Modern history

CHAPTER 13

The Flood

HIS NAME WAS Columbus Joiner, though afterward he would be known as Dad Joiner, because he was the “daddy” of what happened. He was seventy years old in 1930 and walked bent forward from the waist, as though looking for something on the sidewalk—the result of rheumatic fever. He was virtually a caricature of the classic down-on-his-luck, woebegone but always optimistic, silver-tongued and ever-persuasive wildcat promoter. He had a silky-smooth complexion, quite unusual for a man his age, which he attributed to eating carrots. His formal schooling had totaled just seven weeks, but he had been tutored at home on the family farm in Alabama, taught to read with only the Bible as his text, and had learned to write by copying out the Book of Genesis. He had absorbed the language of the King James version, and he knew how to spin an enticing web out of promised wealth. When the need arose, he could also write lush and tender love letters to widows, whom he had first learned about when their names appeared in the newspaper obituaries of their well-to-do husbands. His interest, to be sure, was not in their lonely hearts; it was in their purses.

Joiner was only one of the many bit players in the big oil promotion of the 1920s. Oil stocks and oil deals were madly enticing in the fevered speculative climate of the decade, and they were virtually irresistible to anyone with a taste for gambling. “How would you like to get started by investing $100 in an oil company and have it later worth over $50,000?” one promoter asked the graduating Yale class of 1923. “Your chance to ride with us and be with us as we accumulate a momentum of success is now.” Some promoters did their selling face to face, even taking would-be investors on tours of oil fields, where they were filled with “cold lunch and hot air.” Others, finding promotion by mail more convenient, would send out letters filled with all sorts of wild pitches and promises, and in return would receive mailbags filled with cash, money orders, and checks—no questions asked. One promoter, Dr. Frederick Cook, who claimed, among other things, to have beaten Admiral Peary to the North Pole, was mailing up to three hundred thousand letters a month, from which he made, in one year, some two million dollars—before he was apprehended by Federal authorities. In sheer audacity, few could have matched the General Lee Development Company. Two promoters discovered a certain Robert A. Lee, a descendant of General Robert E. Lee, and prevailed upon him to tell investors around the country, “I would rather lead you and a thousand others to financial independence than to have won Fredericksburg or Chancellorsville.”

By comparison, Dad Joiner was strictly a small-time operator. But he did have the saving grace that he actually wanted to wildcat for oil rather than simply separate the gullible from their dollars. He worked out of Dallas, hanging around with the other promoters in the lobby of the Adolphus Hotel, a baroque landmark built by the Busch beer family of St. Louis. Eventually Joiner’s eyes fell on East Texas, a drought-ridden, dirt-poor region of rolling hills, piney woods, and sandy soil that had never come out of the agricultural depression at the end of the First World War. Neither of the two main towns in the area, Overton and Henderson, could claim even one paved road. To the careworn inhabitants of that area, Dad Joiner held out a great and hopeful vision—that, under their scarred and barren soil, lay an ocean of oil, a “treasure trove all the kings of earth might covet.”

Most of the geologists who knew anything of his East Texas scheme scoffed at Joiner; and when they were not scoffing, they were laughing. There was no oil in East Texas. But Joiner was convinced there was—or had allowed himself to become convinced—by “Doc Lloyd,” a mysterious, self-educated, self-proclaimed geologist, who weighed over three hundred pounds and favored sombreros and riding boots. Some said Doc Lloyd was also a veterinarian; others said that he was a pharmacist, and that he had run “Dr. Alonzo Durham’s Great Medicine Show” across the country, selling patent medicines concocted from oil. Lloyd was not his real name. The reason he had changed it became clear later, when his photograph appeared in newspapers across the nation. Thereupon, it was said, quite a number of women, some with children in tow, boarded the train for East Texas from points around the country, seeking to catch up with their missing husband.

Doc Lloyd had provided Dad Joiner with a description of the geology of the East Texas region. To say it was misleading would be an understatement; it was totally incorrect, fabricated. Lloyd was what was called a “trendologist”; he drew up a map of the major oil fields of the United States, showing trend lines from all of them intersecting in East Texas. But Doc Lloyd did one memorable thing; he told Joiner exactly where to drill, when almost everybody thought the idea was completely ridiculous.

Joiner mailed out a prospectus, which included Doc Lloyd’s fictitious description of the geology of East Texas, to the sucker list he kept. And somehow he scraped together the money to begin drilling on the farm of one Daisy Bradford in Rusk County. To keep going, he had to call on every ounce of his considerable persuasiveness, especially with women. “Every woman has a certain place on her neck, and when I touch it they automatically start writing me a check,” the old wildcatter once said. “I may be the only man on earth who knows just how to locate that spot.” Then he grinned. “Of course, the checks are not always good.” He was boasting. Such money as he could raise barely dribbled in.

