The Whisky Trust: Greenhut, Sherman, and the Chicago Holdout (Part 2)

Transcript

The Trust

On November 18, 1918, a week after the nation celebrated Armistice Day and the closing of the bloody European War, a headline in the New York Times, harkened back to a previous conflict and the passing of one of it’s heroes. 

The elongated headline read: “Captain J.B. Greenhut, war veteran dies. (He) was (the) second man in Illinois...to Answer (the) call of President Lincoln. Career as a merchant here.”

Yes it is true, the Captain, who retired a brevet-Colonel served admirably in the war between the states, earning a hard won sterling reputation. And yes, after he left Illinois, his time in New York was as a merchant, taking over the Siegel-Cooper Company from its founder, doubling its size with the purchase of the B. Altman luxury department store across the street, and then watching it all fall into bankruptcy when bad financial practices mixed with a bank run that put an end to the endeavor. 

But to anyone who had fallen under his control in the 1880s and 90s there is a curious omission from this headline. His time as president of what would be known as The Whisky Trust. 

Not So Humble Beginnings

When the Austrian born, Chicago raised Joseph B. Greenhut arrived in Peoria, he found the wildly unorganized and unruly nature of the distilling business a total affront to his military sensibilities. Joseph saw an industry that just couldn’t get out of its own way, and the on again off again illegal pool system seemed to him to be toothless in the fight against overproduction in the market.

It was time to take matters into his own hands. He enlisted the help of his friend John Francis and the finances of his boss Nelson Morris and in May of 1887, at the age of 44, Joseph put John D. Rockefeller’s blueprint for success at Standard Oil in action and launched the Distillers and Cattle Feeders Trust of Peoria, Illinois.

To many, the initial success of this venture must have been breathtaking. Distilleries started piling into the Trust one after the other. First Peoria fell and then distilleries across the state of Illinois. 

I mean, sure everyone knew the whisky industry needed some kind of leadership and organization, but in signing a contract with the Trust, as a distillery owner, you were being asked for nothing short of utter subjugation. 

What was compelling these distillers to give up what was becoming a generational business to a board of nine trustees with total control?

Well, it was a sweetheart of a deal, with a sales pitch that was hard to ignore.

In testimony given during a federal investigation in the 1890s a local independent distiller named Charles Clarke suggested that, from the very beginning, he was courted heavily by the Trust with an offer that seemed almost ridiculous to refuse. 

The Holdouts

Out of any of Peoria’s distilleries, Clarke Bros & Company seemed like the least likely to give in to the aggressive Greenhut Trust.

For the two brothers Charles and Chauncey Clarke, distilling was in their blood. Their father Charles Sr had entered Peoria’s distilling scene early on, building out the modestly successful Clarke Distillery. 

But feeling he’d built the business about as far as he could, he decided in 1880 it was time to retire and leave the business to his two boys. But when that time came, young Charles Jr. was far from home.

Like his contemporary Theodore Roosevelt, Charles had been a sickly child and was out in Montana building up his strength while taking in the clean air and stress free lifestyle out on the frontier. 

But when he received his father’s message about the opportunity to take over the family business, he quickly rushed home and joined his brother in the everyday running the distilling operations. He had a strong passion for the business and immediately went on to develop a variety of whiskies and brands, almost too many to keep track of.

With all of this development and family pride, the Clarkes weren’t initially interested in what Joseph Greenhut and the Trust were selling.

So Greenhut provided several carrots as well as one big stick that would make the clutches of the Trust almost impossible to resist. First was the promise of huge profits. RIght off the bat he and his brother would receive 1,000 shares of stock valued by the Trust at $100 per share. A total estimated value of $3 million dollars in today’s money. But it wasn’t just the stock, they would still have jobs with the firm with contracts that would pay a nice hefty salary.

But if those carrots weren’t good enough, the stick came in the form of a warning. If you choose not to join the Trust - just look at the victims of the oil and sugar trusts. At their current size, the holdout distillery would have no way to compete with the prices being offered to consumers by the Trust’s whisky - they would be crushed and discarded - and with nothing to show for it.

