Hostname: page-component-78c5997874-m6dg7 Total loading time: 0 Render date: 2024-11-15T06:04:58.119Z Has data issue: false hasContentIssue false
  • English
  • Français

Origins of Federal Oil Regulation in the 1920's*

Published online by Cambridge University Press:  11 June 2012

Norman Nordhauser
Norman Nordhauser
Affiliation:
Assistant Professor of History, Southern Illinois University
Get access Rights & Permissions [Opens in a new window]

Abstract

The 1920's and early 1930's witnessed the beginnings of federal oil regulation in the United States. Professor Nordhauser argues that oil executives rather than government officials led the way in the movement for regulation and that their dominant goals were the stabilization of prices and profits.

Type
Articles
Information
Business History Review , Volume 47 , Issue 1 , Spring 1973 , pp. 53 - 71
Copyright
Copyright © The President and Fellows of Harvard College 1973

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

1 “Major” oil companies in the 1920's included the Standard Oil Group, which manufactured 40 per cent of American gasoline, and the dozen or so giant corporations which produced another 24 per cent. The remaining third of U.S. manufacturing was handled by 350 small or “independent” refiners. See Report of the Federal Trade Commission, Petroleum Industry: Prices, Profits, and Competition (Washington, D.C., 1928Google Scholar) (hereafter cited as FTC, Prices, Profits, and Competition), 76–77.

2 For example, see Hawley, Ellis W., “Secretary Hoover and the Bituminous Coal Problem, 1921–1928,” Business History Review, XLII (Autumn, 1968), 247–270.CrossRefGoogle Scholar

3 On mobilization of the petroleum industry, see Williamson, Harold F. et al. , The American Petroleum Industry: The Age of Energy, 1899–1959 (Evanston, III., 1959), ch. 8Google Scholar; Nash, Gerald D., United States Oil Policy: Business and Government in Twentieth Century America (Pittsburgh, 1968), ch. 3Google Scholar; Bates, J. Leonard, The Origins of Teapot Dome: Progressives, Parties, and Petroleum, 1909–1921 (Urbana, III., 1963), ch. 8.Google Scholar Some materials on the war experience were found in Record Group 67 (Records of the U.S. Fuel Administration), National Archives, Washington, D.C. (hereafter cited as RG 67), and in the Mark Requa Papers, Ace. No. 776, Western History Center, University of Wyoming, Laramie.

4 Oil and Gas Journal (hereafter cited as OGJ), April 19, 1917, 1; National Petroleum News (hereafter cited as NPN), May, 1917, 7, December 19, 1917, 8, January 2, 1918, 6–8; see also Baruch, Bernard, American Industry in the War (New York, 1941), 15–29.Google Scholar According to Chairman Bedford, the PWSC's role was to assist the government in filling its orders for petroleum products during the emergency, and “to do so in such a manner as to interfere as little as possible with the industry in its relation to normal business.” To insure that war-related industries would receive oil supplies, the PWSC worked with the Oil Division of the U.S. Fuel Administration, headed by California oil man Mark Requa, to establish a priority list for deliveries of fuel oil to key domestic consumers. Otherwise the main interference with business-as-normal was the appeal for gasolineless Sundays. Despite the enormously increased demand for petroleum products, the industry successfully avoided direct price fixing by the government. It was not until May 1918 that Requa, after several advances in the price of crude oil, finally urged the PWSC to restrain inflation voluntarily. In July 1918, the PWSC announced a price schedule that fixed oil prices for the next six months. See OGJ, January 3, 1918, 38; Minutes of PWSC meeting for July 13, 1918 and August 9, 1918, Mark Requa Papers; also, PWSC, “The Plan to Stabilize Prices and Maintain Uninterrupted Flow of Crude,” New York, August 18, 1918Google Scholar, RG 67, Box 2719.

5 OGJ, October 11, 1917, 39, November 22, 1918, 36, December 13, 1918, 44, March 14, 1919, 2, March 21, 1919, 38; NPN, June 26, 1919, 16. The PWSC had passed a resolution in August 1918 calling for an investigation of the advisability of creating a petroleum trade association. See PWSC, Minutes of meeting for August 9, 1918, Mark Requa Papers; Gibb, George Sweet and Knowlton, Evelyn H., History of Standard Oil Company (New Jersey); The Resurgent Years 1911–1927 (New York, 1956), 253.Google Scholar

6 OGJ, March 21, 1919, 2.

7 The steel industry, for example, provided a well documented case of the failure of postwar cooperation. See Urofsky, Melvin I., Big Steel and the Wilson Administration: A Study in Business-Government Relations (Columbus, Ohio, 1969), ch. 8.Google Scholar

8 Soulé, George, Prosperity Decade: From War to Depression, 1917–1929 (New York, 1968), 60, 85Google Scholar; FTC, Prices, Profits, and Competition, 328, Table 6.