To the oil industry at large, of course, Dad Joiner was virtually invisible, just another of the thousands of threadbare promoters, each with an idea, the promise of riches, and the gift of gab. For three years, beginning in 1927, while the industry’s leaders carried on their furious debate about shortage and glut and regulation, Joiner—the poorest of the poor boys—and his motley crew were drilling amid the dense pine trees of East Texas with rusted, third-hand equipment, constantly tormented by breakdowns and accidents, always short of even the barest cash. He paid his workers partly in “royalty rights” to various bits of acreage. When he had no cash at all, they would return to their farms or do odd jobs, but eventually they would drift back. Dad Joiner issued so many “certificates” against the possibilities of discovery, sold at a deep discount, that they became a local currency in the area. A geologist from Texaco came by and uttered the by-then-time-honored taunt, “I’ll drink every barrel of oil you get out of that hole.” But despite the constant discouragement, Joiner and his little band of workers and supporters managed to keep the faith.

The power of faith would soon prove itself. Dad Joiner’s luck began to turn in early September 1930, when a well, Daisy Bradford Number 3, tested positively. “It’s not an oil well yet,” Joiner protested to some who were watching, but he did not protest all that vigorously. Word circulated. On the road to the well, a shantytown sprang up overnight where the hopeful could gather to wait. It was called Joinerville in homage to the would-be prophet. Thousands of people arrived to become part of the vigil. Expectation, as if indeed of a religious event, a promised miracle, hung in the air. Something would happen, people were sure, and they wanted to be there to see it. During those early Depression days, hamburgers normally sold for sixteen or seventeen cents, but in Joinerville, they cost a quarter each. That was only a faint harbinger of what was to come.

A month later, at eight in the evening on October 3, 1930, a gurgling could suddenly be heard from the well. The man in charge of the drilling spun around to the assembled crowd and shouted, “Put out the fires! Put out your cigarettes! Quick!” The earth trembled. A column of oil and water shot high above the derrick. And the crowd went mad. Men looked up into the sky, shouting and cheering as the oil sprayed down on them. It was a miracle. Dad Joiner was a prophet. A crewman became so excited that he pulled a pistol from his pocket and started firing into the oil spray in the sky. Three men quickly jumped him and wrestled the gun away. One spark could have ignited the volatile escaping gas, causing the well to explode, killing everybody on the spot.1

The Black Giant

“Joiner’s Wildcat a Gusher,” was the headline the next morning in the Henderson Daily News. But the first reaction among the industry leaders to news of Dad Joiner’s bonanza was either skepticism or outright disbelief. That changed to wonderment and frenzy when, over the next three months, two other wells in the area, also drilled as wildcats, blew in. Ultimately the East Texas reservoir proved to be forty-five miles long, and five to ten miles wide, 140,000 acres altogether. The field became known as the Black Giant. Nothing to compare with it had ever before been discovered in America. And the boom that followed made all the others—in Pennsylvania, at Spindletop, elsewhere in Texas, at Cushing, at Greater Seminole and Oklahoma City, at Signal Hill in California—look like dress rehearsals. In early 1931, as the rest of the country was gripped by the gloom of the Great Depression, East Texas was exuberant, and it was going crazy. People poured in from everywhere; they crowded together in tent cities and shantytowns, and this fundamentalist region of stern values and abstinence suddenly became home to a host of honky-tonk districts that catered to every kind of vice. By the end of April 1931, six months after Dad Joiner’s Daisy Bradford Number 3 came in, the area was producing 340,000 barrels per day, and a new well was being spudded every hour.

In the wake of such a sudden, vast new supply, the inevitable happened: Prices fell and then fell more. They had been as high as $1.85 in Texas in 1926. In 1930, they averaged about a dollar a barrel. By the end of May 1931, the price was as low as fifteen cents a barrel, and some oil was being sold at six cents a barrel. There was even oil, deeply distressed, that went for two cents. Still the orgy of drilling continued. By the first week of June 1931, one thousand wells had been completed, and East Texas was producing five hundred thousand barrels per day.

People with a quick eye for profit rushed in hastily to build dozens and dozens of cheap, pint-sized refineries called “teakettles” that produced a volatile “Eastex gasoline.” Small filling stations, in turn, sprang up to sell “Eastex” at discount prices. With so much supply, everyone had to battle for markets, and stations selling “Eastex” were driven to offer, with each fill-up, such premiums as a crate of tomatoes or a free chicken dinner.

Alas, Dad Joiner could not completely give himself over to exultation. To be sure, the discovery at Daisy Bradford Number 3 and the subsequent development of the Black Giant were glorious vindication. But he had been very cavalier in his promotion, to put it generously. He had sold more “interests” than there were interests to sell. Some leases had been sold several times over, and at least one lease eleven separate times. Legally, he was very vulnerable, and he knew it.

A local newspaper sprang to the defense of the man who had caused East Texas to be reborn. “Is he,” the editor wrote of the prophet of East Texas, “to be the second Moses to be led to the Promised Land, permitted to gaze upon its ‘milk and honey,’ and then denied the privilege of entering by a crowd of slick lawyers who sat back in palatial offices cooling their heels and waiting while old ‘Dad’ worked in the slime, muck and mire of slush-pits and sweated blood over his antiquated rig, down in the pines …?” It did indeed look as if Joiner could lose it all. Of his five thousand acres of leases, he had clear title to just two.