Still, it wasn’t an easy decision for the Clarke Brothers. Slow to acquiesce, Charles really felt like they could produce a higher quality product and justify their higher prices, if they stayed on their own. But when the reality of the situation hit them and they started seeing their whisky slow in sales, they started getting nervous.

The reality of the situation was, very few were holding out against such a lucrative offer. Within months of its launch, the Trust had absorbed the capital stock of some 22 Illinois distilleries, including 11 of the Clarke’s Peoria neighbor distilleries. They had even spread their wings across the border into Ohio and Missouri. Within a year 81 distilleries had succumbed to the Trust’s mighty hands - to any casual observer, it appeared the days of the independent distiller were numbered. 

The Clarkes gave in. 

Immediately the Trust used its power to reorganize management and reduced the brothers to nothing more than employees of their own distillery. Charles would soon be sent off to California and Chauncey would find himself with a salary and shares of stock, but no distillery to manage. The family distillery their father had built would be dismantled, its equipment robbed, and the building torn down.

And for Charles, his sales job in California seemed a sham. Yes, he was sent out under the guise of selling the Trust’s whisky, but it was more about putting other distillers, like his own family’s distillery, in the clutches of the Trust. 

As soon as Charles' contract with the Trust ran out, he immediately went back to Peoria and started work on a brand new distillery. Going back to his original strategy of selling quality over quantity, he chose to not renew many of his labels, instead focusing his attention on Clarkes Pure Rye with the goal of restoring the family’s independent distilling heritage. A David in the shadow of a Goliath.  

But the Clarkes were truly the exception, not the rule for the Trust. 

And the tactic of acquiring distilleries, simply to dismantle them became a common practice. Less distilleries, less competition, the easier it was to control production and pricing and reap the rewards for the trustees.

It is said that of the hundred’s of distilleries the Trust purchased, only 10 or 12 actually operated. And if a distillery refused to succumb, there were two ways to get them to surrender. 

The long game strategy was to simply build a distillery near to the holdout, then lower prices and squeeze the poor bastards until they relented. And the long game strategy usually worked. But in Chicago, there was a holdout that looked like they’d need a little extra hand to be convinced. 

Enter the Trust’s short game strategy - threats and mayhem.

Henry Shufeldt’s Imperial Gin

In the City of the Big Shoulders stood one of the Whisky Trust’s biggest rivals and firmist of hold outs. 

Producers of Holland Gin, H.H.Shufeldt was a well known and dominant brand during the 1880s. It’s founders had come from two very different paths. Thomas Lynch was an Irish immigrant who skrimped and saved and worked hard to climb the ladder at a rectifying house run by George L. Crosby. He did so well financially while there that he ultimately purchased the business and renamed it Thomas Lynch & Co. 

Henry Shufeldt was a New York born distilling veteran with a decade of providing Chicago both Imperial Gin and Rye Malt Gin. 

Both men’s businesses were damaged greatly during the Great Chicago Fire in 1871 and it wouldn’t be long after that when the two men would agree to merge their businesses together.

With Thomas at the helm and a rebuilding Chicago, the sky was the limit. It didn’t take long for H.H. Shufelt to become the largest producer of Holland and Rye Gin in the country. 

But this success did not sit well with the Trust. And Joseph Greenhut was determined to bring the mighty rival under his thumb. But the Trust’s normal tactics weren’t working. And for good reason, what could possibly compel industry successes like Shufeldt and Lynch to give up control of an enterprise that was doing fine all on its own?

In fact, Lynch wisely pointed out the flaw in the business model of the Trust, it kept buying properties and dismantling them for parts, but taxes were due on these land holdings and Lynch believed that sooner or later, that would be too much of a burden on the company’s finances. He also felt the stock was highly overvalued and worth a fraction of the $100 value the Trust had been flaunting. And there was no way the Trust was going to be able to keep up those exorbitant salaries it was offering. Something would have to give. Lynch was sure H.H. Shufelt was in a great position to outlast the Trust.

One can imagine the angry words of frustration bellowing out from below the red faced Austrian’s thick brown mustache. “Get me that distillery! Do whatever it takes!”

The first scheme dreamed up by Greenhut’s lieutenants was to infiltrate Shufeldt’s by placing one of their own men in the distillery. But in April of 1888, their spy soon grew paranoid and confessed to this association with the Trust. And while he was fired, he apparently had passed enough intel for the Trust’s next action - sabotage.

