Authors: Richard Kluger
The trust’s iron hand finally met firm resistance from its most crucial suppliers: the tobacco farmers. Dominant in all but the cigar trade, the trust did not have to bid at all at leaf auctions; it dictated prices, with disastrous effects on farmers who, for too long, tried to compensate with more abundant harvests. Prices eventually hit rock bottom, and farmers were making less than thirty cents a day. Desperate, they united, as the Grangers had out west a generation earlier to fight freight rates set by the railroads. The tobacco farmers formed cooperatives and “pools” to process and store their leaf until the trust was willing to pay a marginally humane price for it. In the Bright belt of North Carolina and Virginia, such efforts were stymied with pathetic ease by the trust’s buyers, who had only to offer a modestly higher price to a few farmers all too willing to break ranks; the cooperatives’ boycott soon became an exercise in futility. But the Burley growers of Kentucky and Tennessee were a more rugged breed. In the Black Patch region, where the dark leaf grew in greatest profusion, the cooperatives were animated by defiant pride; those who declined to sign up and instead trafficked with the hated trust soon found themselves spat upon, shot at, beaten, and the targets of night riders who thought their grievances justified terror toward any who would hot join with them. Storage barns went up in flames, and the trust’s facilities suffered the farmers’ wrath as well. It was close to all-out war.
When called on to defend his company’s merciless treatment of the tobacco farmers, Buck Duke labeled the fiercely resistant growers “socialist agitators” who were not, after all, indentured servants, and if they did not like the prices they were offered, they could either learn to plant less, thereby benefiting from
the law of supply and demand, or use their land for other crops. But eventually he edged his offering price up to eight or so cents a pound—about half a living wage.
VI
THEODORE ROOSEVELT
was a patrician, a puritan without being a prude, and an ardent patriot with a stern sense of duty. He had an instinctive hatred of unfair, undercover, and otherwise unscrupulous dealings. Here was an honorable man who devoted most of his life to unselfish public service. None of this could have been—or was—said of his fellow New York Republican James B. Duke, no admirer of the twenty-sixth President. In truth, Duke was among those party plutocrats who worked to deny Roosevelt the Republican renomination to his high office in 1904, the year that may be said to have launched his reputation as The Trustbuster.
Teddy Roosevelt’s beliefs about the evils of economic combination were far more nuanced, though, than history’s facile labeling would suggest. Indeed, his antitrust philosophy was something of a rationalized muddle, mirrored in the Supreme Court’s inconstant readings of the 1890 Sherman Act outlawing “unreasonable restraints” of trade or commerce. For Roosevelt, the size and power of corporations or any combination thereof were secondary to whether they served public as well as private ends. The monstrousness of a trust resided not in its scale or musculature but in exploitive self-aggrandizement that failed to contribute to the material quality of American life overall and was indifferent to the pernicious consequences of its acts on society. That is, there were “good” and “bad” corporations; to distinguish required careful weighing.
On succeeding McKinley, beloved by big business for a worshipful laissez-faire permissiveness, Roosevelt acted on his conviction that the social utility of the trusts was best determined in Washington by honest public officials and not left to the mercy of Wall Street. His key tool was the new Bureau of Corporations, set up in the Department of Commerce and Labor to assist contemplated Justice Department actions against restraint of trade. Seven such antitrust actions were initiated in Roosevelt’s first term, and their first fruits were the 1904 Supreme Court ruling to dissolve the Northern Securities Company, the vast iron web of railroads including the Northern Pacific and Great Northern roads carpentered into a single holding company. The “reasonableness” of the enterprise was not much debated, only its deleterious impact on the public. Once reelected, Roosevelt instituted thirty-seven new antitrust actions directed at, among others, Standard Oil, du Pont, Union Pacific, and the American Tobacco Company.
In the wake of the Northern Securities dismemberment, Buck Duke had
moved to make his goliathan creation less of a sitting target for Roosevelt’s trustbusters. The labyrinthine structure of Consolidated Tobacco, as his two principal divisions had been called since their fusion in 1901, was somewhat simplified, making less devious the control exercised by Duke and five Wall Street associates and spreading the rewards of the enterprise in a fashion more equitable to the minority stockholders, many from units long since bought out by the trust; the whole apparatus was renamed American Tobacco. But such a reshuffling of the deck did not alter the commanding hand Buck Duke held. The tobacco trust’s profits and dominance only grew. In the span between 1890 and 1908, American Tobacco netted 33 percent yearly overall on its tangible assets, profit margins on the sale of cigarettes averaged 40 percent, and an investment of $1,000 at the beginning of that eighteen-year period had produced a total return—
i.e.
