Crude Politics: The California Oil Market, 1900-1940 9780520931145

Citation preview

Crude Politics

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Crude Politics The California Oil Market, 1900–1940

Paul Sabin

UNIVERSITY OF CALIFORNIA PRESS

Berkeley . Los Angeles . London

University of California Press Berkeley and Los Angeles, California University of California Press, Ltd. London, England © 2005 by the Regents of the University of California Library of Congress Cataloging-in-Publication Data Sabin, Paul, 1970–. Crude politics : the California oil market, 1900–1940 / Paul Sabin. p.

cm.

Includes bibliographical references and index. ISBN

0-520-24198-3 (alk. paper).

1. Petroleum industry and trade—Political aspects— California—History—20th century. 2. Petroleum industry and trade—Government policy—California— History—20th century. 3. Energy policy—United States—History—20th century. I. Title. HD9567.C2S33 2005 338.2'7282'0979409041—dc22

2004008524

Manufactured in the United States of America 13 12 11 10 09 08 07 06 05 11 10 9 8 7 6 5 4 3 2 1 The paper used in this publication meets the minimum requirements of ANSI/NISO Z39.48–1992 (R 1997) (Permanence of Paper). ⬁

For Emily

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Any estimate of future supply and demand that did not embrace the price factor would be futile. Price finds the oil and produces it. Price controls and limits its use. Charles Evans Hughes, former secretary of state and U.S. Supreme Court justice, 1926

Renewables are now generally costlier than fossil fuels. . . . Government policies should support long-term research on alternatives but let the marketplace decide which technical approach will gain commercial and consumer acceptance. ExxonMobil op-ed advertisement, 2001

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Contents

List of Illustrations

xi

Preface

xiii

Acknowledgments

xvii

Introduction: Structuring the Oil Market PART ONE

1

. Federal Property

1. The End of the Old Property Regime

15

2. The Politics of the 1920 Mineral Leasing Act

31

PART TWO

. State Property

3. Beaches versus Oil in Southern California

53

4. “The Same Unsavory Smell of Teapot Dome”

79

PART THREE

. Regulation

5. The Struggle to Control California Oil Production

111

6. Federalism and the Unruly California Oil Market

134

ix

PART FOUR

. Consumption

7. “Transportation by Taxation”

159

8. Defending the User-Financing System

182

Conclusion: The Politics of Petroleum Prices

202

Notes

211

Bibliography

275

Index

297

Illustrations

MAPS

1. 2.

Major California oil fields, 1940 Major paved and unpaved roads in California, 1931

xxi xxii

FIGURES

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16.

Oil prospector en route to lease Oil prospector’s camp, San Joaquin Valley James N. Gillett Buena Vista Hills naval oil reserve Albert B. Fall and Edward Doheny Summerland oil field Oil derricks behind houses in Venice Huntington Beach Santa Monica Beach Culbert L. Olson Huntington Beach oil field Onlookers watch Signal Hill oil field fire Grading an earthen storage reservoir Ralph Lloyd General taxes versus user taxes in California, 1920–1945 Rudimentary road construction, San Luis Obispo County

18 27 33 47 48 55 63 65 96 102 114 115 116 139 162 163

xi

17. 18. 19. 20. 21. 22. 23.

Plank road, Yuma sand dunes State expenditures for highways in California, 1920–1945 Streetcar on Santa Monica Boulevard Tax assistance for highways in California, 1933–1945 Early view of Cahuenga Pass Opening day ceremonies at Cahuenga Pass Highway fund and general fund balances, 1928–1942

169 172 175 178 186 187 199

Preface

Ten years ago, I hitchhiked around the Ecuadorian Amazon on oil company trucks. I wanted to know how indigenous and colonist communities had responded politically to the oil development that had radically altered remote regions of the Americas since the 1960s. I stayed one night with a colonist who had moved from the Andean highlands in order to illegally clear and settle land in the Amazon rain forest. When I met this man, he was growing coffee in a national park that, incongruously, also had oil wells and toxic pollution in it. My host told me about how he was organizing his fellow colonists against polluting by the government oil company—which had built the roads that he had used to colonize the rain forest. As I contemplated these political and ecological complexities, I grew increasingly convinced that the black-and-white way in which I had previously counterposed environmental quality and economic development did not make sense. In studying how Ecuadorian communities struggled to assert control over natural resources, I began to realize that the indigenous people of the Amazon, as well as the highland colonists, were not stuck in history as the usual stereotype would have it. Nor were they seeking to resist all change to their way of life. Instead, they struggled to make the changes their own by reaping more benefits from the extractive industry and by limiting the industry’s environmental and social costs. The communities negotiated through politics. They fought for royalty payments and secure land titles. They bargained for employment xiii

