Source: New International, Vol.5 No.7, July 1939, pp.213-216.
Transcription/Editing/HTML Markup: 2006 by Einde O’Callaghan.
Public Domain: George Novak Internet Archive 2006; This work is completely free. In any reproduction, we ask that you cite this Internet address and the publishing information above.
THE PETROLEUM INDUSTRY provides the classic example of monopoly in American economy. In the 1870’s John D. Rockefeller, Sr., destroyed his competitors and conquered the oil business by methods as cunning, cruel, and bloody as any warlord’s. For the next forty years his Standard Oil Trust was the greatest single economic power in the United States. By bribing politicians, poisoning public opinion, and exacting heavy tribute from the rest of American industry, it maintained an absolute supremacy in its own domain and exercized a mighty influence over the whole of American life.
The anti-monopolist forces directed their main attacks against the Standard Oil Octopus. In 1911 it appeared that their struggle had been crowned with victory. The United States Supreme Court decreed that this colossal combination of corporations should be dissolved. The trust-busters rejoiced. The death-warrant of the monster had been signed.
Contrary to their optimistic expectations, the execution of the Supreme Court’s order did not do away with Rockefeller’s monopoly. Out of the dismemberment of the former Standard Oil Trust has grown a new monopoly far greater than the old. Rebirth of Monopoly  tells how and why this remarkable regeneration took place.
Let the arms of an octopus be cut off and it will quickly develop new ones in their place. So long as the central organism remains intact, the octopus can not only survive but grow stronger and bigger than before. Precisely this happened with Standard Oil.
In accordance with the Supreme Court decree, the various segments of the Trust were severed from the parent body and set up as independent corporations. This division of the subordinate corporations however was far more formal than real, involving merely a rearrangement of stock ownership among allied financial interests. The individual companies maintained the same operating relationships as before, the directors appointed by the big stockholders and bankers holding competition down to a minimum. While outwardly conforming to the letter of the laws against price-fixing and trade agreements, the associated companies quietly flouted them.
The boom in the oil business preceding and during the world war led to the rise of several strong independent companies which began to challenge Standard’s sovereignty. But thanks to its control of the majority of pipelines, refineries, and markets, the Standard Oil group continued to do the bulk of the business. Soon, in order to extend their activities and compete effectively with their rivals, these large independents were one by one compelled to seek capital in the Eastern money markets where they fell into the same hands that held Standard Oil. Under the supervision of friendly affiliated financial interests, these larger corporations worked in comparative harmony, more or less content with their respective shares of an expanding market.
Meanwhile the dissolution decree and anti-trust laws, which allowed government officials to meddle in its private affairs, were a nuisance, if no real hindrance to the monopoly. The entrance of the United States into the World War gave Standard Oil its opportunity to get rid of these restraints. The vital oil industry was placed under the jurisdiction of the Fuel Administration; Mark Requa, a friend of the monopoly, was appointed Director of the Oil Division. Requa organized the National Petroleum War Service Committee of which A.R. Bedford, Chairman of the Standard Oil Company of New Jersey, was also Chairman. This Committee was a forerunner of the NRA idea by which industry was to “govern itself” under Federal supervision. In agreement with the Federal Trade Commission the anti-trust laws were suspended for the duration of the conflict; production quotas were assigned; prices fixed; selling pools promoted. Under cover of this perfect patriotic setup Standard Oil not only earned enormous profits but securely reestablished its monopoly grip upon the industry.
During the war Requa proposed that the government and oil companies should form a joint corporation to acquire oil properties in foreign lands, to build refineries and provide distribution facilities, and to keep reserves for the army and navy throughout the world. Although approved by the Democratic and Republican leaders, this grandiose scheme was shelved by the armistice. But it stands ready to be put into effect during the next conflict.
In 1919 the National Petroleum War Service Committee was transformed into the American Petroleum Institute. This was actually part of the public relations division of Rockefeller’s companies, which paid the high-salaried officials and subsidized its propaganda activities. The Institute aimed to eliminate all forms of governmental regulation from the oil industry and to rub the anti-trust laws off the statute books.
In the post-war period the center of competition within the industry shifted from the struggle waged between the Standard Oil group and the big independents to the struggle between a united front of these twenty major companies and the scattered twenty-thousand small operators.