9 Lane to Manning, September 24, 1919, Record Group 48 (Records of the Office of the Secretary of the Interior), File 1–242, box 425, National Archives, Washington, D.C. (hereafter cited as RG 48). Secretary Lane expressed his unlimited faith in oil executives: “I believe that whatever the body of oil men would agree upon would make for the best use of petroleum and for the protection of this fundamental resource of our industry.” On Lane's policies, see Bates, The Origins of Teapot Dome, ch. 5. About the effort to secure oil abroad, federal officials were much more bold. See Requa, Manning, and Smith to Harry A. Garfield, February 28, 1919, RG 48, File 1–242, box 424; API, Bulletin, October 31, 1920, 2; Nash, U.S. Oil Policy, ch. 3; Gibb and Knowlton, History of Standard Oil, 278–408; DeNovo, John A., “The Movement for an Aggressive American Oil Policy Abroad, 1918–1920,” American Historical Review, LXI (July, 1955), 854–876.Google Scholar

10 API, Bulletin, November 19, 1920, 4; December 9, 1921, 3; NPN, November 24, 1920, 25–26.

11 FTC, Prices, Profits, and Competition, 206, 311. On purchases of mid-continent crude oil by Standard of California, see NPN, February 18, 1920, 115; on shortages of crude oil among independent refiners, see ibid., January 7, 1920, 54. For a thorough study of conditions in California, see Federal Trade Commission, Report on the Pacific Coast Petroleum Industry (Washington, D.C., 1921–1922).Google Scholar

12 Ise, John, The United States Oil Policy (New Haven, Conn., 1926), ch. 12.Google Scholar While California production soared, new fields, such as El Dorado, were discovered in the midcontinent region. See NPN, January 19, 1921, 17–20.

13 FTC, Prices, Profits, and Competition, 206–210, 331–33; Ise, , U.S. Oil Policy, 107, 111–122Google Scholar; Soulé, Prosperity Decade, 96–126.

14 FTC, Prices, Profits, and Competition, 331–32; Gibb and Knowlton, History of Standard Oil, 674–75; Cassady, Ralph Jr., Price Making and Price Behavior in the Petroleum Industry (New Haven, Conn., 1954), 137Google Scholar, table 13.

15 OGJ, September 21, 1917, 4. See also Marston, Glenn, comp., Principles and Ideas for Doherty Men: Papers, Addresses and Letters by Henry L. Doherty (Henry L. Doherty & Co., New York, 1923–1924), 6 vols.Google Scholar Total assets of Doherty's company in 1924 were surpassed only by the Standard Oil Group and by Sinclair's Consolidated Oil Corp. See Cook, Roy C., Control of the Petroleum Industry by Major Oil Companies (Washington, 1941), 60.Google Scholar

16 API, Bulletin, November 19, 1920, 8; NPN, October 16, 1918, 21, December 11, 1918, 28. In 1920, Doherty reported that there would be enough oil “for us and our children and our children's children.” Marston, comp., Principles and Ideas, V, 198.Google Scholar

17 Moody's Manual of Investment (1923), part 1, 1995, and (1924), 1678; NPN, May 30, 1923, 124. In June 1921, Doherty announced that overproduction would not last but Cities Service would have to pay its dividends in scrip. Dividends to common stock declined from $18,000,000 in 1920 to $7,000,000 in 1922. Another writer estimated that in 1921 earnings from the oil division of Cities Service dropped to one-third of what they had been the previous year. Marston, comp., Principles and Ideas, V, 234.Google Scholar

18 Doherty's memorandum, n. d. (probably September 6, 1923), Record Group 70 (Records of the Bureau of Mines), File 651, National Archives, Washington, D.C., (hereafter cited as RG 70).

19 Ibid.

20 Ibid.

21 While Doherty called for laws to conserve oil, he also pioneered in the development of fuel oil for household heating. Doherty urged the industry to exploit this new market for oil especially because householders could afford to pay more for oil than almost all other customers. See NPN, November 28, 1923, 22, December 19, 1923, 33G-J, November 26, 1924, 48–49.