xiv

Preface

and health care opportunities, as well as strict environmental monitoring. They struggled for bilingual education and cultural and political autonomy. Invariably, their objectives threatened to raise the cost of oil production by slowing the pace of development, exacting a larger royalty share, or mandating greater social and environmental protections. When I returned from Ecuador and moved to California to enter graduate school in history, I began to wonder whether I might apply these lessons as I shifted my focus from the oil economy’s outer frontier to its central core. If politics were reshaping oil development so extensively in Ecuador, what was happening at home in California? The need to unravel California’s energy history has become more urgent in the past few years. The breakdown of the state’s electricity markets in 2000 and 2001 powerfully illustrated how politics constructed the state’s energy economy. Previously, in its effort to reduce regulation of electrical utilities, California had designed an ineffective system, one in which consumers did not experience short-term price increases even when costs to utilities and marketers skyrocketed. After deregulation, energy traders like the Enron Corporation manipulated the new market rules. They drove up costs by shutting down generating capacity and withholding electricity. When the Federal Energy Regulatory Commission refused to institute temporary price controls, the state government was forced into high-priced, long-term contracts. The deals eased California’s market crunch but helped create the worst budget deficit in state history. California’s electricity crisis, which vanished as quickly as it came, illustrates a recurring theme of this book. In California as in Ecuador, politics and institutions structure energy markets in profound ways and on a continuing basis. The supply and demand of energy—the price of energy—has a deeply political history. And yet, we tend to think in the reverse, using prices to explain why people and businesses make economic choices. Nowhere is this truer than in the energy sector, where prices dominate all discussion of energy supplies and consumption. Fuel-efficient automobiles cost too much to penetrate the consumer market, we say, or we choose oil and natural gas because it is cheaper than solar power. As a Citgo Corporation executive commented, the viability of fuel-cell-powered automobiles is “all going to come down to the cost of producing that fuel cell compared to the cost of an internal combustion engine.”1 Price is thus seen as the major factor determining our energy and transportation mix.

Preface

xv

The rhetoric of price shares the common assumption that cost is a meaningful independent variable which we can calculate easily and compare. In this capitalist ideal, a free market determines prices, except when government intervenes through regulation or subsidies. But California’s petroleum history, like its more recent electricity crisis, reveals that the free market, supposedly independent of government interference, is a mythical concept that we should have discarded long ago. A free market has never existed in the United States, and it never will. In fact, government action is indispensable to the very functioning of capitalism. Even when the direct regulatory role diminishes, government action shapes economic outcomes through tax policy, property rights, and labor law. Inevitably, government is called upon to readjust market dynamics and business relations. This point may seem obvious, but it is overlooked all the time. Free market rhetoric pervades American public life as one of the nation’s foundational myths and is a powerful force in national politics. We have to find new ways to talk about markets, ways that take into account efficiency while recognizing that markets are social institutions and that public policy helps determine prices. Competition among firms can yield extraordinary productivity and creativity. Yet public policy and politics establish the playing field for “market” interactions among producers and consumers. These ground rules themselves often determine market outcomes, and economic actors struggle constantly to change the rules and thereby alter the playing field. Today Americans face fresh decisions about how to power industry, transportation, and their everyday lives. National security is tightly linked to our dependence on petroleum. The future of ecosystems worldwide rests on a global response to the problem of fossil-fueldriven climate change. Centuries of political choice and struggle brought us to our current predicament. My interest in writing a book like this is to show how politics, and not just prices, also will shape the future.

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Acknowledgments

Many individuals and institutions helped me to complete this book, and I am delighted to be able to thank them. Harry Scheiber and Robin Einhorn were superb teachers and mentors during my graduate studies in the history department at the University of California, Berkeley. Harry helped me link legal and economic history to recent environmental history, imparted his high standards for scholarship, and shared his gift for storytelling. Robin conveyed her passion for political history and scholarly debate and taught me an enormous amount about historical writing and argument. Also at Berkeley, Richard Walker generously shared his knowledge of California history, economic geography, and natural resource issues. Rachel Schurman helped scope out the project and served as principal investigator on the major grants supporting my work. I appreciate her confidence that I would deliver the goods. David Hollinger provided sound counsel, as well as some marvelous classes. Carolyn Merchant arranged research support and an excellent teaching experience during my early years at Berkeley. I am also grateful to Margaret Chowning, Jon Gjerde, Tulio Halperin, the late James Kettner, Kerwin Klein, Mabel Lee, Lawrence Levine, and Robert Middlekauf. Bill Cronon has been an extraordinary mentor since my first year in college. Bill’s commitment to teaching and public service and his keen eye for group process have set a high standard, and his scholarship has left an obvious mark on this book. I particularly appreciate Bill’s support for my juggling of academic and public pursuits. Richard White xvii

xviii

Acknowledgments

has similarly provided valuable encouragement and inspiration at important moments, including a rigorous critique of the final manuscript. Donald Pisani, Donald Worster, and Robert Kagan also generously provided challenging comments on earlier drafts, which strengthened the manuscript considerably. Monica McCormick and Randy Heyman have been exceptional to work with at the University of California Press. I am very grateful for the generous financial support of the Jacob Javits Fellowship Program; Minerals Management Service, Southern California Educational Initiative; University of California Energy Initiative; University of California, Graduate Division; Mellon Foundation; Huntington Library; Harvard-Newcomen Society; and the John Randolph Haynes Foundation/Historical Society of Southern California. This financial support enabled me to expand the scope of the project substantially and to complete the book more quickly. I also am deeply indebted to the many librarians and archivists who assisted me at the Bancroft Library, California Historical Society, California State Archives, California State Library, Huntington Library, Los Angeles Public Library, National Archives, UCLA Special Collections, Stanford Special Collections, and the Institute of Governmental Studies at Berkeley. I owe special thanks to the ChevronTexaco Corporation, formerly Standard Oil of California, for generously allowing me to spend a week in its Dublin, California, warehouse working through papers collected by Gerald White in his history of the company. I encourage Chevron to make this extraordinary collection widely available. Colleagues and friends have provided inspiration and support. David Engerman has been a critical reader and intellectual colleague, and along with Ethan Pollock, a dear friend and breakfast companion. David Igler critiqued the manuscript and has been a wonderful colleague along the way. Nancy Quam-Wickham shared the California oil field generously. Elizabeth Gessel, Myrna Santiago, Diana Selig, Jason Smith, Philip Soffer, and others helped make the Berkeley history department a lively and collegial experience. Environmental history particularly thrives on interdisciplinary collaboration, and I continue to relish the friendship and intellectual companionship of my Berkeley colleagues William and Norrie Boyd, Jackie Cefola and Penn Loh, Cathy Cha and Dara O’Rourke, Navroz Dubash and Rinku Murgai, Debbie Findling and Steven Moss, Archon and Debbie Fung, Jamal Gore and Mairi Dupar, James McCarthy, Rachel Morello-Frosch, and Scott Prudham. Amy Aisen, Gillian Bazelon, William Finnegan, Linda Lee, Joshua Linn, Zamzam Syed, and Emily Yuhas contributed valuable