The struggle between the “majors” and “independents” has since passed through several phases. Until about 1926 the small share of the total business taken by the lesser operators did not trouble the titans much. The market was expanding; supplies of crude oil were relatively scarce and prices controllable. During this period the Standard Oil spokesmen categorically condemned all governmental interference with the operations of their industry. “Conservation” was the main theme of their propaganda. The underlying motive in popularizing this deceptive slogan was not an unselfish concern for the preservation of a great national resource, as they claimed, but the safeguarding of their monopolist position by holding down the available supply of oil. Prompted by the Petroleum Institute, in 1924 President Coolidge established the Federal Oil Conservation Board to act in accord with the companies along these lines.
Shortly thereafter a division of opinion appeared among the major companies in regard to government regulation. While Standard experts continued to maintain that an oil shortage was the great danger facing the oil industry and the country, H.L. Doherty of Cities Services declared that the opposite was the case. Too much oil was being produced and only government authorities could check its flow into the overflooded market.
Subsequent developments proved Doherty to be correct. The concentration of pipe-line ownership in the hands of the few large integrated companies had enabled them to control the output and fix crude-oil prices. With the discovery of rich new fields in Oklahoma and elsewhere after 1926 from which oil could be transported by truck and tank-car to independent refineries and large consuming areas, the carefully adjusted price structure of the monopolists began to crumble. The large quantities of oil produced by independent operators and refiners with small overhead expenses enabled them to undercut Standard’s monopolist-maintained prices.
The octopus has an ink-sac with which it darkens the surrounding water at the approach of danger. The ink-sac of the Standard Oil octopus, the Petroleum Institute, promptly set to work obscuring the atmosphere and preparing for a reversal of policy on the question of government regulation. Whereas formerly the Institute had demanded “hands off” the industry, it now clamored, still under the slogan of “conservation”, for the curtailment of oil production. This proposal, according to Kemnitzer, was “nothing but a scheme to cut off the supply of the independent refiners, eliminate their competition, and pave the way for increased prices”. Nevertheless, government officials, the general public, and the liberal press fell for the plausible propaganda; only a few saw the ulterior monopolist motives behind such innocently presented arguments.
“Pro-ration” plans, which allocated production quotas to the producers in proportion to their size, were advocated by the agents of the big companies as a remedy for overproduction. But they were so obviously contrary to the anti-trust laws and met with such opposition from the smaller operators that they were not immediately adopted either by the states or Congress.
The dwindling markets caused by the depression dealt severe blows to the big companies with their tremendous organizations, huge inventories, and heavy capitalizations.
Their difficulties were augmented by the opening of new fields in East Texas in 1931. Prices dropped to 20 cents per barrel. To save the situation for the big companies the legislatures of Texas and Oklahoma passed emergency laws curbing oil production. The governors of these states instituted martial law and sent state troops into the oil fields to enforce official pro-ration plans.
These schemes rebounded to the benefit of the larger producers at the expense of the small producers. The restriction of output of the wells increased the cost per barrel to the producer and decreased the amount of oil available to the independent refiners, who possessed small capital, reserves, or storage capacities. Many independent producers and refiners, unable to get enough oil to meet overhead costs or amortize their investments, were either forced into bankruptcy or else handled illegally-produced “hot” oil, incurring the risks of criminal prosecution and heavy fines.
State regulation was only the beginning of the monopolist drive to regain control of production; their goal was federal regulation. What the monopolists had been unable to obtain under the Hoover administration, they quickly secured from Roosevelt. The NRA code of “fair competition”, drafted under the eye of administrator Moffett, recent Vice-President of the Standard Oil Company of New Jersey, gave legal sanction to the program of production control and price stabilization advocated by the majors. Thus through the NRA the Federal government became the direct tool of the oil monopolists. The independents organized and held wrathful meetings of protest at Washington to no avail; the National Recovery Review Board headed by Clarence Darrow sharply criticized the monopolistic aspects of the Petroleum Code yet nothing was done to correct them. Since the Supreme Court killed the NRA, the monopolists have sought – so far without success – to secure the passage of a Federal Petroleum Act to strengthen their positions. As before, they may have to await a war to regain them.
Even without legal sanction and governmental regulation, the twenty major companies headed by Standard Oil of New Jersey and including the Cities Service Company, Socony-Vacuum, Texas Corporation, Gulf, etc., manage to maintain monopoly over the industry now as in the past. They account for approximately 87% of the oil-business. They own or control more than 99% of the interstate trunk pipe-lines through which nearly 80% of the crude oil produced is transported. They own and produce approximately 52% of the current output of crude petroleum and control about 82% of the total supply of crude petroleum and about 90% of the reserves. They own most of the existing stocks and storage capacity and do nearly all the exporting and importing. They own or control all the most important patents and refining processes. Recalcitrant competitors are tied up in expensive and prolonged litigation over patents or beaten down by price wars.
