Modern history

CHAPTER 11

From Shortage to Surplus: The Age of Gasoline

IN 1919, a U.S. Army captain, Dwight D. Eisenhower, depressed by the tedium and the scrimping that seemed likely to be the chronic condition of peacetime military life, gave some thought to leaving the Army to take up a job offer in Indianapolis from an Army buddy. But then he heard that the Army wanted an officer to join a cross-country motor caravan that was being organized to demonstrate the potential of motor transportation and to dramatize the need for better highways. He volunteered, if only to relieve his boredom and to arrange a cheap family vacation in the West. “A coast-to-coast convoy,” he later said, “was, under the circumstances of the time, a genuine adventure.” He was to remember the trip as “Through Darkest America with Truck and Tank.”

The journey started on July 7, 1919, with the dedication of Zero Milestone, just south of the White House lawn. Then the caravan took off. It included forty-two trucks; five staff, observation, and reconnaissance passenger cars; and a complement of motorcycles, ambulances, tank trucks, mobile field kitchens, mobile repair shops, and Signal Corps searchlight trucks. The vehicles were in the hands of drivers whose language, as well as driving skills, suggested, at least to Eisenhower, that they were more familiar with teams of horses than the internal combustion engine. The first three days, the convoy managed five and two thirds miles an hour—“not quite so good,” said Eisenhower, “as even the slowest troop train.” It never got much better. The record of the trip was a log of broken axles, broken fan belts, broken spark plugs, and broken brakes. As for the roads, they varied, “from average to nonexistent,” said Eisenhower. “In some places, the heavy trucks broke through the surface of the road and we had to tow them out one by one, with the caterpillar tractor. Some days when we had counted on sixty or seventy or a hundred miles, we would do three or four.”

Having left Washington on July 7, the caravan did not arrive in San Francisco until September 6, where the drivers were greeted with a parade, followed by a speech by the Governor of California, who compared them to the “Immortal Forty-Niners.” Eisenhower was looking ahead. “The old convoy,” he recalled “had started me thinking about good, two lane highways.” Eventually, three and a half decades later, he would, as President of the United States, champion a vast system of interstate highways. But in 1919, Eisenhower’s snail-paced mission “Through Darkest America” signified the dawn of a new era—the motorization of the American people.1

“A Century of Travel”

“This is a century of travel,” Henri Deterding had written in 1916 to one of the senior Shell executives in the United States, “and the restlessness which has been created by the war will make the desire for travel still greater.” His prediction was quickly borne out in the post–World War I years, with consequences that transformed not only the oil industry, but indeed, the American and then the global way of life.

The transformation occurred with astonishing rapidity. In 1916, the year of Deterding’s prophecy, some 3.4 million autos were registered in the United States. But, through the 1920s, with peacetime prosperity at hand, the cars were rolling off the assembly lines in ever more staggering numbers. By the end of the decade, the number of registered cars in America had zoomed to 23.1 million. Each of those cars was being driven farther and farther each year—from an average of 4,500 miles per car in 1919 to an average of 7,500 in 1929. And each of those cars was powered by gasoline.

The face of America was changed by the vast invasion of automobiles. In Only Yesterday, Frederick Lewis Allen presented a portrait of the new visage of the 1920s. “Villages which had once prospered because they were ‘on the railroad’ languished with economic anemia; villages on Route 61 bloomed with garages, filling stations, hot-dog stands, chicken-dinner restaurants, tearooms, tourists’ rests, camping sites and affluence. The interurban trolley perished. … Railroad after railroad gave up its branch lines. … In thousands of towns, at the beginning of the decade a single traffic officer at the junction of Main Street and Central Street had been sufficient for the control of traffic. By the end of the decade, what a difference!—red and green lights, blinkers, one-way streets, boulevard stops, stringent and yet more stringent parking ordinances—and still a shining flow of traffic that backed up for blocks along Main Street every Saturday and Sunday afternoon … the age of steam was yielding to the gasoline age.”

The impact of the automobile revolution was far greater on the United States than anywhere else. By 1929, 78 percent of the world’s autos were in America. In that year, there were five people for each motor vehicle in the United States, compared to 30 people per vehicle in England and 33 in France, 102 people per vehicle in Germany, 702 in Japan, and 6,130 people per vehicle in the Soviet Union. America was, indubitably, the leading land of gasoline. The change in the basic orientation of the oil industry was no less dramatic. In 1919, total United States oil demand was 1.03 million barrels a day; by 1929, it had risen to 2.58 million barrels, a two-and-a-half-times increase. Oil’s share of total energy consumption had over the same period risen from 10 to 25 percent. By far the biggest growth was registered by gasoline—more than a fourfold increase. Gasoline and fuel oil together accounted for fully 85 percent of total oil consumption in 1929. As for kerosene, its production and consumption were negligible by comparison. The “new light” had given way to the “new fuel.”2

“The Magic of Gasoline”

The transformation of America into an automotive culture was accompanied by a truly momentous development: the emergence and proliferation of a temple dedicated to the new fuel and the new way of life—the drive-in gasoline station. Before the 1920s, most gasoline was sold by storekeepers, who kept the motor fuel in cans or other containers under the counter or out in back of the store. The product carried no brand name, and the motorist could not be sure if he was getting gasoline or a product that had been adulterated with cheaper naphtha or kerosene. Moreover, such a system of distribution was cumbersome and slow. In the infancy of the auto age, some retailers experimented with gasoline wagons that delivered fuel from house to house. That idea never really caught on, partly because of the frequency with which the wagons tended to explode.

There had to be a better way, and there was—the drive-in station. The signal honor of building the first drive-in station is attributed to several different pioneers, but according to the National Petroleum News, the distinction belonged to the Automobile Gasoline Company in St. Louis in 1907. The oil trade publication reported in a small story tucked on an inside page, under the headline “Station for Autoists,” that “a new way of reaching the auto gasoline trade direct is being tried with reported success in St. Louis by the Auto Gasoline Co.” The oil man who brought the innovation to the editor’s attention had chortled and said, “Now get a good laugh out of this dump.” While the editor never personally saw the first station, he did visit Automobile Gasoline’s second station in St. Louis, and it was, in his view, truly a dump. A small tin shack housed a couple of barrels of motor oil. Outside, two old hot-water tanks were set on high brackets, with lengths of garden hose from each so as to drain the gasoline by gravity into automobile tanks. The whole operation was set on a muddy corner lot. That was pretty much what all the early stations looked like—small, cramped, dirty, ramshackle structures, equipped with one or two tanks, and barely accessible to the street via a narrow, unpaved path.

The real growth and development of the gas station did not come until the 1920s. In 1920, certainly no more than 100,000 establishments sold gasoline; fully half of them were grocery stores, general stores, and hardware stores. Few of those stores were selling gasoline a decade later. In 1929, the estimated number of retail establishments selling gasoline had grown to 300,000. Almost all of them were gas stations or garages. The number of drive-in gasoline stations, specifically, had grown from perhaps 12,000 in 1921 to about 143,000 in 1929.