Salvation was to appear, however, in the person of a stout man who wore a straw boater and a string tie. His name was Haroldson Lafayette Hunt, always called “Boy” by Joiner, but more generally known as H. L. “Boy” was a failed cotton farmer who had already demonstrated two formidable and not unrelated talents: one for gambling and the other, like Rockefeller and Deterding, for swift and complex mental arithmetic. A decade earlier, he had opened a gambling hall in the oil boom town of El Dorado, Arkansas. When the Ku Klux Klan threatened to burn it down, Hunt had prudently switched to oil, and had done rather well in both Arkansas and Louisiana. He was at this time, for all practical purposes, already maintaining two wives, each with a growing family. Hearing rumors about Joiner’s well before it blew in, “Boy” had shown up to observe progress and had befriended the beset old wildcatter.

Hunt stepped forward when the tidal wave of woes fell upon Joiner after his first discovery, but before other wells had begun to indicate the true magnitude of the oil field. Staked by the owner of a men’s clothing store back in El Dorado, Hunt holed up with Joiner for an interminable negotiating session in Room 1553 at the Baker Hotel and hammered away at him, trying to make a deal. Unbeknownst to Joiner, Hunt was being fed secret reports on the progress of the Deep Rock well, three-quarters of a mile from Joiner’s discovery. During the session, he got the all-important word that a second major discovery was at hand, proving not only that Joiner’s well was no fluke but also that the field could be very large. Hunt did not share the news with Joiner, and indeed kept suggesting that Deep Rock could well be dry. After more than thirty-six nonstop hours in Room 1553, Dad Joiner succumbed. At some point between midnight and 2:00 A.M. on Thanksgiving, November 27, 1930, he signed all his rights over to “Boy.” Hunt ordered up a plate of cheese and crackers to celebrate their deal.

Hunt proceeded to settle the jungle of claims against Joiner and quickly became the largest independent in East Texas. His deal with Joiner gave him what he afterward called his “flying start.” He went on to make an immense fortune. Later, he achieved notoriety as a patron of right wing causes, a promoter of health foods, and an inveterate enemy of white flour and white sugar.

Altogether, Hunt paid Dad Joiner $1.33 million—$30,000 up front, the rest out of production. When Joiner later learned that Hunt had given $20,000 to the head driller on the Deep Rock well, who had secretly provided advance word to Hunt’s scouts on the oil show, he angrily brought suit, charging fraud. Hunt was emphatic that he had not tricked the old man. “We had traded,” he declared. Joiner suddenly thought better of his suit and withdrew the claim. He spent the money he received from Hunt on new wildcats, searching for another Black Giant, the next East Texas—as well as romancing his “secretary” and other young women. Dad Joiner was almost eighty-seven when he died, and he was wildcatting virtually to the end. But he never hit again. At his death, his net worth amounted to not much more than his car and his house.2

Anarchy in the Oil Field

The flood of East Texas crude soon brought prices down all over the country, and a continuation of the price collapse could have spelled ruin for even the largest producers. There was some expectation that, as with other major discoveries, the underground reservoir pressure would eventually fall because of rapid production, causing output to decline, and prices would return to “normal.” But East Texas, in its magnitude, was something wholly unique. Who knew when its output might begin to decline? And who would still be in business when that day came? The rush of competitive production in East Texas—and elsewhere—meant “competitive suicide” for the entire oil industry.

It was imperative to devise some system to control production and stabilize prices. And that meant bringing the East Texas field into harness, in the face of violent opposition from the local producers and royalty owners, as well as from smaller refiners, who liked cheap crude. The situation was further complicated by the fragmented nature of ownership in East Texas, and by the large share of production coming from the independents. Owing to the slow start of the majors, small producers owned or controlled a good part of the East Texas field, and they were the ones most likely to produce at breakneck speeds. For the independents, any surrender of their freedom of action was “a deadly threat” to their relative advantage over the hated big companies.

In the feud between the majors and the independents, the agent of order was to be, despite its name, the Texas Railroad Commission, which had originally been created in 1891 by Governor Jim Hogg to assert populist control over the railroads. By the beginning of the 1930s, it had become a favorite dumping ground for political patronage. It also lacked technical competence. Yet it was the agency that had been given some mandate over oil, though its authority was critically circumscribed. Its counterpart in Oklahoma, the Commerce Commission, had been empowered since 1915 to regulate oil production to match the market’s demand, a power that was very explicitly denied to the Texas Railroad Commission. The Texas commission was permitted to regulate so as to prevent “physical waste” in oil production. But it was specifically forbidden by legislation, under the influence of the independents, from controlling production to stop “economic waste.” That meant it was denied the right to market proration—that is, it could not cut back everybody’s production to bring total output down to a level sufficient to satisfy demand.

Nevertheless, the Railroad Commission set out to do exactly that. To do so, however, it had to operate under a disguise, which was that of preventing physical waste. The commission charged that flush production would lead to potential oil output being lost forever. Specifically, it said that, if prices were too low, the numerous wells that brought up only a few barrels per day—so-called stripper wells—would not be able to produce economically, and therefore would be shut down. That counted as “physical waste.” But the Federal courts repeatedly checkmated the commission’s efforts to prorate cutbacks on that rationale. At one point, the commission itself was held in contempt of court. All its efforts were continually overwhelmed by the ever-rising production flowing out of East Texas.

