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Origins of the American Tobacco Company

Published online by Cambridge University Press:  11 June 2012

Patrick G. Porter
Patrick G. Porter
Affiliation:
Graduate Student in History, Johns Hopkins University
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Abstract

During the 188's and 1890's, the innovations of James Buchanan Duke first disrupted and then rationalized the American tobacco industry. Duke's career and the early history of his American Tobacco Co. serve as case studies in both the history of business administration and in the coming of “big business” to the United States.

Type
Research Article
Information
Business History Review , Volume 43 , Issue 1 , Spring 1969 , pp. 59 - 76
Copyright
Copyright © The President and Fellows of Harvard College 1969

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References

1 A part of the research for this study was made possible through the financial support of the Institute of Southern History at Johns Hopkins University and the Ford Foundation.

2 Commercial and Financial Chronicle, September 13, 1890; U.S. Bureau of Corporations, Report of the Commissioner of Corporations on the Tobacco Industry (Washington, 1909–1915), 1, 64.Google Scholar

3 Bureau of Corporations, Report on Tobacco, I, xxxi.

4 Bureau of Corporations, Report on Tobacco, I, 13.

5 The quotation is from Brooks, Jerome E., The Mighty Leaf (Boston, 1952), 252.Google Scholar The number of cigarettes on which internal revenue taxes were paid jumped from slightly under 20,000,000 in 1865 to over 3,300,000,000 in 1895. See U.S. Bureau of Internal Revenue, Report of the Commissioner of Internal Revenue (Washington, 1895), 378–79.Google Scholar The product was apparently introduced into the United States in the 1850's, though this is not entirely clear. Heimann, Robert K., Tobacco and Americans (New York, 1960), 204Google Scholar, presents a persuasive case that the cigarette first appeared in the 1850's. Charles D. Barney & Co., The Tobacco Industry (New York, 1924), 19Google Scholar, places the date of appearance at about 1860; Young, William W., The Story of the Cigarette (New York, 1916), 8Google Scholar, says “about 1866;” and Landon, Charles E., “Tobacco Manufacturing in the South,” in Carson, William J. (ed.), The Coming of Industry to the South (Annals of the American Academy of Political and Social Science, Philadelphia, 1931), 44Google Scholar, asserts that the cigarette was introduced in 1867 from England.

6 Testimony of Francis S. Kinney, U.S. Department of Justice MSS relating to the case of U.S. v. American Tobacco Co., U.S. Circuit Court, Southern District of New York, Equity Case Files E 1–126, 1908, Records Group 60, National Archives. Hereafter cited as Circuit Court MSS.

7 McKelvey, Blake, Rochester: The Flower City 1855–1890 (Cambridge, Mass., 1949), 236–38Google Scholar; Tobacco, February 25, 1887.

8 Testimony of James B. Duke, Circuit Court MSS.

9 The importation of immigrant labor was a common practice for other domestic industries in need of skills. See Kirkland, Edward C., Industry Comes of Age (New York, 1961)Google Scholar, chapter XVI.

10 Heimann, Tobacco and Americans, 206, 212.

11 For example, J. M. and David Siegel, immigrant brothers from Kovno, Russia, worked for Goodwin & Co. in New York, were hired by the Dukes to supervise the Duke cigarette department in Durham for a time, and later set up their own company. See Paul, Hiram V., History of the Town of Durham, N.C. (Raleigh, North Carolina, 1884), 111–12.Google Scholar

12 In 1878, a trade journal observed that “in the last great strike of segar makers, the cigarette makers did not participate. Three years ago men were generally employed, and a strike took place – women were substituted, and no trouble has since occurred.” U.S. Tobacco Journalt November 2, 1878. The cigarette industry was an early example of the kind of semi-skilled, industrial labor force which the American Federation of Labor later found so difficult to assimilate. After the advent of machine production in the 1880's the labor skills required in the cigarette industry were further lessened, thereby further diminish ing the possibility of unionization.