Acknowledgments

xix

research assistance, without which I could not have completed this book in its current form. Jean-Christophe Agnew, David Berg and Robin Golden, Lincoln Caplan and Susan Carney, Daniel Esty, John Faragher, Gordon Geballe, Mary Helen Goldsmith, Robert Gordon, Jonathan Holloway, Robert Johnston, Daniel Kevles, Anthony Kronman, George Miles, Max Page, Steven Pitti, James and Elana Ponet, Judith Resnik and Dennis Curtis, Aaron Sachs, Gus Speth, Steven Stoll, John Wargo, and others welcomed me into the New Haven and Yale community while I completed the book. Jon Butler has been a superb departmental chair and supporter. Between times in New Haven, I spent a stimulating postdoctoral year at the Harvard Business School, where I enjoyed the collegiality of Geoffrey Jones, Thomas McCraw, David Moss, Forest Reinhardt, Richard Vietor, and others. I began this project eager to contribute a historical perspective to current debates over energy policy. Finding relatively little encouragement within higher education for this public aspiration, I founded the nonprofit Environmental Leadership Program to provide more training and support to emerging public leaders from across the environmental field. Over the past five years, I have had the inspiring opportunity to work with more than a hundred ELP fellows, as well as ELP’s extraordinary staff, board of trustees, advisory committee, and financial supporters. Thank you all for your shared commitment to community leadership and reflection, and for your support of my timely completion of this book. My grandfather Charles Mauser helped support my education and taught me about the practical aspects of business and life. I am sorry he did not live to see the finished document. Kate, Richard, David, and Maria Wallace introduced me a long time ago to environmental concerns, and I hope they find something to be proud of here. I owe them a lifelong debt. My new family, Richard, Eileen, Lara, Gillian, and Dana Bazelon; Joel Zuercher; Jim Bazelon; Miriam and Robert Knox; and Phyllis and the late Gene Klavan, have patiently watched this project mature. I appreciate their years of tact. Steven Mufson shared his considerable expertise in politics and economics, and I thank Steven, Laura, and Daniel Mufson and their families for their support. I am honored to come from a close family of dedicated teachers, and I credit much of my writing and thinking to their influence. My brother and sister-in-law, Michael and Deborah Sabin, have provided the sort of gentle mockery and commiseration that is invaluable in the face of the

xx

Acknowledgments

writing abyss. My parents, Margery and James Sabin, have been superbly involved in all the twists and turns, contributing some rigorous editing, prodding, and encouragement. They also have inspired me through their lifelong commitment to teaching, writing, and social change. Emily Bazelon has thought far, far more about oil politics for more years than she ever planned. I thank her for her patience, encouragement, editing, and love. Eli and Simon have brought joy, chaos, and perspective to my life. This book is for them too.

Lake Tahoe

N EVADA

Sacramento San Francisco Bay

S

San Francisco

Richmond Oakland

A

Mono Lake

N

J

Modesto

O

A

Q

U

I

N V

A

Fresno

3

L

L

E

Owens Lake

Y

Tulare Lake

9 13

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22.

Buena Vista Hills Buttonwillow (gas) Coalinga Elk Hills El Segundo Elwood–La Goleta Huntington Beach Kern River Kettleman Hills Long Beach–Signal Hill McKittrick Midway-Sunset North and South Belridge Playa del Rey Rincon Santa Fe Springs Santa Maria Seal Beach Summerland Torrance Ventura Wilmington

2

8

4

11

Taft

17

Bakersfield

1

Santa Barbara 6

12

21

Ventura 19

San Bernardino Los Angeles

15 14 5 20 22

PACI FI C OCEAN

Map 1. Major California oil fields, 1940.

10 7 18

Long Beach

Huntington Beach

101

Alturas

99

Eureka

Redding Susanville Red Bluff 101

Paved (concrete, brick, macadam, or asphalt)

99 E

Unpaved

99 W

40

Richmond

U.S. Interstate highways

50

Sacramento San Francisco

Stockton

San Francisco Bay

Oakland

Monterey Fresno 101 99

San Luis Obispo Bakersfield

Mojave

Barstow

Santa Barbara

91 99

PACIFIC OCEAN

Los Angeles

66

San Bernardino

99 101

San Diego 80

Map 2. Major paved and unpaved roads in California, 1931.