In September, another of Greenhut’s spies had worked his way into the distillery just long enough to tamper with one of the vats, leaving it vulnerable to explosion. A keen eyed distillery worker noticed the dangerous situation and secured the area.

Yet with all of these threats of destruction, none of this moved Henry or Thomas any closer to signing away their distilleries.

Then, early in the morning on December 10th 1888, distillery workers at the Larrabee Street location looked up with a startled glance when they heard a strange thud on the roof and then another. In a split second, a huge explosion ripped apart the roof, leaving the workers terror struck and a large hole and wide scale damage in the distillery. 

Luckily, only one of the packages of dynamite actually exploded. Chicago Police recovered the other bundle and put it into evidence.

Even though the Trust would be a prime suspect, investigators were never able to find any hard evidence that they could use to go after the trust. And in an era when anarchist attacks were on the rise, it was easy for the police to use that reasoning as a scapegoat. 

The case was dropped and never again pursued.

Federal Intervention

By the late 1880s, trust tactics in several industries were showing a complete lack of respect for customers and helpless small businesses, while spitting in the face of state governments that were powerless to control them.

The first industry to draw the ire of the Federal government would be the railroads. In the 1870s and 80s, rail had become the dominant form of transportation, for both people and goods. And with sweetheart deals like Rockefeller had set up for Standard Oil in the early days of his trust, small businesses didn't stand a chance.

Farmers were becoming collateral damage in all of this trust action. And they started to band together into lobbying groups to request Congress step in and regulate the trusts. This lobbying went on for five years before a Senate investigation revealed its findings in 1874, but failed to act on the concerns. It took another decade before Congress would again be forced to look into the issue, when a Texas democratic congressman, and former postmaster to the Confederacy, John Reagan put forth a promising bill aimed at regulating railroad rates and allowing state courts jurisdiction over trust activity in these matters.

The bill passed the House, but when it reached the Senate, former Secretary of the Treasury, and longtime Ohio Senator John Sherman thought that, while the bill was good in principal, it needed more coverage beyond just the railroads. He also disagreed with state enforcement policy, which proved prophetic when in 1886, the Supreme Court ruled that states did not have a constitutional right to regulate Interstate commerce, thanks to the Constitution's Commerce Clause.

Sherman's amendments would lead to the passing of the Interstate Commerce Act of 1887. 

The railroads hated it, saying that increased competition was hurting their shareholders. And while the law did benefit farmers, it did nothing to stop a man like John D. Rockefeller, who had already found a way to circumvent any coming controls over the railroads, by shifting oil transportation from rail to an oil pipeline system that he also monopolized.

A broader law was needed. Again, it would fall to Senator Sherman to find the best method to control the trusts through regulation.

The Anti-Trust Money Man

The younger brother of Union General William Tecumseh Sherman, John Sherman grew up with a keen awareness of money matters and matters of government. His first job was as a surveyor - a job that would early on show him the power of politics. Hired through his association with the Ohio Whig Party, the job was pulled away when a Democrat was elected governor of Ohio.

Wanting to become part of that political world, he decided to go to law school and after passing the bar, he joined the firm of his older brother Charles. Not long after he would move out on his own and start his own law firm.

But soon the passage of the Kansas-Nebraska Act would bring him firmly into politics. A growing abolitionist, he had seen the Missouri Compromise as a necessary evil, but breaking that agreement by giving these states the right to tarnish free soil with slavery was too much to bear. With the Whig Party crumbling from within, he decided to throw his hat into the house race for Ohio's 13th district as a member of the Opposition Party - a party made up of anti-slavery Democrats, disinfranchised Whigs, and the Know Nothings.

As a member of the house, his first focus would be on the situation in Bleeding Kansas, a bloody uprising between anti-slavery and pro-slavery radicals. But by 1857 he saw a greater fit for his passions.  The country was heading toward a financial crisis and John felt he’d be the perfect suitor for the situation.

Thanks to the gold boom in the West and speculation in the railroads and other industries in the East, a bubble began to form. Then, like a snowball rolling downhill, financial cracks began to grow. As gold supplies dwindled in the West, bankers in the East became leery about loaning money. Then when New York's oldest flour and grain company failed, sell-offs in other industries began, especially in the railroads. 