, enhancement plus dividends received—of $36,000 by the end of it.
The Justice Department action filed against American Tobacco in mid-1907 named twenty-nine individuals, sixty-five American corporations, and two British companies. The government’s goal was not “punishment of immorality, but prevention of mischief consequent upon unification of control and destruction of competition.” Duke’s defense lawyers were far from apologetic. American Tobacco, they insisted, was innocent of antitrust activity, because it had neither cornered nor tried to corner the industry’s raw material supply, had not enjoyed rebates or other preferences in transportation, had not had exclusive use of manufacturing machinery (especially since the Bonsack patent had been vacated in 1895), and had not excluded others from the avenues of distribution. Nor was there anything intrinsically wrong or illegal about underselling competitors or pricing goods below cost to drive out weaker rivals or secret agreements or partnerships or arranging for exclusive distributorships or buying out competitors and pledging them not to reenter the fray. All these were characterized as “ordinary methods of competition” sanctioned under common law. Duke himself, testifying in federal court without notes or a regiment of attorneys attending him, was by turns refreshingly blunt and flagrantly artful. Every deal he ever made, he said, was intended not to destroy competition but only to “round out” his own company and to “get our fair share of the trade” or just to flat-out “make some money”. His audacity and defiance converged as he concluded, “We happen to have more of the brands that please the people and consequently we sell more tobacco.”
Of such guff, Duke’s most outspoken press critic, Josephus Daniels, wrote in the Raleigh
News & Observer
that the desires of Duke’s company were modest, after all: “All it wants is the earth with a barbed wire fence around it. The Tobacco Trust is a hog, and wants all the swill.” The federal trial court was less troubled by its greed than by its methods and found American Tobacco in violation of the law, but the final judgment was to come from the
Supreme Court in 1911. Meanwhile, the question remained: By Teddy Roosevelt’s standard, was American Tobacco a “bad” trust? Why pillory Buck Duke for having proven himself a master manager of men, money, machinery, and markets? His company, monopolistic or not, was not charging the public outrageous prices for its products, which were not, bear in mind, among the necessities of life. Should he have been indicted as a malefactor of wealth by a meanness of antitobacco spirit?
VII
BUCK DUKE’S
legal woes were Dick Reynolds’s manna. As the new health laws began to catch up with public spitting, sales of chewing tobacco declined, and smoking tobacco, which had accounted for about 60 percent as much per capita use of the leaf as plug at the turn of the century, surpassed it eight years later. Aware of the trend, R. J. Reynolds Tobacco pushed up its pipe tobacco sales tenfold in the first half-dozen years of the new century, but it was still a minor contender against such nationally known brands as Bull Durham and Duke’s Mixture. Reynolds needed a big winner and experimented with several new brands. One of them changed the entire course of Reynolds’s business.
The new product differed from other Reynolds merchandise in two notable ways. First, the boss finally put aside his regional chauvinism, in the form of exclusive use of Bright leaf in the company’s products, and tried a blend of Burley, with its greater tolerance for flavorful additives. To sterilize the Burley and cut its rougher smoking qualities, they bathed the leaf in a licorice infusion and applied for a patent for the process on the claim that it produced a less irritating smoke. No data or authority was provided to support the claim, and of course calibrating the gentleness of taste is a highly subjective matter, but the government granted the patent all the same, and the company would soon exploit it. The other notable departure was the name of the new entry. Reynolds brands usually had decidedly American names, simple, gritty, maybe a bit saucy. This one, doubtless in an effort to reach a higher class of customer, they named for the reigning king of England—well, almost. There was a risk in christening your brands after a living person; dignitaries had a way of going in and out of fashion with the public or, worse still, of dying. So they called the new pipe tobacco Prince Albert, as the monarch had been known all those years while waiting to ascend to the throne, and just so there could be no doubt that the company meant Edward VII and not his father, who as Victoria’s consort had the same name, the rounded tins that carried the picture of the prince in the mid-thigh-length overcoat he had made fashionable
bore the words “Now King” in large letters just beneath the oval bearing his likeness.