66

INTRODUCTION

Structuring the Oil Market

California’s landscape and culture today depend on petroleum. Millions of gasoline-powered cars and trucks daily roar along eight- to ten-lane highways. Gasoline-powered tractors plow agricultural lands, and petrochemical pesticides and fertilizers protect lucrative crops. Highways and automobiles link California’s cities with world-renowned park and recreation sites, ranging from lush, towering Yosemite National Park in the north to the roller coasters and fantasy attractions of Disneyland in the south. When Californians cruise the Pacific Coast Highway, pull on nylon stockings, or savor a strawberry, they reap the benefits of petroleum. Stuck in traffic, breathing polluted air, or struggling with pesticide contamination and oil spills, they confront the oil economy’s darker side. Close ties to oil similarly bind other states. Houston and Atlanta residents rely as heavily on their cars as do Los Angelenos. Oil spills have hit Alaska and the Atlantic coastline; community activists struggle against refinery pollution in New Jersey and Louisiana; and recreational skiers and hikers drive to the mountains of New England and Colorado. The economies of Texas, Oklahoma, Louisiana, and Alaska depend heavily on petroleum production, and Michigan relies equally on the automobile industry. California, as both a major producer and consumer of oil, thus offers a case history for the impact of oil on individual states and a microcosm of its penetration of the United States as a whole. 1

2

Introduction

How did California, and the United States more generally, become so wedded to petroleum? The fuel’s versatility and its natural abundance are certainly key factors. Petroleum is fluid, combustible, and an excellent source of hydrocarbons for petrochemical innovation. Technological advances by scientists and engineers have enabled private industry to extract oil miles beneath the ocean, to increase the energy drawn from each barrel of oil, and to devise thousands of ways to use petroleum’s valuable hydrocarbons. But most of all, oil is a relatively inexpensive way to make things go. The question we have rarely thought to ask is, why is oil so cheap? Generations of historians have viewed the United States’ abundant natural resources as a key contributor to its prosperity and democratic institutions. In the 1890s, Frederick Jackson Turner credited “free land”; in the 1950s, David Potter described how a “people of plenty” built American democracy on a foundation of abundance; and in the 1990s, Gavin Wright used the nation’s natural resource base to explain the “origins of American industrial advantage.” 1 Plentiful and wellsituated agricultural land, fish, furs, forests, coal, and gold all have been seen as essential to our development. At first blush, the United States’ petroleum history appears to fit this story line. At different moments in the past 150 years, oil gushers around the country, from Pennsylvania to Alaska, have flooded the market with oil. Observing the 1920s California oil craze, the economist John Ise described “growing stocks, overflowing tanks, and declining prices, frantic efforts to stimulate more low and unimportant uses . . . dozens of new wells, and more oil, more oil.” 2 Yet this abundance was made as much as discovered. In pre–World War II California, fragmented property rights in oil spurred an orgy of competition and production that rapidly depleted Los Angeles–area oil fields. Public land policies along the coast and in the San Joaquin Valley, enacted after fierce national and state-level lobbying, pushed more oil onto the market on terms generous to oil operators. Government regulation managed surplus production and contained the worst competitive excesses. A successful fight to protect highway funding helped spur the rapid expansion of major roads, creating a market for gasoline-powered vehicles. These are just some of the ways oil’s abundance has been made. Politics and policy determined how rapidly oil moved onto the market in California and how avidly it was consumed.3 By shaping both oil supply and demand, politicians, bureaucrats, and judges influenced the price of oil. State, federal, and local governments decided who would

Structuring the Oil Market

3

benefit from the oil boom and what share of oil production the government would retain for the public treasury. Politicians and judges weighed oil’s threat to the quality of the environment and to other local businesses against benefits for oil operators, workers, and consumers. These petroleum politics disrupted earlier patterns of public land disposal and government promotion of canals, railroads, and streetcars. Yet new oil land leasing programs and the highway projects also resembled their predecessors, particularly in the way they promoted rapid resource extraction and channeled economic development toward a dominant mode of transportation. Petroleum politics ultimately changed the map of California in the twentieth century, and the housing, employment, and recreational expectations of its residents and visitors. In studying the volatile politics of the oil economy, this book carries forward into the twentieth century the research of historians who have written about nineteenth-century economic development, federalism, and infrastructure like canals and railroads. Post-World War II scholars like Oscar and Mary Handlin and Louis Hartz found the roots of Franklin D. Roosevelt’s New Deal in the activities of nineteenth-century state governments.4 They discovered an “American System,” in which state governments planned, promoted, and regulated economic development.5 James Willard Hurst’s magisterial 1964 study of the Wisconsin lumber industry, Law and Economic Growth, carried to new heights this investigation of how government relates to the economy. Hurst divided the legal history of the lumber industry into component parts. He examined in extraordinary detail the distribution of public lands, awarding of transport franchises, taxation of timber production, establishment of a framework of contract, and absence of regional planning. Hurst explained how shortsighted political leadership had created a system that encouraged the Wisconsin lumber industry to clear-cut the northern forests, leaving behind a trail of social and ecological devastation.6 My book about the California oil economy follows Hurst’s longovergrown trail into the thicket of public land policy, business regulation, transportation development, and public finance. Rather than take the market structure for granted and merely study how firms competed within it or, alternately, apply a simple ethical grid of corporate conspiracy to a complex history, the book examines how the California oil market changed over time in response to the interplay of political, legal, and economic developments. Sometimes corruption and greed drove