22 Ibid., September 19, 1923, 108, October 10, 1923, 25–26.

23 Teagle to Board of Directors, September 22, 1923, RG 70, File 651; Gibb and Knowlton, History of Standard Oil, 432–33; Larson, Henrietta M. and Porter, Kenneth Wiggins, History of Humble Oil and Refining Company: A Study in Industrial Growth (New York, 1959), 251–53.Google Scholar

24 Beaty to Doherty, October 10, 1923, RG 70, File 651.

25 Doherty to Beaty, October 12, 1923, and Beaty to Doherty, October 16, 1923, RG 70, File 651.

26 At one point, Beaty admitted that Doherty's plan “rather appeals to me as something to dream on, but it is another thing to revolutionize the industry.” API, Bulletin, December 31, 1924, 18–19.

27 Doherty's memorandum, n. d. (probably September 6, 1923), and Doherty to George Otis Smith, August 23, 1924, RG 70, File 651.

28 Doherty to Beaty, October 12, 1923, and October 20, 1923, RG 70, File 651.

29 Doherty to Bain, Ocotber 20, 1923, RG 70, File 651.

30 Bain to Doherty, December 10, 1923, and, Doherty to Coolidge, August 11, 1924, RG 70, File 651. See also Bates, J. Leonard, “The Teapot Dome Scandal and the Election of 1924,” American Historical Review, LX (January, 1955), 303–322.CrossRefGoogle Scholar

31 Ibid.; Doherty to Smith, August 23, 1924, RG 70, File 651. Doherty's scenario of a governor's conference followed by a request for state legislation and then a proposal for federal legislation, roughly outlines the history of the oil industry during the Hundred Days of 1933.

32 Bain had advised Doherty in January 1924 to discuss his unit operation idea with Mark Requa and Ralph Arnold, two well-known oil men who helped organize Coolidge's California campaign. After the victory in November, both Arnold and Requa proved to be enthusiastic advocates of government-business cooperation for production control. It was probably the combined counsel of Requa, Bain, Arnold, and a few other Interior Department officials that finally led the Coolidge Administration to take some action in response to Doherty's proposals. See Bain to Doherty, January 17, 1924, RG 70, File 651; OGJ, February 26, 1925, 27; Coolidge to the Secretaries of War, Navy, Interior, and Commerce, December 19, 1924, RG 70, File 651.

33 An influential Bureau of Mines official informed Secretary of the Interior Hubert Work that the “fundamental conception” of the Conservation Board “is that any regulation of the industry that may be found necessary should be maximum from the industry itself and a minimum by Governmental agencies.” Memo, F. B. Tough to Work, January 8, 1925, RG 70, File 651.

34 Replies to the questionnaire are in Record Group 232 (Records of the Federal Oil Conservation Board and Petroleum Administrative Board), National Archives, Washington, D.C., boxes 6, 23, 26–30 (hereafter cited as RG 232). See also Interior Department, Press Release, January 12, 1925, RG 232, box 31.

35 Teagle to Work, July 15, 1925, and Beaty to Work, February 2, 1925, RG 232, box 27.

36 See Interior Department, Press Release, January 17, 1925, RG 232, Box 31; API, Bulletin, January 24, 1925, 2, 7.

37 API, American Petroleum Supply and Demand: A Report to the Board of Directors of the American Petroleum Institute by a Committee of Eleven Members of the Board. (New York, 1925), 3–5, 23–26.Google Scholar The optimism of the API study rested on several predictions, the most important of which was the “billion acre reserve.” Geologists acknowledged that there were slightly more than 1,000,000,000 acres of American soil which might possibly contain underground petroleum deposits. Since most of this area was untested, the API report assumed a high number of future discoveries. Besides Doherty, Mark Requa and George Otis Smith questioned these assumptions. See Requa to J. Edgar Pew, November 20, 1925, l-J/59, Hoover Presidential Papers, Hoover Library, West Branch, Iowa (hereafter cited as Hoover Papers); Smith to Work, August 21, 1925, RG 232, box 23.

38 FOCB, Complete Record of Public Hearings February 10 and 11, 1926 (Washington, D.C., 1926Google Scholar). In May 1926, Charles Evans Hughes, representing the API, presented a brief to the Conservation Board demonstrating that, under recent Supreme Court interpretations, the federal government lacked the constitutional power to regulate oil production. See FOCB, Public Hearing May 27, 1926 (Washington, D.C., 1926), 3–8, 13–22.Google Scholar For Doherty's reply, see FOCB, Press Release, September 1, 1926, RG 232, box 31.

