The ABC’s of Communism Bolshevism 2011

Jason W. Smith, Ph.D.

 

Chapter 23: Capitalism Unfettered: 1861 – 1877

Unchained by success in Revolutionary War, US capitalists now faced the next enemy – namely, the fetters attached inherently to their new economy by the Slavocrats of the South. The Southern super-rich oligarchy of planters, a numerically tiny group, had negated the entire Bill of Rights for the Slave States. Freedom of the press meant only freedom of the slavocrat press and others were routinely murdered (shades of the KKK reign of terror against the South that was yet to come.) Unions simply could not be organized because thugs of the slavocrats immediately murdered organizers and any foolish enough to join up. So political democracy was extinct in the South except for the handful of propertied slave owners.

As importantly, the entire Slave South, was removed from the capitalist market place as slaves had no money and could buy nothing. Competing with slaves poor Whites had virtually no money and could not buy anything either! (Advancing Union Army troops consisting of White workers and farmers were truly stunned to find that White people in the south lived like “poor White trash”.)

For capitalism to develop beyond the stage of primitive accumulation in the Free States both workers and Northern capitalists would have to see it in their interest to destroy the Slavocrat economy. Finally, through an amazing series of collaborative compromises the Republican Party was formed and placed in position to benefit from the support of voting White workers and farmers to replace Slavery altogether – the sooner the better. This was the mass base of support for the Union during the coming Civil War.

The shackles and fetters of Slavery had to go. The way had to be cleared for the final battle between Capitalism and Slavery. – And, it was so cleared in the election of 1860.

John Brown

As the resistance to the Fugitive Slave Act spread throughout the North (and in the South where increasing numbers of slaves were taking to the ankle express as they headed south and north to Florida, Mexico and Canada) armed struggle broke out. Kansas and Nebraska were the scene of the most violent confrontations between free soilers and slavers. Leading the fight were men such as the abolitionist preacher John Brown.

Brown was ready to start the US Civil War right now (1859) and over the issue of slavery. He and his group prepared an attack on the Harpers Ferry US Armory. This military action was to support the political objective of initiating civil war by arousing the slave population to take up the now available arms at Harpers Ferry. In the event the Army was able to defeat the insurrectionists and killed them. But the fact the civil war did start immediately thereafter made John Brown a hero in legend and in music (John Brown’s Body Lies Smoldering in the Grave” and “Battle Hymn of the Republic”.) It would be four more years until Abraham Lincoln would issue the Emancipation Proclamation. But, be there no doubt, John Brown’s insurrection against slavery and the Government that enforced it was the first shot fired in the US Civil War.

The Civil War Accelerates Industrialization and Agricultural Mechanization

Cyrus McCormick began manufacturing the “reaper” for harvesting cereals in 1834. The Civil War and its demand for bread and flour for the Army exploded the demand for these crops, and in turn a demand from many farmers to own and utilize automatic harvesters. Factories in the North were busy.

Equally dramatic increases in the Union Army’s demand for shoes and clothing brought about the complete factory-installed machinery production of these commodities in the North. Thousands of new machines were invented and brought on line in the years 1861-1865. Truly unskilled labor was placed in large numbers at the factory bench and a teen-age (13 year old) girl with only hours or, at most, two days of training, could produce at these machines, more than a skilled journeyman of many years practice in his trade.

The railroads became the key to military operations and accordingly the manufacture of iron rails and the iron-horse locomotives also skyrocketed. As, necessarily, did the number of men now employed in what had become “war industries.” It was the US Civil War which brought the Great Republic not only freedom from slavery, but to the brink of equality with the advanced capitalist producers of Europe.

The most advanced workers, which is to say those with unions, had begun organizing to support the Union against the Slavocrats during the Lincoln campaign culminating in his November, 1860, victory, and they got off to a big start in January of 1861. As the year progressed and the war got underway, organized labor in all of the industrial cities of the North and the Border States issued declarations in support of Lincoln and the Union; organized “volunteer” units for the Federal Army, and voluntarily subordinated wage and hours demands with employers having federal Army contracts.

Before this was all over US workers made up half of the Federal Army. This, of course, meant that more and more women and children would be employed in war industries.

The Invention of Oil Drilling

In 1854 Professor Benjamin Silliman Jr. was hired by New York attorney George Bissell and New Haven Bank President James Townsend to determine if Petroleum (rock oil) could be used as an illuminant and as a lubricant in the place of other oils and especially coal oil. Silliman had to fight for his $500+ fee (about $5000.00 in 1990 dollars according to oil scholar Daniel Yergin) but in writing the report and becoming a share holder in the Pennsylvania Rock Oil Company he succeeded in triggering the modern oil and gas industry.