4

Introduction

the policy process. But in other instances, particularly in the Great Depression, differing conceptions of the public good, fairness, and equity also underlay political struggles and institutional innovations. The conflict between small-scale local operators and the corporate behemoth Standard Oil at Huntington Beach, for instance, was complicated by a parallel split over beach protection and oil drilling in California’s coastal waters. Standard Oil managed to stand for beach protection and conservation while also signifying monopoly and corporate influence over the legislature. As Hurst suggested in his pathbreaking work, economic activity, regardless of the sector, is structured by certain key institutional building blocks. I explore four of these building blocks of the California oil economy in the thematic chapters that follow: property rights, federalism, regulatory rules, and tax policies and investment. The allocation of property rights by the national government underlay all further development of the oil economy. Some of the richest oil reserves in United States history lay beneath federal public lands in California’s San Joaquin Valley. As a regional oil boom heated up in the first decade of the twentieth century, the federal government generously distributed lands according to nineteenth-century laws designed to thwart monopoly and encourage economic development. Small, interlocked landholdings intensified competition for common underground oil pools and resulted in the rapid depletion of oil reserves. When the federal government responded to political pressures by trying to change its oil-land policies, sympathetic western judges and politicians undercut federal initiatives on behalf of industry allies. The conflict laid bare characteristic patterns in litigation and lobbying in United States politics and law. Because political power is dispersed in American federalism, the state government also made critical decisions about how to allocate oil lands. California’s control of rich coastal mineral deposits gave it considerable discretion over how its oil resources would be developed and by whom. California quickly demonstrated the enduring significance of federalism. As real estate interests and oil developers battled over the future of the coast, the state politics of coastal oil deviated sharply from national struggles over oil fields in the dry, sparsely populated San Joaquin Valley. Meanwhile, regulatory rules governing the oil business became the subject of a complicated political struggle. Oil’s wild production cycles drove down prices, ruined investments, and bankrupted companies.

Structuring the Oil Market

5

Within the framework of property law and antitrust regulation, industry, state, and federal leaders searched for ways to control production. Their efforts ranged from voluntary cutbacks to state-imposed natural gas conservation and state and federal production mandates. Although oil operators fought over which form of legal or economic coercion to embrace, practically no one in or out of the oil industry called for a “free market” solution that would leave oil prices solely to the forces of supply and demand. Regulation of oil production and the political allocation of petroleum resources were heavily shaped by the characteristics of petroleum underground and technological advances that facilitated extraction. Oil was found in California principally in the sparsely settled San Joaquin Valley, the well-populated Los Angeles Basin, and the nearby coastal waters off Southern California. Trapped in large reserves underneath subsurface geological structures, oil pools freely crossed surface property lines. This boundary-crossing mobility disrupted management strategies and intensified conflicts over ownership between neighboring oil producers. Regulatory regimes were further complicated by the need to manage natural gas production. Although oil rises to the surface like water in a well, the added upward pressure of natural gas, found in concert with petroleum, helped lift oil to the surface, maximizing production. Managing this natural gas, initially worthless except for its service to oil production, thus became intertwined with regulating oil. Technological changes also shaped regulation of the industry. In the decades before World War II, oil companies gained greater control over the depth and direction of drilling. These advances increased production and enabled operators to tap oil pools thousands of feet underground or far offshore. At the same time, oil companies also learned to extract more energy and value from each barrel of oil in the refining process, contributing to a glut of petroleum products that dragged down the market in the late 1920s and the 1930s.7 Tax policies and investment provided a final key building block for the California oil market. Gasoline for motor vehicles dominated the oil market by the end of the 1930s, while sales of petroleum-based asphalt for highways helped bring additional profits to California oil companies. Public investment had spurred the stupendous growth of the railroad system in the nineteenth century. Now governments provided crucial financial backing for the highways that would link dispersed residences and businesses, providing a transportation backbone for commercial trucking, commuting to work, and recreational touring.

6

Introduction

During the pivotal years of the Great Depression, when California’s government and railroads and streetcars limped along financially, the state highway budget grew steadily, protected by a semiautonomous institutional and financial structure. Railroad and streetcar networks stalled and staggered, while California spun an intricate web of highways. In the post–World War II period, however, the state found itself caught. Many Californians agreed by the late 1960s that the state had overbuilt its highway system. Even Governor Ronald Reagan, generally hostile to environmental regulation, called for action against automobile-related smog. The state had trapped itself in an automobile landscape of its own making, one that bolstered the market for petroleum through the remainder of the twentieth century. The four key building blocks examined here—property politics, federalism, regulatory rules, and public investment in highways— demonstrate the extensive and ongoing role government played in the oil economy. There are, of course, other political factors beyond the scope of this book. The laws governing employer-employee relations helped determine the cost of labor to the industry. United States foreign policy, combined with agile political negotiating by corporate lawyers, influenced how much companies like Standard Oil of California invested in overseas concessions. And tax subsidies for drilling directly influenced oil company profits. SEARCHING FOR THE CAUSES OF ENVIRONMENTAL CHANGE

We live in a petroleum landscape. We know well the environmental effects of the Santa Barbara and Exxon Valdez oil spills, the implications of smog and freeways, and the threat of global climate change. But do we know the causes? My analysis of the California oil economy focuses on subjects like highway tax policy, which may seem quite removed from environmental politics and history. Environment and ecology are typically associated with trees, rivers, animals, and minerals—the stuff of nonhuman nature. Why focus on economic politics and law in a project that seeks above all to contribute to our understanding of environmental problems and solutions? The California environmental movement after World War II coalesced in the fiery politics of oil spills, air pollution, and sprawling freeways. Environment activists have attributed these diverse problems to the production and use of oil. Yet blaming the oil economy begs a