The stations were everywhere—big city street corners, main streets in small towns, country crossroads. East of the Rockies, such facilities were called “filling stations”; west of the Rockies, they were known as “service stations.” And their future was heralded when, in 1921, a celebrated super station opened in Fort Worth, Texas, with eight pumps and three different approaches from the street. But California, and specifically Los Angeles, was the true incubator of the modern service station, a standard structure with huge signs, restroom facilities, canopies, landscaped grounds, and paved entrances. The standardized “cracker box” gasoline stations, pioneered by Shell, proliferated at an astonishing rate across the nation, and by the end of the 1920s, they were making money not only from gasoline sales but also from what were called “TBA”—tires, batteries, and accessories. Standard of Indiana was turning stations into grander emporiums that sold a whole range of petroleum products in addition to gasoline, from motor oil to furniture polishes to oil for sewing machines and vacuum cleaners. A new type of pump quickly became the order of the day all across the country, one in which the gasoline was forced into a glass bowl atop the pump, where it could be seen by the customer, reassuring him as to the purity of the product, before it flowed through the hose and into the fuel tank of his car.

And, as the service stations spread and competition heated up, they hoisted aloft the signs and symbols of the new age: Texaco’s star, Shell’s scallop shell, Sun’s radiant diamond, Union’s “76,” Phillips’s “66” (suggested not only by the highway, but by Heinz’s “57 Varieties”), Socony’s flying horse, Gulfs orange disc, Standard of Indiana’s red crown, Sinclair’s brontosaurus, and Jersey Standard’s patriotic red, white, and blue. Competition forced the oil companies to develop trademarks to assure national brand identification. They became the icons of a secular religion, providing drivers with a feeling of familiarity, confidence, and security—and of belonging—as they rolled along the ever-lengthening ribbons of roads that crossed and crisscrossed America.

Gas stations were also the source for what one expert described as “uniquely American contributions to the development and growth of cartography”—the oil company road map. The first road map specifically directed toward the automobile was probably the one that appeared in the Chicago Times Herald in 1895 for a fifty-four-mile race that the newspaper was sponsoring. But it was only in 1914, when Gulf was opening its first gasoline station in Pittsburgh, that a local advertising man suggested handing out free maps of the region at the facility. The idea caught on rapidly as Americans took to the road in the 1920s, and the maps soon became staples.

Customers were courted with many other amenities and attractions. By 1920, Shell of California was providing free uniforms to attendants and paying for up to three launderings a week. It prohibited the attendants from reading magazines and newspapers while on duty, and its manual forbade the accepting of tips: “Air and water service is a gratuity which you are expected to render the public, showing no distinction as to whether the individual is a Shell customer or not.” By 1927, the “service station salesmen,” as they were called, were expected to ask the customer, “Can I check the tires for you?” They were also forbidden to allow “personal opinions and prejudices” to get in the way of service: “Salesmen should be careful in their attendance upon Oriental and Latin classes of customers and refrain from using broken English in conversation with them.”

Advertising and publicity helped create the major regional and national brands. And it was Bruce Barton, an advertising man, who sought to carry the sale of gasoline to its most uplifting heights. Barton spoke with immense authority. He had already assured himself immortality of sorts with The Man Nobody Knows, the nation’s number-one best seller in both 1925 and 1926, which proved that Jesus was not only “the most popular dinner guest in Jerusalem,” but also “the founder of modern business,” and “the greatest advertiser of his day.” Now, in 1928, Barton called upon oil men to reflect upon “the magic of gasoline.” He urged them to “stand for an hour beside one of your filling stations. Talk to the people who come in to buy gas. Discover for yourself what magic a dollar’s worth of gasoline a week has worked in their lives.

“My friends, it is the juice of the fountain of eternal youth that you are selling. It is health. It is comfort. It is success. And you have sold merely a bad smelling liquid at so many cents per gallon. You have never lifted it out of the category of a hated expense. … You must put yourself in the place of the man and woman in whose lives your gasoline has worked miracles.”

The miracle was that of mobility; people could go where they wanted whenever they wanted. This was an uplifting message for men in the oil business, who worried about margins, volumes, inventories, market share, and greasy uniforms. If not quite a religion, the sale of gasoline at retail outlets had become, by the end of the decade, a big and very competitive business.3

The Tempest in the Teapot

Because the price of gasoline now affected the lives and fortunes of so many Americans, it became axiomatic by the 1920s that gasoline prices, whenever they went up, would become a source of rancor, a subject to be reported by the press, discussed by governors and senators and even presidents, and investigated by various branches of the U.S. government. In 1923, after a price run-up, the populist Senator from Wisconsin, Robert (“Fighting Bob”) La Follette, conducted highly charged hearings on gasoline prices. He and his subcommittee warned that, “if a few great oil companies” were permitted to continue “to manipulate oil prices for the next few years, as they have been doing since January 1920, the people of this country must be prepared, before long, to pay at least $1 a gallon for gasoline.” His warning would lose much of its punch as surplus mounted and gasoline prices plummeted. In April 1927, retail gasoline prices fell to thirteen cents a gallon in San Francisco, and to ten and a half cents in Los Angeles, a far cry from La Follette’s dire prediction.

But, if La Follette was off-base about the dynamics of gasoline prices, he was directly on target in another drama, of which his investigation into gasoline prices was only a sideshow. For he led the initial crusade in the Senate that uncovered one of the most famous and bizarre scandals in the nation’s history—Teapot Dome.

Teapot Dome in Wyoming, named for the shape of a geological structure, was one of three oil fields (the other two were in California) that had been set aside as “naval oil reserves” by the Taft and Wilson Administrations as one result of the pre–World War I debate about converting the U.S. Navy from coal to oil. The argument had been similar to the simultaneous one in Britain, which had so engaged Winston Churchill, Admiral Fisher, and Marcus Samuel. While recognizing the superiority of oil over coal and, of course, acknowledging the preeminent position of the United States when it came to production, the Americans, like the British, had worried greatly about the possibility of what one American naval officer called a “failure of supply … menacing the mobility of the fleet and the safety of the nation.” What would happen if oil gave out at the critical moment? Yet the advantages of petroleum were irresistible, and the decision was made to convert the United States fleet, with the key year being 1911, the same year as in Britain. The next year, in order to alleviate the supply anxieties, Washington began to establish the naval petroleum reserves in areas of potential production. They were to constitute “a supply laid up for some unexpected emergency,” which could be brought into production in time of war or crisis. But there had been a long battle in Washington over the establishment of these reserves and about whether private interests would be able to lease them for partial exploitation. That debate was, in turn, part of a continuing public policy battle in twentieth-century America between those championing the development of resources on public lands by private interests, and those advocating the conservation and protection of those resources under the stewardship of the Federal government.

When Warren G. Harding, chosen as the Republican candidate because among other reasons he “looked like a President,” won the White House in 1920, he sought, like any good politician, to appeal to both sides in the resource debate, celebrating “that harmony of relationship between conservation and development.” But, in selecting Senator Albert B. Fall from New Mexico to be Secretary of the Interior, Harding could hardly disguise his choice of development over conservation. Fall was a successful and politically powerful rancher, lawyer, and miner—“the frontiersman, the rough and ready, two-fisted fighter,” said one magazine, “who looks like an old-time Texas sheriff and is said to have handled a gun in his younger days with all the speed and accuracy of a Zane Grey hero.” Fall’s “belief in the unrestrained disposition of the public lands was as typically Western as his black, broad-brimmed Stetson hat and his love of fine horses.” Those on the other side of the debate saw Fall differently. He was described as a member of the “exploitation gang” by one leading conservationist. “It would have been possible to pick a worse man for Secretary of the Interior,” the conservationist added, “but not altogether easy.”

