Broken Trusts: The Texas Attorney General versus the Oil Industry, 1889-1909

Published by EH.NET (January 2004)

Jonathan W. Singer, Broken Trusts: The Texas Attorney General versus the Oil Industry, 1889-1909. College Station, TX: Texas A&M Press, 2002. xiii + 344 pp. $49.95 (cloth), ISBN: 1-58544-160-0.

Reviewed for EH.NET by Werner Troesken, Department of History, University of Pittsburgh.

Written by Jonathan W. Singer, Broken Trusts describes the efforts of Texas authorities to break-up Standard Oil’s dominance of the Texas oil industry. The book focuses on the Waters-Pierce Oil Company, a Texas firm affiliated with Standard Oil. After a long legal battle that began in 1889, Texas antitrust officials successfully drove Waters-Pierce out of the state in 1909. There have been a handful of other books and articles analyzing state antitrust enforcement during the late nineteenth and early twentieth century, but the literature on this front remains too small. And in this sense, Broken Trusts is a welcome and needed addition to an underdeveloped area of study.

The introduction sets out the key themes of the book, although once they are raised here they are rarely, if ever, returned to in later chapters. There appear to be two central claims. The first is that the threat of regulation alone can induce changes in business practices and behavior. This, of course, is not a novel claim. Recent studies in the economics literature provide ample evidence that the threat of government regulation often encourages firms to alter prices and behavioral strategies. There is, however, no effort to relate the historical experiences of Texas with this modern literature. The second claim raised in the chapter is that the existing literature on state antitrust enforcement is wrong to suggest that Texas antitrust laws were ineffective. Nonetheless, the author does not marshal any systematic empirical or statistical evidence to support this claim. Did oil prices in Texas fall as a result antitrust regulation? What about stock prices, or data on market share? The author’s own narrative suggests that before Texas ousted Waters-Pierce from the state, market share was already falling (see, for example, pp. 208-209).

Chapter 1 describes efforts to prosecute Waters-Pierce under the 1889, 1895, and 1899 Texas antitrust statutes. These efforts were rendered ineffective when lawyers for Waters-Pierce successfully challenged the constitutionality of Texas antitrust laws. Like Illinois, the Texas antitrust law of 1899 included a provision exempting agriculture from prosecution, a violation of the Fourteenth Amendment which guarantees all persons equal protection. In the course of recounting this episode, Singer makes two interesting observations. The first is that Waters- Pierce, like its parent Standard Oil, aggressively pursued low-cost distribution techniques including the use of iron barrels, and the introduction of horse-drawn oil tank wagons, both of which represented improvements over shipping oil in wooden barrels. The second is that the competitors of Waters-Pierce provided much of the impetus behind efforts to prosecute the company for antitrust violations. These observations square well with the work of Gary Libecap and others, although Libecap is neither discussed nor cited.

Chapter 2 has a this-happened, then that-happened quality that defies a simple and compact summary. Nonetheless, the basic points raised in this chapter appear to be that Texas continued to try to oust Waters-Pierce during the early 1900s, that the efforts were motivated in part by politics, and that new competitors were entering the oil industry and eroding Standard’s/Waters-Pierce’s market share (pp. 59-60). By the author’s own retelling, this market entry had much more to do with the discovery of new oil fields and technological change than with Texas antitrust enforcement.

Chapter 3 describes efforts by Texas to prosecute Standard Oil more directly. It describes resale price maintenance agreements between Standard Oil and Waters-Pierce, which acted as a distributor of Standard products. It also documents Standard Oil’s managerial control over Waters-Pierce, including the operation of dummy corporations and the takeover of Waters-Pierce’s operations in Mexico and replacing Waters-Pierce management with Standard management who in one case did not even speak Spanish. In this chapter, as in most other chapters, the author provides excessive details about legal procedures and objectives. Consider, for example, the topic sentence for a paragraph on p. 103: “Penn and N.A. Stedman then objected to the admission of a stipulation executed by the lawyers for Waters-Pierce and Texas regarding stock ownership by Standard Oil.” The rest of the paragraph continues in this vein.

Throughout this chapter, as well as the preceding chapter, the author seems too quick to attribute anti-competitive intentions to every practice that Standard and Waters-Pierce adopted. Resale price maintenance and exclusive dealing are simply assumed to have had anticompetitive effects and to have been adopted for such an illicit end. Similarly, even efforts to cut prices in a highly competitive environment are seen as predatory (p. 77). This chapter, and the book in general, would have been improved if the author had directly engaged the arguments of Chicago-School economists. Although Robert Bork is cited, the closest the author comes to considering Chicago-School arguments is offering extensive quotations from the managers of Waters-Pierce, who sometimes offered efficiency rationales for their behavior. This, of course, is a far cry from confronting the empirical and theoretical evidence actually adduced by Chicago-School economists.

Chapter 4 describes the culmination of Texas efforts to fine and oust Waters-Pierce from the state. Despite excessive attention on legal procedure, the chapter does an admirable job laying out the cases of the defense and the prosecution. Prosecutors argued that Waters-Pierce was little more than a front for Standard Oil, that it had used rebates and predatory pricing to undermine competition, and that the company had fraudulently substituted low-quality oil and sold it as a higher grade product. The prosecution based its case partly on the testimony of a former Waters-Pierce official who had taken business records with him when he left the firm. The defense tried to impugn the integrity of prosecution witnesses and argued that Waters-Pierce was simply a more efficient firm than its competitors. In the end, the jury found the prosecution more convincing, and judged Waters-Pierce guilty of violating the 1903 Texas antitrust statute. Waters-Pierce was stripped of its right to do business in the State of Texas and was fined $1.6 million. Waters-Pierce appealed the trial court’s decision, but had only limited success as higher courts sustained the important aspects of the trial court’s ruling. Chapter 5 extends the discussion in chapter 4, and focuses on the failed attempts of Texas officials to put Henry Clay Pierce in jail for perjury and antitrust violations.

Overall, this book is well-documented and thorough in its treatment of legal issues. It also does a fair job linking its findings with those of legal and business historians such as Bruce Bringhurst. However, two factors suggest Broken Trusts will have a limited audience, even among specialists in the field of antitrust. First, it does not adequately link its legal findings to the contemporary economic literature on antitrust. Second, because of its excessive focus on legal procedure and court testimony, the book makes for a dense, detail-packed, and difficult read.

Werner Troesken is the author of several articles on regulation and two books, Why Regulate Utilities? The New Institutional Economics and the Chicago Gas Industry, 1849-1924 (Michigan, 1996) and Water, Race, and Disease (MIT Press, forthcoming 2004).