Structuring the Oil Market

7

further question: how have we become so dependent upon oil and the automobile? To answer this question, we must turn from petroleum’s well-known environmental impacts toward the institutional and political factors that shaped the California petroleum economy.8 The origins of the oil economy, and the forces continuing to influence its development, do not lie in exhaust and oil spills, which are the primary targets of our attention and regulatory efforts. We have our greatest impact on the natural world through what we make and buy, even though we do not label these activities “environmental” or “ecological.” 9 Our decisions to build, consume, create, and destroy are often driven by factors remote from our direct relationship with the natural world. Politics, economics, and geology transgress neat boundaries. Issues that we commonly separate and label as environmental are inextricably linked to nonenvironmental political and economic developments. Philosophical differences about the proper balance between government and private business in the economy, for instance, shaped the decade-long controversy over access to California oil lands that culminated in the Mineral Leasing Act of 1920. During the Great Depression, petroleum policies were directly balanced against other public priorities in the context of a severe budgetary shortfall. The growing burden of unemployment relief illustrated this link by spurring political interest in coastal oil revenues. Motorist advocates and oil companies also demonstrated that they recognized the connection between petroleum policy and other political issues when they supported a state sales tax to safeguard highway funds and avoid further taxes on oil production. We can understand the factors shaping petroleum development, and environmental change more generally, only in the same broad political and economic context. In its focus on the political economy of oil, this book builds on recent developments in environmental history that highlight intricate connections between environment and economy. By the late 1970s and early 1980s, leading environmental historians had departed from an earlier emphasis on conservation politics and ideas of nature and instead began to trace changing material relations between nature and society.10 “Intellectual and political history may be environmental history’s parents,” wrote the historian Richard White, “but they are, by themselves, unable to nurture it.” The new environmental history explored the “transformation of the land” and examined the “reciprocal influences of a changing nature and a changing society.” 11 Yet even as this new approach attracted followers in the emerging discipline of environmental history, the difficulty of explaining the

8

Introduction

causes of environmental and social transformation sparked further methodological change. Hewing close to the intersection of nature and society produced rich accounts of how people exploited natural resources and altered the land, and how nature itself constrains and shapes society. But these accounts raised further questions about causality. How did expanding European economies incorporate and transform their colonial hinterlands? Was it enough to assert, as Donald Worster did in his prize-winning Dust Bowl (1979), that the 1930s dust storms had been caused by a peculiarly American form of capitalism whose “drives and motives” were “overrunning a fragile earth”?12 Dissecting the workings of metropolitan expansion and capitalism required a more subtle analysis of human institutions and economies. Worster’s Rivers of Empire (1985) demonstrated this greater complexity by articulating a theory of the state and exploring how the exploitation of water resources was linked to the exploitation of people.13 Increasingly sophisticated analysis by Worster and other environmental historians set the stage for fresh dialogue about the causes of environmental transformation. The new questions cannot, however, be answered simply through additional stories about the transformation of the land. William Cronon’s Nature’s Metropolis (1991), for instance, a compelling study of Chicago’s economic and ecological relationship with its hinterland, introduces profound questions about American political economy and environmental change taken up here. Do competition among producers and changes in consumption patterns explain American economic development, or does the explanation lie with political conflict over market institutions, such as property rights, taxes, public investment, and regulation? Did Americans drift slowly and inevitably into transforming the North American economy and ecology, or did they make discernible public choices that determined the continent’s fate? Where Cronon argues that largely uncoordinated economic decisions by producers, merchants, and consumers drove market expansion and ecological change, my book takes an alternate approach and explores the political dimensions of environmental change.14 THE RELATIONSHIP BETWEEN BUSINESS AND GOVERNMENT

Taking this perspective to environmental history, this book goes beyond traditional environmental concerns to contribute to a larger discussion about the role of government in the United States economy. We

Structuring the Oil Market

9

commonly ask: How much should government intervene in our economic life? How much should we rein in or unleash the market? The common conceptual division of government from market institutions, revealed by the ubiquitous image of government intervention, stems from a deeply flawed understanding of our economic history and the nature of American capitalism. In fact, governments constructed the legal framework for the market, they enabled market institutions to shift with new developments, and they bankrolled many of the newest, unexpected additions. By doing things like allocating the broadcast spectrum, governments continue to create and distribute new property rights. With tax policies that reward home ownership or charitable giving, governments channel economic activity. Through public investment, they nurture new industries like the Internet. By necessity, governments continually balance competing interests. Public officials have to choose: among types of taxation (income versus sales versus wealth); between antitrust enforcement and property rights that might yield monopoly; and between favoring some enterprises with government largesse over others, as in the transportation sector. Governments have not built the market alone. But without government there could be no market as we know it today. Public policy decisions on issues of finance, regulation, and access to resources have enormous implications for business success and failure in every portion of the economy. Consequently, throughout the fortyyear period covered here, individuals and corporations in the oil and transportation sectors struggled constantly to reshape the legal regimes that governed their operations. Businessmen knew that laws and politics determined their access to resources, the speed at which they would develop oil reserves, and the extent of highway infrastructure. They felt deeply the cut of taxes and royalties that they owed the state. Grasping the importance of public policies to their corporate success, California’s oil operators, highway contractors, and real estate developers made politics a central part of their business operations.15 In the California oil economy, businesses competed within a market that the firms themselves helped structure. In addition to the traditional business regulation that historians tend to emphasize, firms influenced tax policy, public investment, and laws determining access to resources. Corporate leaders at Standard Oil of California as well as independent businessmen like Ralph B. Lloyd, a Ventura landowner and oil man, understood that they could not disentangle business from economic politics. When surplus production undermined crude oil prices, industry