Fall succeeded in wresting control of the naval oil reserves away from the Navy Department and placing it in the Interior Department. The next step would be to lease the reserves to private companies. His activities had not gone unnoticed. In the spring of 1922, just before the leases were signed, Walter Teagle of Standard Oil unexpectedly appeared in the office of advertising man Albert Lasker, who had directed Harding’s campaign publicity and was, at the time, head of the United States Shipping Board. “I understand,” Teagle told Lasker, “the Interior Department is about to close a contract to lease Teapot Dome, and all through the industry it smells. I’m not interested in Teapot Dome. It has no interest whatsoever for Standard Oil of New Jersey, but I do feel that you should tell the President that it smells.”

With some reluctance, Lasker went to see the President and repeated Teagle’s message. Harding paced up and down behind his desk. “This isn’t the first time that this rumor has come to me,” he said, “but if Albert Fall isn’t an honest man, I’m not fit to be President of the United States.” Both propositions were soon tested to their limit.4

Fall leased Teapot Dome to Harry Sinclair in an exceedingly sweet deal that assured Sinclair Oil a guaranteed market—the U.S. government. He also leased a more bountiful California reserve, Elk Hill, to Edward Doheny. Both were among the best-known of American oil men. They were entrepreneurs, “new men” who had risen up on their own abilities to create major enterprises outside the old Standard Oil inheritance. Doheny was something of a legend. He had begun his career as a prospector. Laid up when he broke both legs falling down a mine shaft, he had put the time to good use by studying to become a lawyer. He was also said to have fought off a mountain lion with a knife. By the 1920s Doheny had amassed a vast fortune, and his company, Pan American, was actually a larger crude oil producer than any of the Standard Oil successor companies. Doheny himself scrupulously made a point to patronize and befriend politicians of both parties.

So did Harry Sinclair, the son of a small-town druggist in Kansas, who trained to be a druggist himself. But, at age twenty, he lost the family drugstore in a speculation. Broke, he tried to make a living selling lumber for drilling rigs, and then took to buying and selling small oil properties in southeast Kansas and the Osage Indian territory of Oklahoma. Luring investors, he began to build up a host of tiny oil companies, one per lease. He was a masterful trader and a forceful, assertive businessman, with unbridled self-confidence, who would defer to no one, least of all his investors. Said one of his colleagues, “Where he sat, there was the head of the table.” He simply insisted on getting his way. He put all his chips on the Glenn Pool in Oklahoma, and made a fortune from it. He went into the newly discovered Oklahoma oil fields, awash in oil because of flush production and not yet connected to pipelines, and bought all the oil he could get at ten cents a barrel. He then threw up steel storage tanks, waited for the pipelines to be completed, and sold the oil for $1.20 a barrel.

By World War I, Sinclair was the largest independent oil producer in the midcontinent. But having to sell to the large, established, integrated companies, and pay heed to them, galled him no end. He raised $50 million and in 1916 swiftly put together his own integrated oil company, which was soon among the ten largest in the country. The absolute monarch of his company, Sinclair was ready to fight for business almost anywhere in the country. He got into the habit of thinking that when he wanted to do something, nothing should stand in his way. And one thing he had wanted was Teapot Dome.

The Interior Department signed its contracts with Doheny and Sinclair in April 1922 amid swirling rumors, as one conservationist said, “about Mr. Fall being quite friendly with large interests of an oleaginous nature.” Senator La Follette began to investigate. He discovered that naval officers who had opposed the shift of the reserves from the Navy Department to Interior and their subsequent leasing had been transferred to distant and inaccessible stations. His suspicions were further aroused. But they remained only suspicions a year later when, in March 1923, Fall resigned as Secretary of the Interior, still very much a solid and respected, though increasingly controversial, public figure.

By this point, the Harding Administration was sinking into a deep mire of scandal and wrongdoing. Harding himself was struggling to cope with accusations that he maintained a full-time mistress. “I have no trouble with my enemies,” the sad President said as his private railroad car rolled across the Kansas plain, “I can take care of them. It is my … friends that are giving me my trouble.” Shortly after, in San Francisco, he suddenly died—a doctor said of “an embolism,” but a newspaper editor countered that it was “an illness that was part terror, part shame, and part utter confusion!” He was succeeded by his Vice-President, Calvin Coolidge.

Meanwhile, the Senate’s Public Lands Committee had taken up the matter of Teapot Dome. There were still no hard facts, and some were saying that the whole thing was no more than “a tempest in a teapot.” But then items of considerable interest began to emerge. Fall had undertaken extensive and expensive renovations on his New Mexico ranch about the time of the leasing of Teapot Dome. He had also bought a neighboring ranch partly with hundred dollar bills he lifted out of a small tin box. How had he suddenly become flush with money? Pushed on the question of the sudden improvement in his finances, Fall said he had received a one-hundred-thousand-dollar loan from Ned McLean, the publisher of the Washington Post. Interviewed in Palm Beach—sinus trouble having supposedly kept him from traveling—McLean admitted the loan, but then said Fall had, a few days later, returned his checks uncashed. More embarrassing revelations came out. Sinclair’s secretary testified that Sinclair had once told him he should give Fall twenty-five or thirty thousand dollars if he ever asked for it. And Fall did ask. Sinclair himself, who had suddenly departed for Europe on very short notice, hastily left Paris for Versailles in order to dodge reporters.

Then came the real bombshell. On January 24, 1924, Edward Doheny told the Senate committee that he had provided the one hundred thousand dollars to Fall, which his son had personally carried in cash “in a little black bag” to Fall’s office. No, it was not a bribe, definitely not, Doheny insisted, just a loan to an old friend; they had prospected together for gold decades earlier. He even produced a mutilated note supposedly signed by Fall, though the signature had been ripped off. Doheny explained that his wife held the signature portion, so as not to embarrass Fall with demand for an inconvenient repayment, should Doheny happen to die. It was friendship compounded with thoughtfulness.

Fall himself said he was too sick to testify, which reminded some people of an incident only a few years earlier. The very partisan Fall was one of the two Senators who went to the White House in 1920 to investigate whether Woodrow Wilson was really suffering from a stroke or had, as rumored, actually lost his mind. “Mr. President, we all have been praying for you,” Fall earnestly declared on that day in 1920. “Which way, Senator?” the feeble Wilson replied. Now people said that Fall’s illness ought to be investigated. Reputations were being ruined left and right as the bizarre story continued to unfold. Investigators learned that telegrams in an old Justice Department code had passed between McLean, the Washington Post publisher, from Palm Beach, and various persons in Washington, D.C. An ex-train robber from Oklahoma appeared to testify before the Senate committee. Harry Sinclair, on trial for contempt of the Senate for refusing to answer questions, hired the Burns Detective Agency to shadow members of the jury, which could not exactly be considered in the best tradition of Anglo-Saxon jurisprudence. By 1924, said The New Republic, all of Washington was “wading shoulder-deep in oil. … The newspaper correspondents write of nothing else. In the hotels, on the streets, at the dinner tables, the sole subject of discussion is oil. Congress has abandoned all other business.”