With prices falling far below the cost of production and no cure in sight, fear and demoralization gripped the entire American petroleum industry—as Frederick Godber, a Shell director from London, discovered when he came to the United States in the late spring of 1931. Part of the purpose of Godber’s mission was to be sure that the economies and cuts in Shell’s American operations that had been demanded by its European headquarters were actually being implemented. Godber laid down the line in the United States: Offices were too elaborate; company cars were too many and of too high a grade. With satisfaction, he could report back to Deterding and the other directors, “Enormous economies are taking place.”

In his meetings with the senior management of many of the major American companies, Godber encountered unmitigated gloom. The chairman of Standard of Indiana, Godber reported, “is very depressed, almost panicky, and quite clearly in a very nervous state of mind.” Godber saw Walter Teagle of Standard Oil of New Jersey. “Even New Jersey as a unit has no very definite policy,” he observed. Teagle, he added, “is very pessimistic, feels there is nothing to do but sit back and rely on lowering prices, feels there is no co-operation from most of the other companies and that this will not be possible except after they have all made large losses.” In sum, Godber reported, “much of the industry’s troubles are due to known causes over which individuals have little or no control and which cannot be remedied until laws are passed in the various producing states permitting enforcement of laws preventing waste and excessive drilling. … These laws might perhaps have been pushed before, but there is much prejudice to overcome, particularly in Texas.”

Meanwhile, production was still going up in Texas and continuing to surge in neighboring Oklahoma. At the beginning of August 1931, while Federal judges were considering the constitutionality of Oklahoma’s prorationing laws, the governor, “Alfalfa Bill” Murray, proclaimed a state of emergency, declared martial law, and ordered the state militia to take control of the major oil fields. He would keep them closed, he announced, until the oil “price hits one dollar.”

“A dollar a barrel” became the rallying cry throughout the oil states.

By August 1931, both East Texas and the petroleum market as a whole were in total anarchy. Production in East Texas was now over a million barrels per day, equivalent to almost half of the entire American demand, and crude prices had plunged to thirteen cents a barrel. Oil from Texas was even underselling Russian petroleum in Europe. Prices at the wellhead in Texas and elsewhere in the United States were so far below production costs, which averaged around eighty cents a barrel, that they portended ruin for most oil producers in Texas and around the country. The day after producers in East Texas called for a voluntary shutdown to help boost prices, output actually went up still further. Violence was in the air; there was talk that dynamite was being brought in to blow up wells and pipelines. The Texas economy, and perhaps law and order, were on the verge of collapse.3

For some time, Texas Governor Ross Sterling, a founder and former chairman of Humble Oil, had been vacillating about what to do. But now he had no choice; he had to act. He, in effect, declared war on East Texas. On August 17, 1931, he announced that East Texas was in a “state of insurrection” and “open rebellion,” and sent in several thousand National Guardsmen and the Texas Rangers, who showed up on horses, as the recent rains had made the roads impassable to motor vehicles. They set up their base on what was to be dubbed “Proration Hill” and, operating from horseback, shut down production within a matter of days. An eerie quiet settled in over East Texas as work in the oil fields ceased. Even the chickens, which had happily feasted on the millions of insects drawn each day by the continuous gas flares, were forced to “return to the prosaic ante-petroleum practice of scratching for worms.” Ancillary activities were also brought to a halt. The commanding general of the National Guard banned the wearing of “beach pajamas,” a garb favored by the busy prostitutes, and their business went into a sharp slump as well.

The oil shutdown actually worked; prices in the field rose from thirteen cents a barrel. The Texas Railroad Commission continued to issue prorationing orders, which were now enforced by state troopers. By April 1932, prices were almost back up to the magic dollar—ninety-eight cents. In the course of 1932, the Railroad Commission issued nineteen separate prorationing orders for East Texas, and each was declared invalid by the judiciary. Still, the market held firm and the stronger prices finally persuaded many independents, and the politicians who were responsive to them, of the value of the across-the-board allocation of cutbacks—prorationing. In November, Governor Sterling finally decided to give the commission the specific power it needed to counter “economic waste.” He called a special session of the state legislature and rammed through a bill allowing market prorationing. The new law was facilitated by a better understanding of the dynamics in the East Texas reservoir. The production pressure came not from gas, as had often been the experience elsewhere up until then, but from water—“water drive.” Rapid, chaotic production would damage the water drive and prematurely stunt overall output.

With the passage of the new law, market prorationing went into effect in Texas. Yet, despite the new powers of the Texas Railroad Commission to control output, the spring of 1933 looked to be as bad as, or even worse than, the summer of 1931. The commission had set the quota for East Texas far too high, wretchedly high, twice what was suggested by new engineering knowledge about “bottom hole” pressure. In addition, hundreds of thousands of barrels of oil were being illegally produced above the allowable quotas. This excess became known as “hot oil,” a term that was first coined in the East Texas field. It was said that, one chilly night, a state militiaman was talking to an operator suspected of producing above the allowable limit. The militiaman was obviously shivering, and the thoughtful operator suggested that he lean against a tank containing some of the suspect oil. “It’s hot enough,” said the operator, “to keep you warm.”