10

Introduction

leaders worked with public officials to tame a wildly fluctuating oil market. California highway boosters similarly struggled to bolster and protect state highway funding. Since highways were publicly financed and operated, politics and the transportation business were inseparable. The political coalitions that formed around energy issues reveal that oil producers and consumers saw their interests as closely allied. The oil industry lobbied for measures that built demand for their product. This commitment led the industry to support, or at least accept, the collection of state gasoline taxes earmarked for highway construction. The oil industry also used these gasoline taxes paid by motorists as an effective rhetorical means to deflect efforts to institute a per-barrel production tax on California oil. In a further twist, the main players in California’s petroleum politics came together to produce the state’s vaunted state park system. A broad-based highway coalition that included oil companies became a force for building the parks. State oil royalties also emerged as California’s primary source of beach and park funding. As the many references to state gasoline taxes, parks, and budgets indicate, the relationship of business to state government is far more intimate and often more significant than what takes place at the national level. The state government dominated the major transformations occurring in California’s oil economy in the first four decades of the twentieth century. From coastal oil development to the regulation of petroleum production to the construction of the highways, statewide politics, more than national maneuvering, structured California’s oil economy until at least World War II. Sometimes they did so independent of federal policy, sometimes in dynamic relationship with it. Studies of United States energy and transportation policy typically overlook the critical role of state policy, particularly in the pre-World War II period when the states established the institutional framework for a national society fueled by oil.16 Recent histories of the oil industry, preoccupied by the 1970s oil crisis and a more general federal bias among researchers, focus almost exclusively on national and international energy policy, giving short shrift to the impact of regional politics.17 A similar omission prevails in transportation history. Yet statelevel politics and economics played a critical role in the national embrace of motor vehicles, predating and laying the groundwork for the well-known federal funding of interstate highways after 1956.18 Studying past developments in the California oil economy opens the door to a wide-ranging exploration of United States history. Truths

Structuring the Oil Market

11

about the oil economy are insights into our entire society, as virtually every economic activity in the United States is connected in some way to petroleum. Many of the nation’s largest companies in the twentieth century were those oil, chemical, automobile, and aircraft firms directly dependent on petroleum production and consumption. Petroleum also fueled the modern environmental movement through the widespread pollution of air and water, and the habitat-consuming sprawl that oil made possible. A petroleum-oriented foreign policy drew the United States into two wars against Iraq and into a Persian Gulf military presence that helped provoke the rise of Islamic militants. Global warming, caused in great part by releasing carbon dioxide through oil consumption, may prove the twentieth century’s most lasting and devastating legacy. With energy concerns at the top of our national political agenda, we must understand more fully the origins of our petroleum society. Oil’s utility contributed enormously to its rapid adoption and consumption. Yet incessant political and legal wrangling also powerfully shaped the oil economy. It determined which fields were exploited and how fast, who got the oil, how much it cost, and where and how it would be used. As Californians—and their counterparts in other states and nations—fought over economic and environmental policy, they made choices about the structure of the oil market. We live with those choices today. How we come to terms with this historical legacy is a critical challenge that Americans, and indeed the world, will face in the coming generation.

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PA R T O N E

Federal Property

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CHAPTER

1

The End of the Old Property Regime

Basic property rights provided the framework for oil production in the early-twentieth-century California petroleum market. In settled areas such as Los Angeles, Huntington Beach, and Ventura, private landowners competed with their neighbors to claim subsurface oil deposits. On federal and state lands in the San Joaquin Valley and along the Pacific Coast, oil companies maneuvered for access. Their struggle with each other and with the government determined how oil moved from the land onto the market. Who would reap the benefits of that which nature and time had bequeathed? How fast would Americans extract this oil, under what constraints, and at what cost? The answer to these basic questions, and the development of billions of barrels of California oil worth tens of billions of dollars, turned on the contours of oil fights. The California oil sector began the twentieth century governed by nineteenth-century land laws that emphasized individual, private ownership of land and mineral resources. Owners of subdivisions in Huntington Beach or Los Angeles, for instance, owned the oil rights to whatever lay beneath their small domains. Similarly, on the federal public lands, property laws allowed private individuals and associations to prospect and claim mineral rights. Private ownership meant that the “rule of capture” dominated extraction. The courts declared oil to be analogous to a wild animal, reduced to property only when captured by an oil well.1 Yet unlike a wild animal, oil resources were available to all neighbors simultaneously. Private ownership and the rule of capture 15