The 1924 Presidential election was at hand, and Calvin Coolidge was intent on winning the White House in his own right. His main interest in oil at that point was to stay as far away as possible from the subject and avoid any taint from the Teapot Dome scandal. Coming to Coolidge’s defense, a Republican Congressman proclaimed that Coolidge’s only connection to Teapot Dome was that he had been sworn in by the light of an oil lamp. Even that was too close for comfort. The Democrats intended to play the scandal as a potent election issue. But they underestimated the political skills of Calvin Coolidge. They also overlooked their own vulnerability—Doheny was, after all, a Democrat who had provided lucrative employment to at least four former members of Woodrow Wilson’s Cabinet. He had also paid $150,000 in legal fees to William McAdoo, Woodrow Wilson’s son-in-law and the front-runner for the 1924 Democratic nomination. McAdoo lost that place when the fees became public knowledge, and the Democratic nomination went instead to John W. Davis. It even turned out that Doheny had discussed an oil “proposition” in Montana with the Democratic Senator who just happened to be heading the Senate’s investigation of Teapot Dome.

As the public clamor over Teapot Dome mounted, Coolidge counterattacked: He fired Harding’s underlings, denounced wrongdoing, and appointed twin special prosecutors—one Democratic and one Republican. Thereafter he effectively distanced himself from the scandal and, in the 1924 Presidential campaign, did everything he could to live up to the title of “Silent Cal.” His strategy was to neutralize issues by ignoring them—a campaign of silence. And on nothing else was he so silent as on the subject of oil. The strategy worked. Amazingly enough, the great Teapot Dome scandal never became an issue at all in the campaign, and Coolidge won handily.

The scandal itself dragged on through the rest of the decade. In 1928, it was discovered that Sinclair had channeled several hundred thousand dollars more to Fall through a bogus company, the Continental Trading Company, which meant that Fall had received at least $409,000 for his services to his two old friends. Finally, in 1931, the corrupt and greedy Fall went to jail, the first Cabinet officer convicted and imprisoned for a felony committed while in office. Sinclair was sentenced to prison for six and a half months for contempt both of court and of the Senate. On his way to jail, he stopped to attend a board meeting of the Sinclair Consolidated Oil Corporation, where the other directors formally tendered him “a public vote of confidence.” Doheny was judged innocent and never went to jail, leading one Senator to complain, “You can’t convict a million dollars in the United States.”5

The Colonel and the Liberty Bonds

The scandal had even wider repercussions when further investigations revealed that the bogus company, Continental Trading, was really a mechanism by which a group of prominent oil men had received kickbacks in the form of government Liberty Bonds on purchases of oil made by their own companies. Harry Sinclair had used part of his kickback as payoff money to Fall, passing on the bonds. He had also given some of the bonds to the Republican National Committee. The nation was shocked to learn that among those receiving Liberty Bond kickbacks was one of America’s most distinguished, successful, and forceful oil men, Colonel Robert Stewart, chairman of Standard of Indiana.

A broad-faced, bulky man, Stewart had ridden with Teddy Roosevelt’s Rough Riders. Unlike the heads of many of the other major oil companies he had never had a day of practical oil field experience. He had first gone to work for Standard of Indiana as an attorney, and he had ridden his legal skills to the top of the company. That was not so surprising; after all, the legal challenges before and after dissolution had dominated and redefined the oil industry, and since 1907 Stewart had been at the center of every single major case involving Standard of Indiana. Autocratic, commanding, and combative, he infused the company with an aggressiveness that made it into the nation’s number-one marketer of gasoline during the 1920s. “Colonel Bob,” as he was called, was among the most respected and admired leaders not only of the oil industry but of all of American business. Who could believe that someone so upstanding would stoop to besmear himself in the slush of Teapot Dome? Yet, after years of evading questions about his involvement with Continental Trading and the Liberty Bonds, Stewart finally admitted receiving about $760,000 in bonds.

As Stewart became ever more deeply embroiled in the Teapot Dome controversy, the largest stockholder in Standard of Indiana, who had until then hardly interfered in the company’s management, urged Stewart “to remove any just ground for criticism.” Stewart would not cooperate. Finally, in 1928, the stockholder decided he had given Stewart every chance and concluded he would have to go. The stockholder was known as “Junior”; he was the only son of John D. Rockefeller.

John D. Rockefeller, Jr., was a short, shy, serious, and reclusive man. He worshiped his father and had wholeheartedly imbibed his lessons about thrift. As a student at Brown University, the younger Rockefeller had surprised his college classmates by hemming his own dish towels. But, more than anything else, he had been rigorously and repeatedly schooled by his mother in “duty” and “responsibility” and concerned himself with probity. He found his own life’s vocation, independent of his father, in the systematic giving away of a significant part of the family fortune, though much would still, of course, be left over. He also involved himself in a wide variety of civic and social causes, once going so far as to chair an official investigation into prostitution, on behalf of the city of New York.

The younger Rockefeller even established a dialogue with Ida Tarbell, his father’s “lady friend” and muckraking nemesis. He had met her at a conference in 1919 and had gone out of his way to be extremely polite, even chivalrous to her. A few years later, he asked Tarbell to review a series of interviews with his father that were to be the basis of a book he was planning. To facilitate matters, he himself delivered the materials to Tarbell’s apartment in Gramercy Park in Manhattan. After studying the interviews, Tarbell told him that the elder Rockefeller’s comments were self-serving and sidestepped all the charges made against him. “Junior” was persuaded. “Miss Tarbell has just read the biography manuscript and her suggestions are most valuable,” Rockefeller wrote to a colleague. “It seems clear that we should abandon any thought to the publication of the material in anything like its present incomplete and decidedly unbalanced form.”

That was in 1924. Now, four years later, the younger Rockefeller was no less aroused by the specter of wrongdoing in Standard of Indiana than Ida Tarbell had been by the wrongdoing in the old Trust. By profession, he was a philanthropist, not an oil man, and he had made a habit of staying away from the business of the successor companies. To much of the country, the father remained a great villain; now the son broke into the public scene in quite a different guise—as a reformer. And he was intent on carrying the mantle of reform to the heart of Standard Oil of Indiana. He told a Senate committee that, in the affair of Colonel Stewart, nothing less than the “basic integrity” of the company and indeed of the whole industry was at stake. But the Rockefeller interests directly controlled only 15 percent of the stock in the company. When Stewart refused to resign voluntarily, Rockefeller launched a proxy fight to oust him. The colonel counterattacked vigorously. “If the Rockefellers want to fight,” he declared, “I’ll show them how to fight.” He had a strong business record; in the last ten years of his leadership, the company’s net assets had quadrupled. And now, for good measure, he declared an extra dividend and a stock split to boot. Some saw the bitter struggle as a battle between East and West for the control of the oil industry; others said the Rockefellers wanted to reassert their control over the entire industry. But the Rockefeller forces were not clamorous for dividends; they wanted victory, and they organized and campaigned hard. And, in March of 1929, they won, with 60 percent of the stockholders’ votes. Stewart was out.