These associated companies with nine hundred thousand stockholders are controlled by less than forty capitalist groups with interlocking interests. Their policies are determined by a small number of New York banks. Centralized management and enormous assets enable the giants to rule over the industry, to hold down available supplies, and to keep up monopolist prices.
Thus, despite seventy-five years of struggle, concludes Kemnitzer, the oil monopoly is today stronger than ever. An economic geologist, he speaks for the small producers whose interests he identifies with those of the people. His positive recommendations for bridling the monopolists are all made in their behalf.
Kemnitzer equates competition with political democracy; monopoly with oligarchy and dictatorship. There was a profound kinship between the era of free competition in industry and the flourishing of political democracy in the earlier stages of American capitalist society. But with the ascendancy of the great capitalist combinations in the decisive fields of economic life the one inexorably tends to disappear together with the other.
More than any other industry, the history of oil demonstrates that the forces of capitalist concentration may be hindered or delayed but they cannot be reversed.
In the oil industry the independent producers are fighting the same losing battle as the small producers in the automobile industry. The pigmies cannot stand up against the giants. Sooner or later they are compelled either to submit to their sway or to be pushed into bankruptcy. Even when one of the petty producers grows into a large one, it becomes, like Cities Service or Chrysler, part of the monopolist circle.
Kemnitzer realizes that “monopoly is a natural consequence of competition”. But he does not recognize the full consequences of this fact. He places his hopes of salvation for the independent producer in Federal supervision. “Government must regulate monopoly,” he declares, “or monopoly will regulate the government.” Experience has already shown which will prevail. The government has twice intervened in the operations of the oil industry, first during the war and then during the NRA. Both times its policies operated to the exclusive advantage of the monopolists.
The influence of the oil magnates upon governmental policy is even more clearly revealed in the field of foreign affairs. The Republican Stimson’s sharp note of protest to Japan in 1931 over the oil situation in Manchuria, the Democratic Hull’s diplomatic representations to the Mexican government regarding its expropriations of the oil companies, the official furore over the sinking of the gunboat Panay which was escorting Standard Oil tankers up the Yangtse – these actions were taken in the direct interest of the Oil Octopus.
In response to the pressure from industrialists exploited by the oil monopolists, from the small operators, and the general public, governmental executives make occasional efforts to curb monopolist practises in the oil industry. But these are spasmodic and ineffectual. In the latest of these attempts, the suit won by the government in 1935 at Madison, Wisconsin, the majors were found guilty of conspiracy in restraint of trade. But this decision has been appealed and a new trial is still pending. During the long-drawn-out litigation the monopolies work as merrily as before. And even if the decision is confirmed in the highest courts, will it be any more binding than the drastic decision of 1911?
The decisive struggle against the oil monopoly is not that conducted by the little capitalist operators upon which Kemnitzer concentrates his attention. Of far greater importance is the struggle between the capitalist owners as a whole and the workers in the oil industry, on the one hand, and the American people on the other.
The Oil Octopus constitutes a major menace to the American people. It provides much of the wealth and power of the top ranks of America’s sixty ruling families, the Rockefellers, Morgans, Mellons, Flaglers, Harknesses, etc. It takes its tolls from every consumer of oil and gasoline products; it dictates governmental policies on the most vital questions; it causes incalculable mischief by its intrigues and operations abroad. There is hardly a corner of national life or a foreign country into which its tentacles do not reach.
Although Kemnitzer does not deal with the international activities of the oil companies, they are in many respects even more dangerous than their domestic operations. The Panay incident, among others, indicates how the Standard Oil interests abroad help provoke the impending imperialist war, which will turn out to be no less beneficial to the Oil Octopus than the last.
Anti-trust laws and Supreme Court edicts have proved powerless to restrain this mighty monster; governmental regulations, far from strangling it, have helped promote its growth. Obviously, more radical methods are required to rid the country of this pernicious parasite. The Octopus will not submit to control; it must be killed.
1. Rebirth of Monopoly, by William J. Kemnitzer. Harper & Bros. 1931. 261 pp.
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