It was also hot enough to keep the oil industry in turmoil. The “hot oil” was being smuggled out of Texas and across borders into other states. The same was happening in Oklahoma, where prorationing was also supposed to be in effect. Altogether, between the high allowables and the hot oil, production in East Texas was again going completely out of control. The Texas Company slashed its posted price from seventy-five cents a barrel to ten cents a barrel. So vast was the flood, and so glutted the market, that some “hot oil runners” were having trouble finding markets at even two cents a barrel. To stanch the flow, several pipelines were mysteriously dynamited.

A demoralized William Farish, the president of Humble, wrote to Walter Teagle that only the shock and pain of very low prices could convince the independents that their long-term interests lay in control of production and unitization. Perhaps the point had been reached, added Farish, at which “the law of the tooth and claw” was the only recourse left to bring some order. At ten cents a barrel—and the even lower spot prices—that point had already been reached. But the oil industry also realized that it desperately needed outside help; state governments were not enough. Emergency help would have to come from another direction, from Washington. Some Texas producers urgently petitioned for Federal supervision of the Texas industry for the duration of the emergency. The alternative, they said, was not only the bankruptcy of independents but nothing less than the complete collapse of the oil industry as a whole.

And now, just in time, there was a new administration in Washington, Franklin Roosevelt’s New Deal. It was activist, ready to wage war on the Depression, committed to reviving the economy, and wholeheartedly prepared to intervene everywhere. The Federal government was keenly attentive to what was happening in Texas. Oil prices were too low, and it was willing to do whatever seemed necessary to rescue them.4

The Reformer

Roosevelt was inaugurated on March 4, 1933. To the politically sensitive position of Secretary of the Interior, a post still tainted by memories of Albert B. Fall and the Teapot Dome scandal, he appointed Harold L. Ickes. Described at first meeting by another member of Roosevelt’s Cabinet as “a plump, blond, bespectacled gentleman,” Ickes was a Chicago lawyer who had been a leading figure in progressive Republican and Progressive party politics for many years. He had managed Theodore Roosevelt’s Chicago campaign in 1912, and in 1932, was chairman of the Western Committee of the National Progressive League for Franklin Roosevelt. As his reward for helping Roosevelt win the Presidency, he set his heart on becoming Secretary of the Interior. He mobilized leading progressives to campaign for him and won the job. Roosevelt later explained that he liked the cut of Ickes’s jib. He also wanted a progressive Republican with Western credentials. What he got in Ickes was a man of powerful liberal convictions, strong passions, stinging polemics, pervasive suspicions, oversensitivity to any slight (real or imagined), immense self-righteousness, great dedication to duty, and a deeply ingrained moral conscience.

Ickes had been raised in a poor household by a stern Calvinist mother. As a boy, he was not even permitted to whistle on Sunday—a ban that was only lifted when he brought evidence to his mother of a minister observed whistling on a Sunday. Ickes was so good a student in high school that, when the Latin teacher fell ill, he took over and taught the lessons himself. As high-school class president, he also first practiced what he would later refine into an art: the impulsive resignation on grounds of high principle, only to have the resignation rejected by the powers that be. His high-school class would not accept his resignation. Decades later, neither would Franklin Roosevelt. To one of the several resignations Ickes was to proffer to Roosevelt, the President simply replied: “You are needed. … Resignation not accepted!”

As a young attorney filled with “restless reforming energy,” Ickes joined a host of campaigns in Chicago—against corruption and monopoly and social injustice; in favor of civil rights, women’s trade unions, and the ten-hour day. At one point, he even became secretary of the Straphanger’s League, the better to campaign for public transport. He also developed into an effective political manager—though always, it seemed, of reformers running against great odds, which led him to joke about his own “uncanny ability to pick losers!” But, finally, in 1932 he had picked his winner—Franklin Roosevelt. And as Roosevelt’s Interior Secretary, though always professing a selfless devotion to principle and duty, Ickes relished the accumulation of power, and very much intended to be a “strong man” who could say “no.” In addition to being Secretary of the Interior, he readily assumed the post of Oil Administrator, and also held the key New Deal position of Public Works Administrator.

Ickes threw himself into the intricate administrative details of all three positions. “With the spotty record of Interior always in mind,” he later wrote, “I slaved away over endless mountains of documents, contracts, and letters, refusing to sign anything that I had not personally read, lest one day it should rise to haunt me in the steam of another Teapot.” The “oil-besmeared Albert B. Fall,” as Ickes described him, had finally gone to prison in 1931, but he never seemed to be far from Ickes’s thoughts. After Harry Sinclair, one of Fall’s two paymasters, visited him in 1933, Ickes wrote in his diary, “I kept wondering whether the ghost of Albert B. Fall, carrying a little black satchel, might not emerge from one of the gloomy corners of this office.” The legacy of Teapot Dome made Ickes acutely fearful of corruption and consistently mistrustful of the oil industry. He was intent on restoring the morale and the reputation of the Interior Department. And to ensure that new financial scandals and fraud did not occur, he even set up his own internal investigating unit, which used wiretaps as a standard operating technique.