John D. Rockefeller, Jr., had intervened directly, and in a highly visible way, in the affairs of one of the successor companies of his father’s Standard Oil Trust. He had done so not for mere profits but in the name of decency and high standards, and to safeguard the oil industry from new attacks from government and the public—and to protect the Rockefeller name. He was much berated for his efforts. “If you look up the record of your father in the early days of the old Standard Oil Company,” one angry supporter of Stewart wrote to Rockefeller, “you will find it pretty well smeared with black spots ten times worse than the charges you lay at the door of Col. Stewart. … There is not enough soap in the world to wash the hands of the elder Rockefeller from the taint of fifty years ago. Only people with clean hands should undertake to blacken the character of other and better men.”

A college professor disagreed. “No endowment of a college nor support of a piece of research,” he wrote, “could have done more it seems to me to educate the public toward honest business.” American capitalism, and the oil industry, could never again be as rapacious as it once had been; now the future of the industry and of business was at stake, not the fortunes of a few men. And the oil industry had its public image to consider. But if the younger Rockefeller’s hands were clean, the entire “Teapot Dome” scandal—from Fall, Doheny, and Sinclair to Stewart—had picked up where the Standard Oil Trust had left off in ingraining in the public mind a nefarious image of the power and corruption of “oil money.”6

Geophysics and Luck

There were many in America, at the beginning of the automotive age, who worried that supplies of the “new fuel” were about to give out. The years 1917–20 had been generally disappointing in terms of new discoveries. Leading geologists prophesied gloomily that the limits on U.S. production were near. Post–World War I pressure on supplies reinforced the expectation of shortage among refiners as well. Some refineries could run at only 50 percent of their capacity because crude oil was in short supply, and local retailers around the country kept running out of kerosene and gasoline. Indeed, shortage was so much the dominant view in the industry that Walter Teagle of Standard Oil of New Jersey once remarked that pessimism over crude supplies had become a chronic malady in the oil business.

But the wheel had already begun to turn. The search for new sources of supply was nothing short of frantic, fueled by the expectation of shortage itself and reinforced by the powerfully alluring incentive of rising prices. Oklahoma crude, which had been $1.20 a barrel in 1916, rose to $3.36 by 1920 as refiners, who had run short, bid up the price; and a record number of oil wells were drilled.

The technology for finding oil was also about to improve. Up to 1920, geology, as it applied to the oil industry, had meant what was known as “surface geology,” the mapping and identification of likely prospects on the basis of the visible landscape. But, by 1920, surface geology had gone almost as far as it could. Many of the visible prospects had been identified. Explorers had to find a way to “see” underground, in order to figure out whether the subsurface structures were the kind that might trap oil. The emerging science of geophysics provided that new way of “seeing.”

Many of the geophysical innovations were adapted from technology that had been drafted into use during World War I. One was the torsion balance, an instrument that measured changes in gravity from point to point on the surface, thus providing some sense of the subsurface structure. Developed by a Hungarian physicist before the war, it was used by the Germans during the First World War, in trying to get the Rumanian fields back into production. Another innovation was the magnetometer, which measured changes in the vertical components of the earth’s magnetic field, giving further hint of what lay beneath the surface.

The seismograph also joined the arsenal of oil exploration, proving to be the most powerful new weapon of all. The seismograph had originally been developed in the mid-nineteenth century to record and analyze earthquakes. The Germans put it to work during the war to locate enemy artillery emplacements. That led directly to its use in the oil industry in Eastern Europe. What was called refraction seismology was introduced into the U.S. oil industry about 1923–24, initially by a German company. Dynamite charges were set off, and the resulting energy waves, refracted through underground structures, were picked up by listening ears—“geophones”—on the surface, which helped to identify underground salt domes, where oil might be found. The reflection seismograph, introduced about the same time and soon to supplant the refraction technique, recorded the waves that bounced off rock interfaces underground, which allowed the shapes and depths of all kinds of underground structures to be plotted. Thus a whole new world was opened up to exploration, irrespective of surface signs. Though many of the major fields were still discovered through surface geology in the 1920s, geophysics became more and more important, even in the fields initially identified by the more traditional methods. Oil men had indeed found the way to “see” underground.

They also found new ways to see aboveground. During the Great War, aerial surveillance had been used by the combatants in Europe for troop spotting. The technique was quickly adopted by the oil industry, making possible a broad view of surface geology that simply was not available to someone on the ground. As early as 1919, Union Oil hired two former lieutenants, who had done aerial work in France for the American Expeditionary Force, to photograph sections of the California landscape. Another important innovation was the analysis of microscopic fossils—micropaleontology—brought up from various drilling depths. This technique provided further clues to the type and relative ages of sediments thousands of feet underground. And at the same time, major improvements were being made in the technology of drilling itself, which permitted more rapid, more informative, and deeper drilling, thus expanding potential. The deepest wells in 1918 reached six thousand feet; by 1930, they were ten thousand feet. One final factor played an important role, one never easily analyzed but seemingly always present in the oil industry—luck. Certainly, luck was at work in the 1920s. How else to explain the fact that so much of America’s oil was discovered during that decade?

One of the most significant of those discoveries was made at Signal Hill, which rises up some 365 feet behind Long Beach, just south of Los Angeles. From its peak, the local Indians had once signaled to their brethren on Catalina Island. Later still, the hill loomed large in the eager eyes of real estate developers. In June 1921, it was in the process of being subdivided into residential lots when a Shell exploratory well, Alamitos Number 1, blew in. The discovery created a stampede. Many of the lots, though already sold to prospective homeowners, were not yet built upon, and money flew all over the hill as oil companies, promoters, and amateurs scrambled to get leases. The parcels were so small and the forest of tall wooden derricks so thick that the legs of many of them actually interlaced. So keen were the would-be drillers that some property owners were able to get a 50 percent royalty. The next-of-kin of persons buried in the Sunny-side Cemetery on Willow Street would eventually receive royalty checks for oil drawn out from beneath family grave plots. True believers thought they could get rich buying a one five hundred thousandth share of a one-sixth interest in an oil well that had not yet even been drilled. Signal Hill was to prove so prolific that, almost unbelievably, some of those buyers actually made money on their investments.

Signal Hill was only the most dramatic of a large number of substantial discoveries in and around Los Angeles, which made California the nation’s number-one producing state in 1923, and the source that year of fully one quarter of the world’s entire output of oil. Even so, fears of shortage were still very much in the air. “The supply of crude petroleum in this country is being rapidly depleted,” the Federal Trade Commission warned in 1923, in a study of the oil industry. But in that same year, American crude oil production exceeded domestic demand for the first time in a decade.7

The Tycoon

Henry Doherty was an anomaly in the oil business. With his oversized glasses and Van Dyke beard, he looked more like a stage version of “the professor” than a businessman of substance. But he was among the great entrepreneurs of the 1920s, controlling a host of companies, including Cities Service. One writer called him “the nearest approach” on Wall Street to Ned the Newsboy of the Horatio Alger stories. The description was apt; Doherty had begun his working life at age nine, selling newspapers on the streets of Columbus, Ohio. He dropped out of school when he was twelve. “I had not been in school more than ten days before I grew to hate school worse than Satan,” he once explained. But with hard work, pluck, subsequent enrollment in night school, and training in engineering, he rose to be a director of no fewer than 150 companies. His empire was composed of gas and electric utilities serving various metropolitan areas, thus the name “Cities Service.” When one of his companies, drilling for gas in Kansas, struck oil, Doherty quickly also became an oil man. More than a bit eccentric, he was a prolific writer of success epigrams: “Never give orders—give instructions. … Make a game out of your work. … The greatest dividend in human life is happiness.” His favorite form of relaxation was driving a car through New York City traffic; fresh air was a great enthusiasm, and health an obsession.