Reynolds himself fussed endlessly with the blend and the package, hesitating to move Prince Albert into the national marketplace for fear of the reaction from the trust for his breaking out of the product niche to which his company had been confined. But once the government filed its antitrust action against his parent company, Reynolds likely felt Duke’s high command could not afford to crack down on him without strengthening the hand of the trustbusters at the Justice Department. The public responded to the handy two-ounce red tins that made such an eye-catching package. The trust moved surreptitiously to hamper Reynolds’s supply of Burley leaf, but Reynolds was seen as the farmers’ friend, and the supply was forthcoming. For the first time now, the Winston-based company moved beyond its regional redoubt and hired a big-city advertising agency, N. W. Ayer of Philadelphia, to make a splash in national magazines. Touting Prince Albert as “the Joy Smoke” and “A Smoke Without a Sting,” the advertising campaign revealed that Dick Reynolds, when given half a chance, had more than a bit of the sriakeoil peddler in him. To call attention to the patented process by which the tobacco in Prince Albert had supposedly been tempered, Reynolds’s ads explained that “we control the process that takes the tongue-blistering bite out of the tobacco—so there can’t be even a near substitute.” There was not a shred of documented evidence in support of the claim, but the product had a pretty container, a pleasing taste, and the right price. Reynolds pipe tobacco sales doubled between 1909 and 1910.
The brand’s momentum threatened to slow after King Edward had the ill grace to die. Wags at the Winston factory proposed changing the “Now King” line beneath the Prince Albert oval to read, “Now Dead”. The product soon proved to be anything but dead; sales doubled again during 1911 and an additional 40 percent in 1912, by then representing one-third of the entire Reynolds output that year. Even so, the company held less than 3 percent of the U.S. pipe tobacco market. But the introduction of Prince Albert demonstrated that the Reynolds company had enough drive and flair to become something more than a provincial plug maker.
VIII
REYNOLDS
was not the only tobacco company to capitalize on the celebrity of the former Prince Albert. In 1902 the new king appointed as his royal tobacconist the firm of Philip Morris, Ltd., thereby reaffirming a relationship that had begun a quarter-century earlier when, as H.R.H. the Prince of
Wales, he had dubbed the Bond Street boutique his main supplier of cigarettes, his favorite form of smoking and one which he made popular in Britain’s fashionable circles.
By then the Morris family had long disappeared as proprietors. On Philip’s death in 1873, his widow, Margaret, and brother Leopold took over the business, soon boosted by the cachet of Prince Albert’s patronage. Leopold Morris bought out his sister-in-law in 1880 and was joined in the ownership by a Joseph Grunebaum; their advancing prosperity was confirmed the following year, when a public offering of stock ownership for £60,000 was oversubscribed sixfold, allowing the company to open manufacturing facilities at Poland and Marlborough streets. Their Bond Street shop by that time had a well-established competitor nearby, operated by Messrs. Richard Benson and William Hedges. By 1889, the year Buck Duke was forging his American Tobacco combine, little Philip Morris, Ltd., was offering free samples of its patented cork-tip brands by post and promising that they brought “Luxury to the Lips and Prevent all Tongue and Throat Irritations.”
The company gained ground until Leopold Morris was smitten by an opera singer whose attractions were matched by her expensive tastes. By 1894, the firm was in the hands of its creditors, and when it emerged from receivership, it was controlled by William Curtis Thomson and his family. The Thomsons nursed Philip Morris back to health, but it was still far too small a business to rate inclusion among the leading British manufacturers who united as Imperial Tobacco in 1901. But, its standing newly enhanced by the appointment as tobacconists to the crown, Philip Morris grew more prominent and began advertising in chic English periodicals. In a discreet 1907 ad, for example, the company called itself manufacturers of “highest grade Turkish cigarettes,” of which the most popular were “Philip Morris original London cigarettes,” which came in a little brown cedarwood box. Another British ad of that period depicted a uniformed pageboy in a pillbox hat who was proffering the reader a tray bearing cigarette packs; the headline read “Call for Philip Morris.”