His own tenure in office, however, was almost immediately threatened by scandal of a different sort. Ickes had long been a partner in a terribly unhappy marriage, and soon after he was appointed secretary, he became romantically involved with a much younger woman. He found jobs in the Interior Department both for the lady and for her “fiancé”—in Washington for the woman and, quite conveniently, in the Midwest for the fiancé. It did not take long before anonymous letters threatening revelation of the affair began to appear, some of which found their way to various newspapers. The White House eventually became involved, at least to some degree, and Ickes’s own investigative branch established that the author of the letters was—not exactly a surprise—the fiancé. The romance faded away by 1934. The next year Ickes’s wife was killed in a car accident. Three years later, Ickes married a woman who was four decades younger than he was, and oddly connected to him. She was the younger sister of the wife of his stepson, who himself had recently committed suicide. Ickes “asked” Roosevelt’s permission before the marriage. The President waved aside the age difference. There had been a similar gap in age between his own parents, Roosevelt said.5

Bombarded from the moment he took office with a variety of opinions regarding the oil business, Ickes learned quickly and firsthand how “thorny” the petroleum situation was. On May 1, 1933, he wrote Roosevelt about the impending “utter demoralization” of the oil industry. Admitting that he could not sort out the fierce debate raging among majors and independents over the price collapse, overproduction, and waste, he declared: “But we do know that oil has been selling at ten cents a barrel in the East Texas field. We do know that this situation can not continue much longer without disastrous results to the oil industry and to the country.”

The industry itself, as well as the elected representatives from the oil states, were crying out for action from Washington. Even a large segment of the independents were, in the words of the president of the Independent Petroleum Association of America, supporting legislation to “place unprecedented authority in the hands of the Secretary of the Interior.” But, while most were in agreement that action was needed, they were far from agreeing as to what specifically should be done.

On May 5, 1933, Ickes was handed a telegram as he was going into a Cabinet meeting; prices in East Texas had fallen to as low as four cents. Later that same day, he received another telegram, this one from the Governor of Texas, saying that “the situation is beyond the control of the state authorities.” Three days later, Ickes warned that “the oil business has about broken down and … to continue to do nothing,” he added, will “result in the utter collapse of the industry,” with a huge loss in terms of the nation’s oil reserves. Harold Ickes and the New Deal were ready and willing to step in and do something.

The crisis of the oil industry was addressed initially under the aegis of the National Industrial Recovery Act and the National Recovery Administration that it spawned, the system of business-government cooperation that was meant to stimulate economic recovery, reduce competition, strengthen the position of labor and, in the process, more or less gloss over antitrust laws. But oil would be handled differently from most other industries in that control was eventually lodged not in the NRA, but in the Interior Department, where Harold Ickes held undisputed sway.

Rooted in the progressive, trust-busting tradition of Ida Tarbell and Theodore Roosevelt, Ickes had spent much of his career campaigning against “interests.” He was not exactly an advocate or even a friend of business, and he was grimly amused by how the once-proud businessmen, now shell-shocked by the Great Depression, were seeking help from the Federal government. “So many of these great and mighty” from the business world, he observed after attending a dinner at the United States Chamber of Commerce, “were crawling to Washington on their hands and knees these days to beg the Government to run their businesses for them.”

Neither politics nor experience nor temperament had made Ickes sympathetic to the business of oil, but he was to come to its rescue and champion its future. In his view, the stakes were very high indeed. “There is no doubt about our absolute and complete dependence upon oil,” he said. “We have passed from the stone age, to bronze, to iron, to the industrial age, and now to an age of oil. Without oil, American civilization as we know it could not exist.”6

The Government Acts

Ickes started with prices. As he saw it, the price of oil, like that of other commodities, was too low. Prices of all such raw materials needed to be shored up, in order to help restore purchasing power to the economy. Oil men, like producers of other raw materials, could not continue to sell their products below cost. Ten cents a barrel would contribute to the prolongation of the Depression. For prices to be raised, production had to be controlled, and to bring production under control, Ickes began with an all-out campaign against the “hot oiler,” who was, he said, equipped with “sly animal cunning.” The leaks of hot oil, though composed of thousands of different streams, were adding up to a mighty flow—estimates in 1933 ran as high as half a million barrels per day. This bootleg oil was secretly siphoned off from pipelines, hidden in camouflaged tanks that were covered with weeds, moved about both in an intricate network of secret pipelines and by trucks, and then smuggled across state borders at night. At every clandestine step, the way was smoothed by graft and payoffs. It all added up to a big and a profitable business. Matters were made even worse by the fact that any firming of prices only provided an incentive to produce more hot oil, which flooded the market, and thus brought the price down again.

Hot oil was the great weakness of prorationing as it had so far developed, undermining all efforts to stabilize price. In order to sustain prorationing, there had to be a way to put teeth into the system, to police it, to plug the huge leak. The problem could not be solved solely at the level of Texas, Oklahoma, and the other states. The Federal government had to take on the role of policeman. But on what basis? The answer was to be found in the power of the Federal government to regulate interstate commerce. Legislation, hurriedly passed in 1933, gave the President the explicit power to ban and interdict “hot oil”—petroleum produced in excess of state-mandated levels—from entering into interstate commerce. Roosevelt himself was appalled by what he called “the wretched conditions” in the oil industry; and on July 14, 1933, he signed an executive order that would, Ickes wrote in his diary, “stop the carrying into interstate or foreign commerce of any petroleum, or the products thereof, produced in violation of the law of the state of their origin.” Ickes added, “Under the Executive Order, I am given broad powers not only to issue regulations, but to enforce these regulations.”