To make matters worse, a ship carrying gold bullion to banks in New York sank in the Atlantic. Thanks to the invention of high speed communication through the telegraph, fear spread quickly creating a panic in the markets, the likes no one had ever seen before. Add to that the uncovering of fraud at the Ohio Life Insurance and Trust Company and its subsequent failure and soon there was a run on the banks. 

With the country in a deep recession, Sherman was appointed to the House Ways and Means Committee and helped to control expenditures. 

With the election of Abraham Lincoln as president, Ohio Senator Salmon P. Chase was tabbed to become Secretary of the Treasury, Sherman would see himself nominated by the legislature to take his seat in the Senate. 

During his time on the Senate Finance Committee he worked to ease the financial burdens brought on by the Civil War.

One of the first bills he saw was an Act to create License Taxes for distillers, rectifiers, and liquor wholesalers - a law that is the foundation of today's tax policies on alcohol - including the concept of bonded warehouses and paying the tax on what is sold, rather than what is produced. But Sherman had real concerns over the rate that was being suggested, some 20 cents a gallon. He could already see distilleries ramping up production to beat the tax and he felt the creation of a graduating rate would be the more prudent approach. He had just seen a major financial crisis and didn’t want to see distilleries going out of business due to oversupply. Unfortunately, he didn’t realize that frequent hikes would end up causing all of the misery he was hoping to avoid with his graduated tax, with it going up to $2 per gallon after the war’s conclusion.

After the war, he spent his time focused on the issues of Reconstruction and the monetary system. He voted for the 13th, 14th, and 15th amendments and worked as a moderate to bring together Radical Republicans and Southern Democrats. Fiscally, he fought alone against reducing the money supply warning about its potential harm to the economy. He also pushed for the Coinage Act of 1873, which helped move the country onto a defacto gold standard, through the diminution of silver coinage.

So when it came time to appoint a Secretary of the Treasury in 1877, President Hayes chose Sherman. And John walked right into the mess left by the outgoing President Ulysses S. Grant. Never a civil service reformer, it was a subject he couldn’t avoid, due to the Grant administration’s abuse of the spoils system - a form of patronage where those who worked for the election of the party would be given choice positions in the administration. Under the request of President Hayes, John would lock horns with the New York Customs House over that very issue, And his aggressive actions at trying to remove Chester A. Arthur from his position, created a real danger of making him the enemy of Arthur’s boss, Roscoe Conkling. With presidential aspirations himself, he chose to try to smooth over the situation for the sake of the party as 1880 approached.

Losing out on his bid as a Republican candidate, he wholeheartedly supported James A. Garfield when the upstart surprised everyone by taking the nomination. A very popular president, Garfield's assassination at the hands of a jilted civil service worker showed Sherman how important the work of civil service reform was. His fellow Ohio Senator George Pendleton put forward legislation creating a merit system for civil servants - Sherman backed it and in a case of great irony, the man he tried to push out, Chester A. Arthur ended up being the president who signed the bill into law.

Sherman would run for president one more time, in 1884, but Benjamin Harrison from Indiana would take the nomination - so Sherman who returned to his Senate seat, took his place in the 51st Congress.

Nicknamed the Billion Dollar Congress, it took advantage of a booming economy and excessive tax revenues and lavishly spent taxpayers dollars at a rate that would make the oil, sugar, and railroad titans gasp. It was easy for them to do, as one party, the Republicans, controlled the Senate, the house, and the presidency. Whatever they wanted, they got. 

They gave liberally to the pensions of Civil War veterans, enforced protectionist trade policies, and under a compromise bill that Sherman didn't agree with, but thought the best option between two bad bills, the Sherman Silver Purchase Act would lead to the depletion of the country's gold supply and led to worst depression in American history up to that time. Frustrated that his name had been attached to a compromise bill that had turned out so badly, he would actually lead the push for its repeal during the height of the depression it helped create.

The Sherman Silver Purchase Act was a dark stain on his reputation as a financial whiz, but the name of that bill would soon fade into obscurity. But the next bill with his name attached to it, he knew would also shake the confidence of the financial sector, but it was a necessary evil - for the robber barons of the Gilded Age were running amuck with their anti-competitive trusts. And Sherman felt he had just the plan to put them in their place. 