A tough, resourceful businessman, Doherty gave no ground to his opponents. He was also an independent thinker, who enjoyed his role as the intellectual gadfly of the oil industry. He was no less tenacious and aggressive in campaigning for his ideas than for his deals, and he was convinced that the very way in which the industry operated out in the field was a threat to its future and needed to be changed. He was insistent, tiresomely so, on one theme: The “rule of capture” had to be eliminated.

The “rule of capture” had continued to govern the industry’s operations since its early days in western Pennsylvania, and it had repeatedly been sanctioned by the courts, based upon the English common law regarding migratory wild beasts and game. To some property owners who complained to one court that their oil was being drawn off by their neighbors, the justices had scant solace to offer: “Only go and do likewise.” Because of the rule, every operator everywhere in the United States put down his wells and produced as rapidly as he could, draining not only the oil under his own property but also that under his neighbor’s property, before his neighbor drained his own. This doctrine fueled the riots of flush production and the wildly fluctuating prices that came with every new discovery.

Doherty believed that the multiplication of wells and rapid production resulting from the rule of capture exhausted the underground pressure in a field more quickly than need be the case. The consequence? Much oil that might otherwise be produced would be left underground, unrecoverable, because there was not enough pressure from gas—and also from water, it was later understood—to provide the “lift,” or push, to get the oil to the surface. Recognizing how important oil had been in World War I, Doherty feared what it would mean for the United States in another war if wanton—and what he called “extremely crude and ridiculous”—production practices were to prevent vast stores of oil from ever being recovered.

Doherty had a solution to the problem. Fields should be “unitized.” That is, they should be tapped as single units, with the output apportioned to the various owners. In that way, oil could be recovered at the controlled rates judged most sound by current engineering knowledge, thus maintaining the underground pressure. When Doherty, and subsequently many others, talked about “conservation,” they meant such measured production practices, which would aim to ensure the largest ultimate recoverable resource, and not reduced or more efficient consumption. But how was Doherty’s “conservation” to be accomplished? It was here that Doherty shocked most others in the industry. The Federal government, he argued, would have to take the lead, or at least sanction industry cooperation. And there would have to be public enforcement of technologically superior production practices.

For much of the 1920s, Doherty’s views were shared only by a small minority of oil men, and he was widely attacked, and indeed, savagely abused. Some critics said that he got his facts out of the World Almanac. Many in the industry disputed his assessment of production technology, and regarded his call for Federal involvement as a betrayal of the industry. The larger companies were willing to talk about voluntary cooperation and self-regulation to manage production, but no more than that. Many independents did not want to have anything at all to do with unitizing fields and controlling production, whether voluntarily or not. They wanted their chance to get rich too.

Doherty fought back. He filibustered at meetings and conferences. He wrote endless letters. He was a “diabolical needler” of other oil men. He sought every occasion to push his views. Three times he tried to get the board of the industry’s American Petroleum Institute to consider his proposals, and three times he was turned away. Barred at one API meeting from presenting his ideas, Doherty hired his own hall to address whoever would listen. Others started to call him “that crazy man.” In turn, he declared that an “oil man is a barbarian with a suit on.” But he did, after all, have a friend who was interested in his ideas—President Calvin Coolidge. In August 1924, Doherty wrote a long letter to the President: “If the public some day in the near future awakens to the fact that we have become a bankrupt nation as far as oil is concerned, and that it is then too late to protect our supply by conservation measures, I am sure they will blame both the men of the oil industry and the men who held public offices at the time conservation measures should have been adopted. A deficiency of oil is not only a serious war handicap to us but is an invitation to others to declare war against us.”8

Once Coolidge had won the 1924 election and put the Teapot Dome scandal safely behind him, he could turn to oil. Responding to Henry Doherty’s arguments, he established the Federal Oil Conservation Board to investigate conditions in the oil industry. Echoing his friend Doherty, the frugal President explained that the wasteful production methods were nothing less than a threat to the industrial, military, and overall security position of the United States. “The supremacy of nations may be determined by the possession of available petroleum and its products,” Coolidge declared.

The Federal Oil Conservation Board stimulated further research on the physical properties of oil production, which, in turn, lent increasing support to Doherty’s views. While the American Petroleum Institute was declaring that waste in the industry was “negligible,” the new board argued that natural gas was “more than a commodity of smaller commercial value associated with oil,” and in fact provided the underground pressure that pushed the oil to the surface. To dissipate gas through helter-skelter production was to lose that essential pressure, and thus to leave large amounts of petroleum unrecovered underground.

As the research results mounted, some of the better-informed began to swing over to Doherty’s side. William Farish, the president of Humble, the Jersey affiliate that was the largest producer in Texas, had scorned Doherty’s ideas in 1925. By 1928, he was thanking Doherty for making the industry see the virtues of “better production methods.” Farish became a strong advocate of unitization—operating fields as single units. In the changing circumstances of the second half of the decade, he decided, the emphasis had to be on low-cost production. Unitization was one of the best ways to achieve that because fewer wells were needed, and more reliance could be placed on natural underground pressure as opposed to pumping.

Henry Doherty was technically far in advance of his brethren in comprehending how oil came to the surface, and how flush production damaged reserves. But he grossly underestimated the possibilities for finding new sources of oil. He insisted, in his 1924 letter to Coolidge, that a great shortage was at hand. Others did not hesitate to disagree with Doherty’s bleak assessment of America’s oil prospects. A bitter opponent of government involvement in the industry, J. Howard Pew of Sun Oil, sarcastically commented in 1925 that the nitrates in the soil would disappear, timber reserves be depleted, and the rivers of the world change their course before petroleum reserves were exhausted. “My father was one of the pioneers in the oil industry,” Pew declared. “Periodically ever since I was a small boy, there has been an agitation predicting an oil shortage, and always in the succeeding years the production has been greater than ever before.”9

The Rising Tide

It was Pew, not Doherty, who would prove to be the more accurate prophet on that score. The spring of 1926 saw the first of the major discoveries in what became known as the Greater Seminole field in the state of Oklahoma. The frenzy that ensued marked one of the most rapid developments of an oil field that the world had ever seen. It was a breakneck drilling competition, wanton and wasteful, again driven by the rule of capture. The traditional chaos and confusion of boomtowns reigned—the streets clogged with equipment, workers, gamblers, hucksters, and drunks; hastily built wooden structures; the stifling odor of escaping gas and the acrid smell of burning oil from wells and pits. Prices broke under the impact of the new finds. But still the oil flowed from that single field, reaching 527,000 barrels per day on July 30, 1927, a mere sixteen months after the first major discoveries. Other major discoveries followed in Oklahoma. Texas was about to catch up. A series of major discoveries in the late 1920s, including the huge Yates field, established the Permian Basin, a vast, sun-scorched, dusty, and desolate region of West Texas and New Mexico, as one of the great concentrations of oil in the world.