Ickes immediately dispatched Federal investigators into the East Texas field to examine refinery records, test oil gauges, inspect tanks, even to dig up pipelines to measure the accuracy of sworn records. Subsequently, Federal “certificates of clearance” were required to move any oil out of East Texas. Ickes acted with a vengeance to promote the arrest and prosecution of those who were called the “hot oil boys.” To one impatient congressman, Ickes pledged, “I have been moving heaven and earth in the matter.” Federal officials carried the brunt of this whole effort to interdict hot oil, as the state of Texas was by now so broke that it could not even afford to send in additional Texas Rangers.

The Oil Code, established under the National Industrial Recovery Act, gave Ickes an extraordinary additional power—to set monthly quotas for each state. A few years earlier, such government intervention would have been enough to ignite a rebellion among oil men everywhere; now it was welcomed and greeted with relief by many in the battered industry. Ickes was in charge, and he gloried in it. On September 2, 1933, aiming to reduce the country’s oil production by three hundred thousand barrels per day, Ickes sent out telegrams to the governors of the oil-producing states telling them what each state’s quotas—levels of production—would be. It was a historic act, a fundamental alteration in the way the industry operated. The days of flush production were over. With prorationing, the rule of capture was overturned. What had made sense for deer and game birds on estates in medieval England would no longer do when the very structure of the American oil industry seemed likely to be washed away by the otherwise uncontrollable fury of the flood of unrestrained production.

The restoration and stabilization of prices could have been sought in another way—by the government’s actually fixing prices. There was strong support for Federal price fixing from some in the industry who had been battered by the price collapse. “If you do not give us price regulations,” said a representative of Standard of California in 1933, “you can make codes from now to doomsday and you will get nowhere.” But there was also much opposition. Some feared that if the government began setting prices, it would then regard the oil industry as a public utility and start regulating profits as well. Ickes himself showed great eagerness, for a time, to take on the task of setting oil prices, which was enough to stir further apprehension. In fact, fixing a price could well backfire, by providing a big incentive to overproduction. Price setting, when compared to the regulation of production, also looked to be more difficult, more complex, more public, and surely much more contentious. Regulation of production was definitely the preferred method. And despite efforts to get that task assigned directly to Washington, the job was kept at the state level, where it would be less controversial, closer to the actual world of oil production, and much less visible.

The new system of Federal-state partnership was gaining substantial headway by the end of 1934. “We seem to be making good progress in matter of Hot Oil in E. Texas,” one of Roosevelt’s aides informed the President in December. But then, in the very next month, January 1935, the Supreme Court abruptly dealt the new system a potential death blow. It overturned the subsection of the National Industrial Recovery Act under which hot oil was prohibited, setting off a new crisis. Without control over hot oil, the whole system would collapse. To keep contraband oil—produced in excess of approved levels—out of interstate commerce, new legislation was speedily drafted and passed. The law became known as the Connally Hot Oil Act in honor of its champion, Senator Tom Connally of Texas. Then, in June 1935, the Supreme Court delivered an even worse blow. It declared much of the National Industrial Recovery Act unconstitutional. The specific case had nothing to do with oil; rather it involved “sick chickens” that had been sold by a poultry jobber in New York City in violation of an NRA code. Still, the voiding of the NIRA, among many other things, stripped Ickes of his power to set mandatory quotas for the states.

Yet the aftereffects were not anywhere near as devastating as would have been the case even a year or two earlier. By this time, a framework for the regulation of the oil industry had been set in place and a consensus established; both survived the demise of the NIRA. The system still involved Federal-state cooperation. As it now worked, the Connally Hot Oil Act provided sufficient police powers to curtail contraband oil. In addition, the Federal government, specifically the Bureau of Mines, prepared demand estimates for the coming period; then it “assigned” to each state a suggested share of that demand—a sort of informal, voluntary “quota.” With the end of the NIRA, the states were not required to accept that level; indeed, to show its independence, the Texas RailroadCommission, which had by this time become more professional and technically competent, occasionally exceeded the Texas “quota” by a little bit. But, essentially, the states adopted the Federal estimates as their own, and hewed to them, even though they were no longer mandatory.

A state could, of course, have greatly exceeded its quota. But, in so doing, it would have run the risk of reprisal from the Federal government and other states, and would have faced the peril of encouraging other states to overproduce as well, resulting in yet another glut and another price collapse. Thus, each state essentially accepted and acted on a federally suggested quota, then proceeded to prorate its output to fill its own share of the projected demand. The memory of ten cents a barrel was still strong both among oil producers and among the state governments that depended on oil revenues. And after all, major discoveries could be made again. As one legal expert wrote in the 1930s, “One must be somewhat of a prophet to feel that the experiences in the East Texas Field will never be repeated.”7

The role of the states was further formalized in 1935 with the establishment of the Interstate Oil Compact. The development of what the chairman of the Texas Railroad Commission called “this treaty” among the oil-producing states occasioned a major fight between Oklahoma and Texas. Oklahoma wanted to establish something akin to a cartel, which would have both the explicit authority to allocate the Bureau of Mines estimates of American oil demand to each of the oil states and the legal power to enforce adherence to the quotas. Texas was resolutely opposed to such a cartel. It did not want to surrender its sovereignty. Texas won, and the Interstate Oil Compact became much less than the cartel that some had hoped. Still, it provided a forum for states to exchange information and plans, to standardize legislation, and to coordinate prorationing and conservation in production.