The banker James Townsend lived in the same New Haven hotel as Edwin L. Drake. Drake was unemployed but persuasive, and Townsend recruited Drake to go to Titusville Pennsylvania and drill for oil in 1857. Drake (by now having assumed the title of Colonel) hit oil in August 1859, at a depth of 69.5 feet. Drake used what were then standard water-well drilling techniques and the water-well drilling crew to go with it.

Prior to Drakes use of drilling techniques all the worlds oil had been produced by standard “mining” techniques: in other words, by “digging” for oil. Pits had been dug in places where oil was literally seeping from the ground, such as Galicia and Romania. As a matter of interest near the Black Hills (the Wyoming-South Dakota border) Native Americans were extracting oil by mining as were incoming White pioneers. By 1859 some 36,000 barrels of oil were produced annually in Europe mostly from these near surface pits dug by farmers in their spare time.

At this point the major consumer product to be obtained from raw or “crude” oil was kerosene for illumination. Just before Drake struck it big at Titusville the Americans had imported the Austrian invented kerosene burning glass chimney lamp. This had eliminated the problem of uneven burning of kerosene which produced both smoke and an offensive odor in lamps hitherto in use in North America. A contemporary Coleman lamp is a rather exact equivalent and such lamps, and small stoves, are still used widely in so-called Third World countries.

In addition oil was needed as a lubricant in all of the new capitalist machinery that had become commonplace in the US and Europe in the eighty years from 1781 and 1861 (from Yorktown to the Civil War.) Gasoline had very limited usage and was virtually a waste product of the primitive refining system used to separate kerosene (invented to refine coal oil into kerosene) and lubricating oils from crude oil. For the most part natural gas was simply vented and burned although in a few cases people had learned to use it as a fuel. (Wherever you have oil you have natural gas and vice versa. This is a basic Law of petroleum geology.)

The State of Pennsylvania was about to experience the California Gold Rush, but this time, the object was not gold but oil.

Dawn of the Petroleum Industry

As we have seen, the first oil well in the United States was drilled in 1859. This well was drilled; that is it was not a “pit” where near surface oil was “mined.” The technique was what was called water-well cable drilling not the rotary drilling that would come several decades later; nevertheless it was a drilled well. It happened at Titusville, Pennsylvania and was the beginning of the oil age. (Some of this technology you will see in the movie There Will Be Blood.)

The Civil War had dried up the Southern supply of Turpentine which had been widely used in the northern States for lamp illumination. As we have seen, kerosene had just been proven to be an effective illuminant far superior to tu8rpentine, coal oil, or whale oil. Thus a substantial market existed already in the North. In cable drilling a bit is lifted and dropped in a hole; each time it is dropped it digs out a little bit more of the dirt it is going into. In rotary drilling, the drill bit is on the bottom end of a drill-stem of pipe that is in turn, turned by a diesel powered rotary grip at the floor of the drilling rig, and the drill stem (drill pipe screwed together with each pipe segment being about 30 feet in length) allowed to lower itself under the influence of gravity. In both cases the bit is lubricated and the incoming pressure of oil and gas offset by a drilling fluid. Today this drilling fluid technology is a science in itself but in those days it was just water. In time drillers would want three stands of drill-pipe available before they had to switch out one drill-stem (having already worked its way down, to its maximum extent) with another three pipe stand of drill-pipe. That is why you see such tall drilling rig towers (derricks) – that is, to hold three stands of pipe screwed together (each pipe being about 30 feet in length, a three-stand of pipe would be roughly 90 feet. Thus the need for a tower [derrick] to hold multiple 90 foot stands.)

The Civil War had dried up the Southern supply of turpentine for the North. Turpentine from the South had been widely used in the northern States for lamp illumination. As we have seen, kerosene had just been proven to be an effective illuminant far superior to turpentine, coal oil or whale oil. Thus, a substantial market for illuminant fuel already existed in the North. Now it could be quickly replaced by kerosene from Pennsylvania crude oil. Also, Lincoln was fighting the first industrialized war and all that northern machinery needed lubricating oils. Again it was Pennsylvania crude that provided the answer.

Three months before the Civil War ended at Appomattox in 1865, John D. Rockefeller bought out his partner in one of Cleveland’s most successful refineries. Rockefeller had what he called “Our Plan”. Namely, a plan to put order into the chaos of the oilfields and the refining and distributing system via monopoly. Over the next five years he established a monopoly on refining virtually all of the oil coming out of Pennsylvania which was the only US producing State. Rockefeller had become a specter haunting, indeed terrifying, Pennsylvania oil men – who were after all the only oil men in the USA.