The Trust Buster

Having seen a dangerous manipulation of the economy by monopolies organized under the trust system, Sherman started the new congressional session by reviving a failed bill from the previous session. Written by Vermont Senator George F. Edmunds, the bill sought to fight the issues of price fixing and production controls that helped these Trusts grow and manipulate their industries.

Sherman felt that the monopolies were an affront to the principals of our forefathers, saying "If we will not endure a king as a political power we should not endure a king over the production, transportation, and sale of any of the necessaries of life." But he didn't want to bring down corporations, he just didn't want them becoming tyrants, swallowing up the competition and forcing their rules on their respective industries.

With John’s amendments, the new bill would put enforcement squarely in the hands of the Department of Justice, who could bring suits in federal court against any corporation that participated in anticompetitive agreements or that took or attempted to take unilateral control of any market.

Called the Sherman Antitrust Act, it made the word trust a dark and sinister term. And one of the punches it hoped to land would be in the gut of Rockefeller's Standard Oil trust. 

Sued in Ohio Federal Court in 1892, the state used the Act to successfully dissolve Rockefeller’s trust. Undaunted Rockefeller set up a new company called Standard Oil of Ohio and when New Jersey began allowing companies to have a stake in companies from other states, Standard Oil went back to business as usual, but with stockholders, rather than trustees. 

Titans of Industry 1 - Sherman’s Antitrust Act 0.

A Thorn By Any Other Name

The Distilling and Cattle Feeders' Trust decided to get on top of this new law even before it was enacted - seeing the writing on the wall months before the government would take action against Standard Oil. 

Joseph Greenhut called together a meeting of certificate holders on January 25th, 1890. If the idea of a trust was going to draw undue attention from the Feds, maybe just changing the form of the organization from a trust into a corporation would keep the law off their backs. The trustees recommended a shift of shareholder certificates valued at $100 originally for equal value shares of stock in the newly formed Distilling and Cattle Feeders Company. Certificate members met on February 11th in Peoria and accepted the change unanimously.

Those Trust certificates, that were originally said to be $100 each in value, were actually sold for $50 at the inception of the Trust, but according to the New York Commercial Bulletin, the so-called even swap of value between the certificates and the newly minted shares was anything but - likely worth closer to $10 a share. That said, the stock would reach $47 in the early days of its listing on the New York Stock Exchange. Still, it seemed that Thomas Lynch was correct, those shares were highly overvalued at $100.

But just because they had a slightly altered name, there was never an intention in the Greenhut camp to change strategies. In fact, his ploy may have emboldened him to get even more aggressive, especially when the feds were distracted by the pursuit of Standard Oil.

His latest scheme would evolve in May when he would officially introduce a system of rebates with the goal of crushing competition even faster by undercutting their markets. As for Thomas Lynch, who had recently invited his sons into Shufelt’s company, he might have felt that he had caught a break in John Sherman’s trust-busting bill. But Greenhut wasn’t going down that easy. A master scheme was in the works that the Trust’s bosses thought would be the perfect end game in the takeover bid of H.H. Shufeldt and Company.

Closing Part 2

Next time on Whiskey Lore: Up to his old tricks, Joseph Greenhut’s organization hatches a diabolical plan to end H.H. Shufeldt for good. Meanwhile the company successfully expands its reach across the United States putting a chokehold on the alcohol industry. And later we’ll seek to discover what brought the Distillers and Cattle Feeders Company down. Was it John Sherman’s law, was it the great depression of the 1890s, or was it Joseph Greenhut himself? We’ll investigate next time, on Whiskey Lore.

Whiskey Lore is a production of Travel Fuels Life LLC

Production, stories, and research by Drew Hannush

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And hear my interview with Thomas Ripy, whose family was touched by the off-shoot of the trust and we’ll talk about the history of the Ripy Family, Tyrone and Lawrenceburg, Kentucky, and the distilleries and whiskies that pre-dated Wild Turkey. That’s this Wednesday on the all new Whiskey Lore: The Interviews podcast. Find it on your favorite podcast feed.

I’m Drew Hannush, have a great week and until next time