13 See U.S. Tobacco Journal, June 19, 1877.

14 Tobacco, January 31, 1890.

15 See Jenkins, John Wilber, Duke, James B.: Master Builder (New York, 1927)Google Scholar; Winkler, John K., Tobacco Tycoon: The Story of James Buchanan Duke (New York, 1942)Google Scholar; and Rankin's, Watson S. pamphlet, James Buchanan Duke (1865–1925): A Great Pattern of Hard Work, Wisdom, and Benevolence (New York, 1952).Google Scholar

16 Testimony of James B. Duke, Circuit Court MSS.

17 Jenkins, James B. Duke, 65.

18 Excise taxes on tobacco products originated during the Civil War.

19 Testimony of James B. Duke, Circuit Court MSS.

20 Testimony of James B. Duke, Circuit Court MSS; Borden, Neil H., The Economic Effects of Advertising (Chicago, 1942), 221Google Scholar; and Jenkins, James B. Duke, 70–72.

21 Borden, Economic Effects of Advertising, 221.

22 Chandler, Alfred D. Jr., Strategy and Structure (Cambridge, Mass., 1962), 27Google Scholar; American Tobacco Co., “Sold Americani” (n.p., 1953), 20.

23 “The Beginnings of a Trust,” Collier's XXXIX (August 10, 1907), 15–16.

24 Jenkins, James B. Duke, 68; “The Beginnings of a Trust,” 15.

25 See Chandler, Alfred D. Jr., “The Beginnings of ‘Big Business’ in American Industry,” Business History Review, XXXIII (Spring, 1959), 6–9.Google Scholar

26 For an excellent analysis of the entrepreneurial function, see Schumpeter, Joseph A., The Theory of Economic Development (Cambridge, Mass. 1934), chapter II.Google Scholar

27 On the warehouse system, see Tilley, Nannie M., The Bright-Tobacco Industry 1860–1929 (Chapel Hill, North w Carolina, 1948), 19–308.Google Scholar

28 U.S. Bureau of Corporations MSS relating to its investigation of the tobacco industry, File 4766, sections 1 and 2, Record Group 122, National Archives. Hereafter cited as Bureau of Corporations MSS. See also testimony of tobacco broker John B. Cobb, Circuit Court MSS.

29 Testimony of James B. Duke, Circuit Court MSS.

30 See Jenkins, James B. Duke, chapters III and IV.

31 “The Beginnings of a Trust,” 15.

32 Defense stipulation marked Government Exhibit A, Circuit Court MSS.

33 Western Tobacco Journal, July 15, 1889, cited in Bureau of Corporations MSS, File 4766, sections 1 and 2. See Chandler, “Rise of ‘Big Business’,” 8. On petroleum, see Williamson, Harold F., Daum, Arnold, and others, American Petroleum Industry: Age of Illumination 1859–1899 (Evanston, Illinois, 1959), chapter 13.Google Scholar

34 Tobacco News and Prices Current, May 24, 1879; U.S. Tobacco Journal, June 7, 1879. See also statement by J. E. Bonsack on the invention of a cigarette machine by his uncle, James Bonsack, J. E. Bonsack MSS, Duke University Library.

35 Paul, History of the Town of Durham, 207–208.

36 Heimann, Tobacco and Americans, 212.

37 Testimony of James B. Duke, Circuit Court MSS.

38 Bonsack Machine Co. v. S. F. Hess & Co., 68 F. 125 (1895).

39 Ibid.

40 Wright v. Duke, 36 N.Y. Supp. 855 (1895).

41 See deposition by William H. Butler of the Kinney Co., Bonsack Machine Co. v. S. F. Hess & Co., 68 F. 126 (1895) and Wright v. Duke, 36 N.Y. Supp. 856 (1895).

43 Borden, Economic Effects of Advertising, 493.

43 Bureau of Corporations, Report on Tobacco, I, 63.

44 The feared prejudice may have been overestimated by the manufacturers. This prejudice is a bit difficult to understand. Perhaps the consumer would have regarded a machine-made cigarette as too artificial, as somehow not genuine. There was also a constant clamor by anti-tobacco leagues that the product was poisonous, particularly the paste used to hold the cigarette together, though paste was used in the hand-rolled products as well. The manufacturers may well have contributed to public fears through the nature of some of their advertising: Goodwin & Co., in pushing one of its brands, claimed a great advance in the kind of rice paper used to enclose the tobacco, and stated that smokers “have heretofore … been inhaling one of the deadliest poisons known.” Tobacco News and Prices Current, February 15, 1879; U.S. Tobacco Journal, September 7, 1878. Such maneuvers were hardly calculated to inspire public confidence. On the secrecy of the use of machines, see Tobacco, February 25 and June 10, 1887, June 8, 1888, January 17 and January 31, 1890.