Inventing the Standard Oil Trust

Producers were not the only capitalists frightened by Standard. Virtually the entire remaining capitalist class was in fear. As a consequence of the failure of oil capitalists to control Rockefeller and the elimination of any remaining competitive ways to cut him down to size, other sections of the US capitalist community began to use the State governments, which they still held firmly in their hands, at least in most States, in a series of legal initiatives against Standard Oil and against John D. Rockefeller personally. In State after State the capitalist press turned against Standard and important people in the capitalist class of each of these States introduced legislation in the State Legislatures and in the State and even Federal courts lawsuits aimed at taking down both Standard and Rockefeller.

To make a long story short Rockefeller and his new and closest friend and business collaborator Henry Flagler came up with a way to immunize themselves and their joint endeavor from these assaults. It was called the Trust.

US law at the time did not allow one company to own and control other companies. Furthermore, even if it had, that would not provide Rockefeller with any real immunity from these attacks – in fact, it would have just the opposite effect as a legal challenge in the Legislatures or in the Courts against one company would effect all the others in its portfolio.

To get around this, Rockefeller had for a number of years, placed his subsidiary companies in the hands of his individual shareholders. The Trust institutionalized this system by putting the value of all of the Rockefeller companies – hundreds if not thousands of them – into the form of shares in a Trust which was directed by a Board and the shares held by the Trustees. Rockefeller and Flagler owned 25% of 700,000 shares and the remaining bulk of shares were largely in the hands of seven more Directors. The rest were doled out to many persons who had previously owned substantial portions of the stock of each of these individual Rockefeller companies. Thus, legal and legislative challenges were effectively negated as far as legislation and court decisions against any one company were concerned. How could you sue a Trust for the actions of a company whose only relationship to the Trust was the ownership of shares in the Trust by persons who operated or had previously owned some unrelated legal entity (company)? Well in this country anyone can sue anyone for any reason but whether the challenge will survive initial filing in the court in question is another matter. The nature of the law being what it was the Trust was an effective block to legal and in fact legislative originating regulation.

Actual operations of the constituent parts of the now unified oil industry owned by the Trust were undertaken by Committees. These committees were appointed by the directors of the Trust, chief among who were, of course, Rockefeller and Flagler.

Science at the Service of Capital

Rockefeller had a healthy appreciation for science; perhaps because of his own strong background in mathematics. However that may have been, he had been hiring geologists and chemists for some time before the Standard Trust was created. Certainly after the establishment of the Standard Trust Committee system, the presence of advising scientists acted as a buffer, if nothing else, against reprisal from stockholders in case something went wrong, Now the scientists began to pay off. First and most importantly in the discovery that oil with high concentrations of Sulfur could be made useable for conventional marketing by using copper oxide as a catalyst. Much the same as the world’s iron ores had been made universally useable by lining blast furnaces with dolomite rock (magnesium carbonate) to remove the Phosphorous so prevalent in so many of the world’s iron ores. Chemical engineering was to become critically important for the Pennsylvania crude was about to be supplemented by a new US source where an evil smelling sulfur content rendered the crude unpalatable for kerosene lighting.

Moving to Control Production

The remaining Achilles Heel to be mended or entirely replaced was the uncertainty of the supply of the raw material, crude oil. After all there are objective as well as subjective aspects to every venture and as masterful as Rockefeller and Flagler had been in controlling their subjective roles they still had to face the fact that all of the oil they controlled had come from one State. If the oil ran out, as many experts believed was inevitable, the entire monster they had created would die like the Giant in the Jack and the Beanstalk fable. Then they got a break. In 1884, large pools of oil were discovered on the Ohio-Indiana border. Shortly, a third of US production would come from these. As we have seen, Rockefeller’s chemists found a way to remove the sulfur and suddenly a new world of source material opened up.

As much as he hated to get involved with the mining-camp style chaos of oilfield production, Rockefeller knew he had little choice if he was to secure an ongoing source of crude. How to do it?

He decided to start buying every lease in the Pennsylvania, Ohio and Indiana oil districts he could get his hands on. Standard’s initial strategy to avoid crude oil depletion was to get on with the purchase of every drop of oil it could get its hands on. Leasing was the key because before you could drill you had to have a right to the subsurface mineral rights and that was the land-leasing right. US capitalist farmers had long since secured their absolute land rights including the subsoil rights so one had to play the game within that constraint.

By 1891 Rockefeller had gone from being a non-player to owning 25% of US producing leases. Standard was now vertically integrated. Starting with the oil producing lease and the drilling itself, Rockefeller oil went into the Standard pipeline and storage tank system. Then the oil headed for Standard refining via transportation by Standard pipelines or railroad (all of these railroads were in Standards pocket via the use of “rebates” we will discuss later) and then wholesale in Standard tins to the major consuming termini, where the retail sale directly to the consumer of a broad-spectrum of oil products, especially kerosene and lubricating oil, finally occurred.

Although by the last decade of the 1800’s Standard had some 80 to 85 percent of the US oil business there were still the other small potatoes to worry about. In fact, there were major competitors at home about to emerge, and still more abroad.