39 Rochester to Work, June 14, 1926, RG 232, box 12.

40 FOCB, Report of the Federal Oil Conservation Board to the President of the United States (Washington, D.C., 1926).Google Scholar For the failure of industry-wide cooperation in the mid-twenties in other areas, see Galambos, Louis P., Competition & Cooperation: The Emergence of a National Trade Association (Baltimore, 1966Google Scholar), and Hawley, “Secretary Hoover and the Bituminous Coal Problem, 1921–1928.”

41 Hubert Work, “Conservation's Need of Legal Advice,” address before the American Bar Association, Buffalo, New York, August 30, 1927, RG 232, box 31.

42 Williamson, et al., American Petroleum Industry, 322–25; Rister, Carl Coke, Oilt Titan of the Southwest (Norman, Okla., 1949), ch. 17.Google Scholar For efforts to control Seminole production, see Minutes of the meeting of the oil executives before the FOCB, May 25, 1927, RG 232, box 9; OCJ, May 12, 1927, 29; FTC, Prices, Profits, and Competition, 189–193.

43 See American Bar Association, Legal History of Conservation of Oil and Gas (Chicago, 1939).Google Scholar

44 “On Marland's efforts, see RG 232, box 9; API, Bulletin, January 12, 1927, 1; OGJ, February 3, 1927, 31, February 10, 1927, 42, March 3, 1927, 32. Mark Requa, oil advisor to Wilson, Coolidge, and Hoover, was impressed by the Marland bill and wrote to financier Bernard Baruch in 1927 that if the bill is passed “it must inevitably stabilize production. This, in turn, means higher prices. … This, in turn,” he added, “means that there will be an opportunity to make a great deal of money in petroleum shares and petroleum properties if the proposed program is finally brought about.” Abandoning the discretion with which presidential advisors are supposedly clothed, Requa ended by urging Baruch to join in setting up a $500,000 organization to buy and deal in oil properties and securities. Requa to Baruch, February 12, 1927, General Correspondence, Baruch Papers, Princeton University Library, Princeton, N.J.

45 Larson and Porter, History of Humble Oil and Refining, 247–263; Robert E. Hardwicke, “Legal History of Conservation of Oil and Gas in Texas,” in ABA, Legal History, 214–286; OGJ, January 31, 1929, 56, February 7, 1929, 32, 58, 60. See also Teagle to Hoover, December 7, 1929, Hoover Papers, box l-E/203; and Chandler, Alfred D. Jr., Strategy and Structure: Chapters in the History of American Industrial Enterprise (Cambridge, Mass., 1969), 208.Google Scholar

46 See Farish to Rochester, June 22, 1929, RG 232, box 15; Requa to Wilbur, July 23, 1929, Ray Lyman Wilbur Collection, Hoover Institute, Stanford University, Stanford, Calif., box 13. Doherty did not approve of the new conservation program in the late twenties, of “holding back oil by arbitrary proration, in conflict with antitrust laws” instead of applying “scientific plans.” See Doherty to Senator George W. Norris, February 22, 1930, C-B/581, Hiram W. Johnson Papers, University of California at Berkeley. Doherty failed to take an active part in the conservation debate between 1927 and 1929 because of serious illness (neuritis and arthritis). See Turner (Director of the Bureau of Mines) to Judge Caster, November 27, 1929, RG 232, box 12.

47 Committee on Petroleum Economics, Report to FOCB, March 25, 1930, RG 232, box 6; see also J. Elmer Thomas to Smith, March 4, 1930, RG 232, box 7.

48 Nash, U.S. Oil Policy, ch. 7; Nordhauser, Norman E., “The Quest for Stability: Domestic Oil Policy 1919–1935” (Ph.D. diss., Stanford University, 1969), ch. 7.Google Scholar

49 Swain, Donald C., Federal Conservation Policy, 1921–1933 (Berkeley, Calif., 1963), 5–8, 62–66, 70–72Google Scholar; Bates, J. Leonard, “Fulfilling American Democracy: The Conservation Movement, 1907 to 1921,” Mississippi Valley Historical Review, XLIV (June, 1957), 29–57CrossRefGoogle Scholar; Hays, Samuel P., Conservation and the Gospel of Efficiency: The Progressive Conservation Movement, 1890–1920 (Cambridge, Mass., 1963), 2Google Scholar; Zimmermann, Erich, Conservation in the Production of Petroleum: A Study in Industrial Control (New Haven, Conn., 1957), 2.Google Scholar