45 Bureau of Corporations, Report on Tobacco, I, 63.

46 For an indication of the strange and wondrous advertising, see Tobacco, May 13 and December 23, 1887, January 20, April 6, and August 10, 1888.

47 Testimony of James B. Duke, Circuit Court MSS.

48 These data are drawn from the Report of the Commissioner of Internal Revenue for 1895, pp. 378–379. Figure 1 is derived from information in the same source.

49 Richard H. Wright to Francis S. Kinney, March 30, 1888, Richard H. Wright MSS, Duke University Library. See also Wright to James A. Bonsack, May 11, 1888 and May 28, 1888, Wright MSS.

50 James B. Duke to D. B. Strouse (president of the Bonsack Co.), December 12, 1889, James B. Duke MSS, Duke University Library.

51 Combination was discussed as early as 1885 at a meeting in Florida, and Duke and Kinney had considered an amalgamation in 1887. Testimony of Charles G. Emery, digest of evidence in the case of John P. Stockton v. American Tobacco Co., 55 N.J. Eq. 352 (1895), File 3017, Bureau of Corporation MSS.

52 Richard H. Wright to Charles Watkins, June 30, 1888, Wright MSS.

53 Richard H. Wright to James A. Bonsack, May 11, 1888, Wright MSS.

54 Western Tobacco Journal, October 28, 1889, December 23, 1889, cited in File 4766, Bureau of Corporations MSS.

55 Testimony of Francis S. Kinney, Circuit Court MSS.

56 Statement by James B. Duke, File 3077, Bureau of Corporations MSS.

57 File 4766, Bureau of Corporations MSS; Tobacco, March 21, 1890. Company reluctance to sink identity into a combination was a common problem, and an interregnum often occurred between combination and consolidation. For example, see the description of the formation of International Harvester in Garraty, John A., Right-Hand Man (New York, 1960), chapter VII.Google Scholar

58 Testimony of James B. Duke, File 3017, Bureau of Corporations MSS.

59 Testimony of Charles G. Emery, File 3017, Bureau of Corporations MSS.

60 Ibid..

61 The recently passed New Jersey general incorporation law made the acquisition of a charter in that state very easy.

62 Bureau of Corporations, Report on Tobacco, I, 66.

63 File 4766, sections 1 and 2, Bureau of Corporations MSS. See also the agreement of November 11, 1889 between the Bonsack Machine Co. and the constituent firms of American Tobacco, United Cigarette Machine Co. MSS, Duke University Library.

64 File 4766, sections 1 and 2, and File 4711, Bureau of Corporations MSS.

65 Testimony of James B. Duke, Circuit Court MSS; Files 4711 and 4766, sections 1 and 2, Bureau of Corporations MSS.

66 Bureau of Corporations, Report on Tobacco, I, 2.

67 This group of financiers had formed the Union Tobacco Co. through purchase of major producers of plug (such as Liggett & Meyers) and smoking tobacco (such as Blackwell's Durham Tobacco Co.).

68 Cigars were produced in very simple machines in small lots and could not be mass-produced by machine as could cigarettes. The cigar industry was characterized by many relatively small competitors, which made the task of acquiring a majority of output very difficult.

69 Bureau of Corporations, Report on Tobacco, I, part 1.

70 Duke wrote Oliver H. Payne (a financier and a member of the board of directors) from London after the completion of the agreement, saying he had made “a great deal with British manufacturers covering the world.” Duke to Payne, September 26, 1902, James Duke MSS, Duke University Library.

71 See U.S. v. American Tobacco Co., 164 F. 700 (1908), 164 F. 1024 (1908), 221 U.S. 106 (1911), 191 F. 371 (1911), and Federal Anti-Trust Decisions 1890–1917 (Washington, 1917), IV, 168–251.