There was, however, one further building block without which the system could not have worked—a tariff to check the flow of foreign oil. Otherwise, cheap imports would have simply flooded into the American market, negating any restraints on domestic production and creating a second stream of “hot oil,” outside the regulatory system. Despite the failure to add an oil duty to the 1930 Smoot-Hawley Act, agitation for such a tariff had continued to mount. In 1931, the main importing companies had agreed to reduce their imports “voluntarily,” to ward off attacks from independents, who preferred to blame low prices on the majors and foreign oil, rather than on their own rather wanton habits of production. But the voluntary restrictions on imports failed, as might have been expected.

By 1932, the distress in the industry and in the oil-producing states was sufficient to get a tariff passed through Congress and signed into law. A duty of twenty-one cents a barrel was imposed on crude and fuel oil, and $1.05 on gasoline. The tariff picked up support for another reason: It was a good source of government revenues in the midst of the Depression. The tariff was put in place just in time to provide the barrier to the inflow of foreign oil, and such a barrier was required if the new prorationing system was to work. The duties—supported by a “voluntary agreement” about the volume of imports in 1933 between Ickes and the main importing companies—did their job. In the late 1920s and early 1930s, imports had been equivalent to between 9 and 12 percent of domestic demand. (Of course, tariff proponents rarely noted that the United States remained a net oil exporter, and that American oil exports were as much as two times the volume of imports.) After the passage of the tariff, oil imports fell to a level equivalent to only 5 percent of domestic demand.

The country hardest hit was Venezuela; it had been supplying over half of U.S. crude imports, with 55 percent of its total oil production going to the United States in the form of crude and oil products. That country’s industry, which had boomed during the 1920s, went into a severe contraction; ships filled with expatriate oil men and their families sailed for home. Meanwhile, the companies operating in Venezuela hurried to reorient their exports toward the European market, and Venezuela overtook the United States as Europe’s largest supplier. By the mid-1930s, Venezuela had regained its previous high production level. But, for the domestic American oil industry, the tariff provided the protective dike behind which the rest of the regulatory system could subsequently be put into place.8

Stability

If some system of regulation appeared logical, even inevitable, the circumstances under which it emerged were nasty and disordered; the debates surrounding it, bitter and accusatory; and the entire process, rancorous and desperate. Moreover, it emerged in an incremental way, piece by painful piece, responding to the unfolding of events. It took East Texas and ten cents a barrel to shock the industry and producing states into moving in this direction. The process was facilitated by the major advances in petroleum engineering and in the understanding of the dynamics of oil production that had started in the mid-1920s. But it also required the Great Depression and the New Deal to make it happen. It was devised by an unlikely alliance of Texas and Oklahoma oil men, patronage politicians in Austin and Oklahoma City, and Ickes and other New Deal liberals in Washington. Though innately suspicious of one another, they nevertheless worked together to bring stability to an industry particularly prone to boom and bust because of the nature of oil discovery and the traditional way of exploiting newly discovered reserves. The terrors of 1933 had been banished. “There is,” the chairman of the Texas Railroad Commission wrote proudly to Roosevelt in 1937, “a complete cooperation and coordination at the present time between the Federal Government and the Oil producing states in this common effort to conserve this natural resource.” He was only modestly exaggerating.

Despite its haphazard growth, the regulatory system as it finally evolved did indeed possess a powerful underlying logic. It rewrote the book on production and even, to some degree, on what constituted “ownership” of oil reserves. It brought a whole new approach to production, technically as well as legally and economically. And it established a new direction for the American oil industry. Many years later, others operating on an even larger scale would seize on it as a compelling model.

Two working assumptions were central to the system. One was that the demand for oil would not be particularly responsive to price movements: That is, oil at ten cents a barrel would not mean a far greater demand than oil at a dollar a barrel. Demand could be taken as a given, and at least in the Depression, many found that a reasonable thing to think. The second assumption was that each state had its “natural” share of the market. If those shares changed dramatically, the overall system could be threatened. That was exactly what occurred in the late 1930s, when significant discoveries in Illinois made that state the nation’s fourth-largest oil producer. Illinois did not belong to the Interstate Oil Compact. It was a new producer, it wanted into the market, and it went its own way to carve out its own share. Texas and Oklahoma cut back substantially on their production to make way for the Illinois crude. They did not do this happily. There were recriminations and calls for the entire system to be scrapped. Texas announced that it might abandon prorationing altogether and go it alone. Yet the system withstood even the onslaught of new petroleum from Illinois.

Prices themselves were not fixed by the government under the system. Its advocates, whether in Austin or Washington, were insistent on this point. Still, setting production levels to match market demand did establish a level of crude output that could be marketed at a stable price. From 1934 through 1940, the average price of oil in the United States varied between $1.00 and $1.18 per barrel. The magical “dollar a barrel” rallying cry had been realized. The system worked. The flood was stayed. And, in the process, both the management of petroleum surplus and the relationship between oil companies and the government had been forever changed.9

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