.

24 Beaumont Daily Enterprise (April 4, 1901), 1.

25 Beaumont Daily Enterprise (April 12, 1901), 2; (April 13, 1901), 1.

26 Port Arthur Herald (May 4, 1901), 1.

27 Throughout the early years after Spindletop, it appears that almost everyone connected with the Texas oil industry knew of Standard's role. In fact, most seemed to assume that Standard's involvement went beyond control of Security to include a measure of control over other major companies active in Texas.

28 Oil Investors' Journal (November 19, 1907), 12.

29 Support for this conclusion comes from Oil Investors' Journal (December 15, 1902), 10; (May 15, 1903), 12. For interviews with the managers of many of the small companies at Spindletop, see Bureau of Corporation's Petroleum Investigation, Record Group 122, National Archives, Washington, D.C.

30 File 3386, “Texas Shipments of Domestic Petroleum by Vessels,” Bureau of Corporation's Petroleum Investigation, Record Group 122, National Archives, Washington, D.C.

31 Oil Investors' Journal (February 6, 1909), 59; (April 20, 1909), 1 and 24. See also, Mobil Oil Company Publications Staff, “History of the Refining Department of the Magnolia Petroleum Company” (Beaumont, TX, n.d.). A copy is filed in the library of the Mobil refinery at Beaumont.

32 Information on these events comes from several sources. See, for example, Oil Investors' Journal (November 19, 1907), 12. For a somewhat confused account of Magnolia's problems with the Texas antitrust laws in this period, see Wallace, Charles, Nine Lives: The Story of the Magnolia Companies and the Anti-Trust Laws (Dallas, 1953)Google Scholar. See also, File 1–1434–3, Federal Trade Commission's Oklahoma Oil Investigation, Record Group 122, National Archives, Washington, D.C.

33 Joseph Cullinan to Arnold Schlaet, letter dated May 5, 1904, vol. 30, Texas Company Archives, Texas Company Archives, White Plains, NY.

34 Arnold Schlaet to Joseph Cullinan, letter dated September 26, 1904, vol. 34, Texas Company Archives, Texas Company Archives, White Plains, NY.

35 For an excellent account of this process, see McLean and Haigh, The Growth of Integrated Oil Companies. For a slightly different interpretation of the move toward vertical integration in oil, see de Chazeau, Melvin G. and Kahn, Alfred, Integration and Competition in the Petroleum Industry (New Haven, CT, 1959), pp. 75–118Google Scholar.

36 The best source of biographical information on Texaco employees is a bound volume of biographical sketches filed in the Texas Company Archives in White Plains, New York. For Gulf Oil, see Mellon, W.L., Judge Mellon's Sons (Pittsburgh, 1948), pp. 161 and 275Google Scholar. For a thorough account of Cullinan's role, see King, Joseph S. Cullinan. For information on Security's early employees, see Mobil Oil Publications Staff, “History of the Refining Department of the Magnolia Petroleum Company.”

37 Texaco and Gulf Oil avoided potential legal problems by never formally absorbing the producing companies that supplied their crude oil. Instead, individual stockholders in the two large companies bought substantial blocks of stock in these smaller “independent” producing concerns.

38 Mellon, Judge Mellon's Sons, pp. 269–70.

39 For material on this proposed merger, see John O. King, Joseph S. Cullinan, pp. 159–83. See also, Joseph Cullinan to J. W. Gates, letter dated March 8, 1905, Drawer 1-A, Papers of Joseph Stephen Cullinan, Metropolitan Research Center, Houston Public Library, Houston, Texas.

40 King, Joseph S. Cullinan, pp. 124–25.

41 Fisher to Joseph Cullinan, letter dated April 18, 1903, Drawer A-2, Cullinan Papers.

42 Arnold Schlaet to Joseph Cullinan, letter dated January 20, 1904, vol. 23, Texas Company Archives; Schlaet to Cullinan, letter dated September 29, 1903, vol. 19, Texas Company Archives; Schlaet to Cullinan, letter dated December 24, 1903, vol. 21, Texas Company Archives; Schlaet to Cullinan, letter dated September 26, 1904, vol. 35, Texas Company Archives. All of the above volumes are located in the Texas Company Archives, White Plains, NY.