Another factor was at work to swell the tide. Technology was not only contributing to higher production, it was also altering the requirements of consumption. The spread of techniques for cracking, which increased the amount of gasoline that could be extracted from each barrel by changing the molecules, reduced the need for crude. One barrel of oil that was cracked could produce as much gasoline as two barrels of crude that went uncracked. It was then discovered that cracked gasoline was actually preferable to “straight run” gasoline because it had much superior antiknock properties. Thus, though the demand for gasoline increased, the demand for crude oil did not grow at the same rate, adding to the rising surplus.

By the end of the decade, the gloomy predictions of the early 1920s had been washed away by the flood of oil that seemed to flow unendingly out of the earth. American consumers simply could not absorb all the oil that was being produced, and more and more of it poured out of the ground, only to flow into a growing army of storage tanks around the country. But oil men were still driven to produce to the maximum. The effects were devastating. Flush production—“too many straws in a tub”—damaged reservoirs, reducing the ultimate recoverable resource. And the huge oversupply of crude totally disrupted the market and rational planning, thus creating sudden price collapses.10

Yet, ironically, as discovery followed discovery, adding further to the unprecedented glut, opinion in the industry began to shift toward Henry Doherty’s remedy for shortage—conservation and production control. The reason was no longer to forestall an imminent shortage, since the mounting proof of the opposite was now all too evident. Rather, it was to prevent the ruinous floods of flush production that so violently shook the pricing structure.

But who would control production? Was it to be done voluntarily or under the government’s aegis? By the Federal government or by the states? Even within individual companies there were sharp debates. A major split developed within Jersey Standard, with Teagle in favor of voluntary control, while Farish, the head of the Humble subsidiary, concluded that the government had to be involved. “The industry is powerless to help itself,” Farish wrote to Teagle in 1927. “We must have government help, permission to do things we cannot do today, and perhaps government prohibition of those things (such as waste of gas) that we are doing today.” When Teagle suggested that “practical men” from the industry should develop a program of voluntary self-regulation, Farish replied sharply, “There is no one in the industry today who has sense enough or knows enough about it to work out this plan.” He added, “I have come to the conclusion that there are more individual fools in the petroleum industry than in any other business.”

The smaller independent producers were opposed to any form of government regulation. “No state corporation commission will tell me how to run my business,” an independent oil man, Tom Slick, thundered to a group of cheering producers in Oklahoma. Dissatisfied with the API, the small producers formed their own organization, the Independent Petroleum Association of America, and launched a campaign for a quite different form of government intervention, a tariff on imported oil. The main objective was to exclude the Venezuelan oil that the majors were importing. The independents tried to get an oil tariff added to the Smoot-Hawley Act in 1930, but although this infamous piece of legislation raised the tariff rates for just about everything else, it did not do so for oil. Representatives from the East Coast, and influential groups like the American Automobile Association, did not want higher fuel oil and gasoline prices and opposed the tariff. Moreover, the independent oil men alienated potential supporters by inept and altogether unsubtle lobbying. In the words of one of their backers in the Senate, they were “rather foolish in the writing of telegrams and letters.” Meanwhile, the question of production controls remained unresolved and bitterly debated, and the tide of oil continued to rise.11

Emerging Competition

The oil industry had confronted chronic imbalances of supply and demand since its very first days in the hills of western Pennsylvania, and it had responded with a drive toward consolidation and integration to assure and regulate supplies, gain access to markets, stabilize prices, and protect and expand profits. Consolidation had meant the acquisition of competitors and complementary companies. Integration meant the yoking together of some or all segments of the industry, upstream and downstream, from exploration and production at the wellhead to refining and retail sales. The great Standard Oil Trust had skillfully managed to integrate in both directions, only to be attacked and dissolved by the Supreme Court. But in the uncertain supply and demand climate of the 1920s, the same old strategies among the once-cozy Standard Oil successor companies, as well as among other companies, reemerged, turning them into vigorous competitors. There was also a new dimension in the competition. Oil companies were becoming marketers, for the first time selling automotive fuel at retail, directly to motorists, at the brand-name stations that were springing up all across the American landscape. Oil wars were not only being fought for supply and markets in foreign lands, but were also erupting in an equally fierce struggle for markets on the main streets of America. And, in its efforts to court consumers, as well as in its inherent propensity toward consolidation and integration, the American oil industry began to take on its modern and familiar outline.

The 1911 dissolution had left Standard Oil of New Jersey a huge refining company with virtually no oil of its own, making it highly dependent on other companies and thus vulnerable to the whims of suppliers and of the marketplace. As part of his central strategic objective of expanding Standard Oil of New Jersey’s secure crude sources, Walter Teagle sought domestic as well as foreign supplies. As early as 1919, Jersey had bought just over half of Humble Oil, a leading Texas producer that badly needed capital. Humble quickly put Jersey’s money to good use; by 1921 it was the largest producer in the state of Texas, substantially contributing to Teagle’s goal of assuring access to crude. Standard of Indiana, which had also begun as a refiner, moved aggressively to assure itself its own crude supply, from both the Southwest and Wyoming, and thus protect the investment in its refining system. It also purchased Pan American Petroleum, which was one of the leading American companies in Mexico. Meanwhile, major crude producers were going downstream to assure themselves of markets. The Ohio Oil Company, later Marathon, had been the largest of Standard Oil’s producing companies before the 1911 dissolution. Now it began moving into refining and marketing through acquisition, and did so just in time. Between 1926 and 1930, the company’s production almost doubled; it eventually controlled, among other things, half of the immensely prolific Yates field in Texas. And it needed direct access to markets.

The Phillips Petroleum Company was created by Frank Phillips, an exbarber and ex–bond salesman who had developed considerable flair in putting together oil deals. Perhaps because he was also a banker, he was particularly adept at overcoming skepticism among investors and thus, at raising money in New York, Chicago, and other major cities. Put off by the boom or bust of oil, he was about to desert the business to start a network of banks through the Midwest, when the entry of the United States into World War I pushed up oil prices and drew him back into petroleum. By the mid-1920s, Phillips and his brother had built the company into one of the major independents, in the same league as Gulf and the Texas Company.

In November 1927, to accommodate a growing surplus of oil, Phillips opened its first refinery in the Texas Panhandle, and in the same month, its first service station in Wichita, Kansas. To start things off in Wichita, company officials planned to offer any purchaser a coupon for ten free gallons of gas. But they had to get Frank Phillips’s permission first. “Sure, go ahead,” Phillips replied. “It isn’t worth as much as water anyway. Give ’em all you want to.” The company moved into refining and marketing at an even more dizzying pace than its growth as a crude producer. By 1930, within three years of opening its first station, Phillips had either built or acquired 6,750 retail outlets in twelve states.

Competitive pressures pushed other companies to follow suit and break through the wholesale wall into the retail trade by acquiring their own gas stations and additional marketing facilities. They had built refineries to handle the new crude supplies; now they had to be sure they would have markets and direct outlets to consumers. Between 1926 and 1928, Gulf expanded its retail operations rapidly into the North Central states. Two of the most aggressive firms, the Texas Company and Shell, were both marketing in all forty-eight states by the end of the 1920s. Moreover, established retailers had to expand into new areas to try to protect profitability as new competitors invaded their established territories.12

These invasions finished the work of the Supreme Court. A kind of shadow Standard Oil Trust had persisted for a decade after the 1911 dissolution. The various successor companies to the Trust had remained tied together by contracts, habits, personal relationships, old loyalties, and common interests, as well as by shared dominant stockholders. Given the historical associations of these companies and the common effort of World War I, in which they all worked amicably together, that was not surprising. Each of the successor refining companies—such as Jersey, Standard Oil of New York and of Indiana, and Atlantic—had been based in a specific geographical region. And for a decade or so they respected one another’s borders, more or less.

But in the 1920s, they began invading one another’s territories and challenging one another’s businesses. Atlantic Refining entered the established markets of both Standard of New Jersey and of New York—in the words of its 1924 annual report, “as a matter of protection, rather than of desire.” Jersey and other Eastern successor companies got into a bitter and highly publicized price war with several of the Midwestern successors, including Standard of Indiana. When this happened, no less critical an authority than Ida Minerva Tarbell wrote with astonishment: “It certainly looks very much as if the Standard Oil Company might be crumbling—crumbling within; as if something had happened to it which the great dissolution suit had not been able to bring about. The parent company making a price for oil and its strong young relative of the West refusing to follow is something that has not happened in forty years.” To those, she said, “who have watched the course of this extraordinary concern from its rise,” this new development “is almost unbelievable.”

Though many politicians continued to attack the “Standard Oil Group,” the concept of total control was increasingly obsolete by the mid-1920s. Rather, the successor companies were turning themselves into large, fully integrated companies that, along with several so-called “independents,” like the Texas Company and Gulf, were coming to dominate the industry. Instead of one giant, there were many very big companies. A 1927 study by the Federal Trade Commission found that “the separated Standard companies” controlled 45 percent of the output of refined products, compared to 80 percent control of refined products by the Standard Oil Company two decades earlier. The cozy relationship among the successor Standard Oil companies had dissipated. “There is no longer unity of control of these companies through community of interest,” the FTC study found. On the critical and never-ending question of control of prices, the FTC was skeptical that the Standard Oil companies were in a position to manipulate prices in any lasting way: “The price movements for the longer periods are substantially controlled by supply and demand conditions. … No recent evidence was found of any understanding, agreement or manipulation among large oil companies to raise or depress prices of refined products.”13

“Those Sunkist Sons of Bitches”

The breakup of the Standard Oil Trust into a multitude of newly aggressive companies greatly intensified competition in the game. Adding to the heat was the appearance of many new companies based variously on crude oil discoveries or the expansion of gasoline refining and marketing. These developments, combined with the thrust toward integration, spurred a powerful wave of mergers. Rockefeller’s impulse toward acquisition and consolidation lived on, in an effort not to exert total control—that was no longer possible—but to protect and improve competitive position. Standard of New York, for instance, bought a major California producer and refiner, and later merged with the Vacuum Oil Company to form Socony-Vacuum and develop the brand name Mobil. Standard of California acquired one of the other major California producers.

Shell grew rapidly in these years, in part through an aggressive campaign of acquisition. But it continued to abide by a policy of involving American investors as well, reflecting a dictum that Deterding had laid down in 1916. “It is, of course, always galling (apart from political considerations) in any country to see an enterprise doing well without local people being interested,” he had written. “It is contrary to human nature, however well a concern like that may be directed, or however much it may have the interest of the people at heart, not to anticipate there will be a kind of jealous feeling against such a company.” But even the cynical Deterding, the merchant at heart, found himself put off by some aspects of the merger-and-acquisition business in the United States. What particularly aroused him were the doings of American investment bankers. “Of all the grasping individuals I have ever met,” he wrote to the president of one of Shell’s American subsidiaries, “the American bankers … absolutely take the cake.”

No less notable were the mergers that almost happened. In 1924, Shell came close to buying a production company called Belridge, well-situated on a prolific field of the same name near Bakersfield, California. The price was to be $8 million, but Shell decided it was too high and passed on the deal. Fifty-five years later, in 1979, Shell finally got around to buying Belridge—for $3.6 billion. In the early 1920s, Shell also found itself embroiled in exactly the “kind of jealous feeling” that Deterding had cautioned against. Through an acquisition, Shell came to own a quarter of Union Oil of California, and gaining full control would have made the company very strong indeed in the United States. But the California stockholders of Union Oil rose up in righteous indignation, invoking patriotism against “parties foreign to California and entirely unknown to us.” They managed to embroil the United States Senate, the Federal Trade Commission, and various Cabinet officers, warning one and all that the deal was “viciously inimical to the interests” of the United States. They eventually forced Shell to sell off its holdings in Union, though Shell’s disappointment was somewhat mitigated by the fact that it made a 50 percent return on what had turned out to be a two-year investment.

The Texas Company and Phillips came close to merging. So did Gulf and Standard Oil of Indiana. And, between 1929 and 1933, Standard Oil of New Jersey and Standard of California devoted much managerial time to negotiating the terms of a merger. To keep the conversations secret and off “the wires,” Walter Teagle traveled to one rendezvous at Lake Tahoe in a private railroad car under an assumed name. But talks ultimately collapsed, partly because of the tough negotiating stance of Standard of California’s president, Kenneth Kingsbury, and his associates—“King Rex” and “those sunkist sons of bitches,” as they were known to the Jersey people. Personalities aside, a more important reason for the failure of the merger was Jersey’s accounting system, which—to Walter Teagle’s great anger and chagrin—could not satisfactorily establish either Jersey’s book value or its true profitability.14

One thing did unite virtually the whole industry: Though scientific understanding of oil production had advanced by the end of the 1920s, opposition to direct regulation by the federal government was overwhelming. The tycoon Henry Doherty, outraged that the bulk of the oil industry denounced his incessant calls for regulation, predicted, “The oil industry is in for a long period of trouble … I do not know how long it will take, but I will stake the last shred of my reputation that the day will come when every oil man will wish we had sought Federal legislation.” But Doherty was sick of the debate; his own health had broken from the strain of the long battle. He decided that he had suffered enough abuse, and from then on, he would try to leave it to others. “If a man has ever gotten a dirtier deal from an Industry than I have gotten from the Oil Industry, I would certainly like to meet him,” he wrote in 1929. “I often wish to God I had never gone into the oil business and more often I wish that I had never tried to bring about reforms in the oil business.”

No one paid much attention to his prophecy of future difficulties. For, as the decade ended, the new corporate giants were preoccupied with sorting out their competitive positions, and the prospects both for stabilization and for adjustment in the supply-demand balance looked reasonable without government intervention. But then everything fell apart. The fevered stock market took an unprecedented plunge in October 1929, heralding the Great Depression, which would mean unemployment, poverty, and hardship throughout the nation—and an end to the growth in demand for oil. And then, in the autumn of 1930, just as the nation was coming to the reluctant conclusion that the stock market collapse was no mere “correction” but rather portended a general economic disaster, a throw of the dice led to the discovery of the largest oil field ever found in the forty-eight states—the Black Giant—one that, by itself, could have met a very substantial part of the entire American demand. And, with that, Henry Doherty would turn out to have been right on the mark.15

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