43 Memo dated March 2, 1903, Drawer A-l, Cullinan Papers.

44 Newspaper clippings, vol. 49, Texas Company Archives, p. 82. See, also, King, Joseph S. Cullinan, p. 123.

45 Interview with C.H. Ruhl dated June 2, 1905, Drawer 396, folder 3203, part 1, Bureau of Corporations Petroleum Investigation, Record Group 122, National Archives, Washington, D.C. See also, Beaton, Kendall, Enterprise in Oil: A History of Shell in the United States (New York, 1957), p. 48Google Scholar

46 Antitrust is an issue that looks dramatically different from different vantage points. To reformers on the lookout for corporate abuses, the history of antitrust all too often appears to be a history of missed opportunities. To oil executives, however, the same events are viewed as evidence of an ongoing antitrust tradition that has been all too effective while remaining a constant threat to their operations.

47 A. W. Clem (General Manager, Clem Oil Company) to R.V. Davidson (Attorney General of Texas), letter dated November 17, 1906, “December 1905-July 1907-Anti-Trust letters” file, Box 4–8/ 386, Attorney General's Correspondence, Record Group 302, Texas State Archives, Austin, Texas.

48 Joseph Cullinan to James R. Garfield, letter dated June 20, 1905, Bureau of Corporations Numerical File 3208, Record Group 122, National Archives, Washington, D.C.

49 Arthur Johnson, “Public Policy and Concentration in the Petroleum Industry, 1870–1911,” in Oil's First Century, pp. 57–70.

50 W.J. Weaver to P.P. Vanulett, letter dated June 7, 1909, “June 1907-November 1909, K-V, Anti-Trust Letters” file, Box 4–8/396, Attorney General's Correspondence, Record Group 302, Texas State Archives, Austin.

51 For an overview of the Bureau of Corporation's investigations, see Johnson, Arthur, “Theodore Roosevelt and the Bureau of Corporations,” Mississippi Valley Historical Review, 45 (March 1959), 571–90CrossRefGoogle Scholar.

52 John Porter Hollis to Commissioner of Corporations, Report No. 2, July 29, 1906, Bureau of Corporations Numerical File 3208, Record Group 122, National Archives, Washington, D.C.

53 J. Edgar Pew to J. Howard Pew, letter dated February 17, 1904, “J.E. Pew, January-May 1904” folder, Series 21–A, Administrative Files, Sun Oil Collection, Eleutherian Mills Historical Library, Wilmington, Delaware.

54 Testimony of Clay Arthur Pierce, “The State of Texas versus Waters-Pierce Oil Company-Stenographer's Report,” “Attorney General, 1906—General Files,” Box 2–10/603, Attorney General's Correspondence, Record Group 302, Texas State Archives, Austin.

55 James Autry to Joseph Cullinan, letter dated May 12, 1904, “1904” folder, Box 27, Papers of James Lockhart Autry, Rice University, Houston, Texas.

56 Annual Report of the Comptroller of Public Accounts of the State of Texas for the Year Ending August 31, 1900 (Austin, 1900), p. 123Google Scholar,

57 A.W. Whitfield, Jr. to Jewel Lightfoot, letter dated June 21, 1909, “June 1907-November 1909, K-V, Anti-Trust Letters” file, Box 4–8/396, Attorney General's Correspondence, Record Group 302, Texas State Archives, Austin. See also, Bringhurst, Antitrust and the Oil Monopoly, pp. 89–107.

58 In this way, politicians avoided—at least temporarily—the conflicting views toward antitrust that Ellis Hawley has discussed in detail in analyzing the confusion of purpose in the enforcement of antitrust laws in the 1930s. See Hawley, Ellis, The New Deal and the Problem of Monopoly (Princeton, 1966)CrossRefGoogle Scholar.

59 James Autry to Joseph Cullinan, letter dated May 12, 1904, “1904” folder, Box 27, Papers of James Lockhart Autry, Rice University, Houston, Texas.

60 James Autry to John Porter Hollis, letter dated June 3, 1905, Bureau of Corporations Numerical File 3208, Record Group 122, National Archives, Washington, D.C.