16

Federal Property

together forced neighboring producers into a drilling race simply to protect their share of common oil pools. If one producer decided to abstain from production because of low prices, limited capital, or legal restrictions on development of a certain piece of land, that person’s neighbor might simply take all the oil. The American property regime governing petroleum emerged from a broader set of public policies designed to spur economic activity. During the nineteenth century, federal, state, and local governments actively promoted economic development, principally by giving away natural resources and legal privileges. The governments distributed land, corporate charters, tax exemptions, rights to levy tolls and dam streams, and other benefits. Public lands served as inventory and currency for cash-strapped state and federal governments. The sale of public lands generated considerable federal revenue; the federal government also granted public lands to spur development by state governments and private enterprises, such as railroad companies. At the same time, the federal government opened the public domain to homesteaders and land speculators.2 Within this broader use of land and natural resources to promote development, United States mineral policy remained unsettled until the late nineteenth century. The federal government conveyed agricultural lands with full subsurface mineral rights in the first half of the nineteenth century. At the same time, it experimented with public control over mineral resource development. For forty years the federal government administered a leasing program in the upper Mississippi River valley for lead ore, which was valued for making bullets and other products. The U.S. Supreme Court firmly upheld congressional power to lease, as well as the principle that unauthorized mining on the public domain constituted trespass. Congress abandoned the lead-leasing program in 1846, however, due to poor administration, a proliferation of false agricultural land claims, and prolonged litigation over whether miners required federal permits to enter the public domain.3 Following the demise of the lead-leasing program, the national government retained no ownership rights or royalty share to gold deposits discovered in California beginning in 1848 or to lucrative silver mines found in Nevada soon afterward.4 The financial demands of the Civil War prompted renewed but only short-lived congressional interest in mineral resources as a possible source of federal revenue. Congressional proposals for a national mineral law in the early 1860s ranged from taxes on mineral production to

The End of the Old Property Regime

17

the seizure of gold mines by the national government. Following the war, the Republican-dominated Congress opened the public mineral lands to prospectors without any revenue-raising provisions. The new mineral law granted prospectors full “fee simple” rights to mineral property, retaining no mineral rights for the public. An 1872 act limited the acreage of claims and required that claimants spend one hundred dollars annually to develop their claims. The 1872 mining law codified a national policy of free mining on federal lands, as well as the requirement that claimants develop their holdings. Congress specifically extended these mineral laws to petroleum in 1897. Upon discovery of oil, a person could acquire public petroleum lands virtually free. This generous distribution policy helped spur the rapid development of petroleum and other minerals in the federal public domain.5 During the first two decades of the twentieth century, government geologists, leading conservationists, and national political and military leaders launched a sustained assault on this nineteenth-century property regime. Across several natural resource industries, including forestry, ranching, and mineral development, the federal government acted boldly to increase its authority over common resources and to slow the rapid deterioration or depletion of valuable lands. The nation’s forests were being cut too quickly, its rangelands degraded by overuse, and its mineral resources furiously extracted, all with little compensation to the nation. President Theodore Roosevelt, chief forester Gifford Pinchot, and like-minded allies believed that strong federal administrative agencies could manage these common public resources more efficiently than private owners or state governments, and to greater public benefit. The Roosevelt administration increased the number of acres of protected national forests from 46 million to 150 million acres between 1903 and 1907. The administration also withdrew 50 million acres of the public domain to inspect for coal deposits in order to prevent further agricultural entries on public coal lands and to begin pricing land according to its mineral value. Roosevelt declared to Congress in 1907 that the United States should “retain its title to its fuel resources, and its right to supervise their development in the interest of the public as a whole.”6 Government scientists at the United States Geological Survey (USGS) began to argue publicly in 1908 that petroleum lands should receive similar protection, particularly in California. USGS director George Otis Smith warned the secretary of the interior in February of that year that the United States verged on complete loss of control of its Pacific Coast fuel supply, critically important to the navy’s new petroleum-powered

18

Federal Property

Figure 1. An oil prospector hauls equipment to an oil lease in the San Joaquin Valley in 1911. (Courtesy of the Bancroft Library, University of California, Berkeley.)

ships. At the rapid speed that private parties were claiming California oil lands, Smith noted with alarm, the government would soon be “obliged to repurchase the very oil that it has practically given away.”7 The geologists also lamented the inefficient system of property rights governing public oil lands, and the fraudulent practices of many companies rapidly claiming those lands. They complained that the need to preserve the petroleum supply resulted not from the “popularity of petroleum” but rather from the “character of the production.” Property rights, not market demand, drove competitive production practices. Oil operators typically rushed to extract petroleum contained in a lease in order to prevent an adjoining leaseholder from pumping the oil. In proposing reforms to national petroleum land policy, the government geologists sought to realign and rationalize the system’s incentives by lessening competition between neighboring landowners.8 They also wanted to bring an end to oil company manipulation of the General Land Office in claiming California oil lands. Oil companies increasingly obtained oil lands in California through fraudulent agricultural or gypsum claims. Some of the biggest companies nominally claimed to seek gypsum for use in plaster and other construction materials but “admit[ed] they want[ed] the land for oil.” The USGS mining geologist Ralph Arnold, a prominent conservative Republican who joined the Stanford Board of Trustees in 1915 and boosted Herbert

The End of the Old Property Regime

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Hoover for president in 1920, called the “gypsum ruse” one of the “biggest steals that has ever been tried in this part of the country.” Outraged at the unethical behavior, Arnold begged of his supervisor, “Cannot something be done now to stop this sort of thing?”9 To safeguard fuel supplies for the navy, to make California oil production more efficient, and to stop fraudulent land claims, USGS director George Otis Smith, with the support of petroleum geologists like Arnold working in California, pressed for a temporary withdrawal of federal oil lands from private claims. The first federal response to these complaints occurred in September 1909, when the administration of William Howard Taft by executive order withdrew millions of acres of potential petroleum land in the American West from public entry and mineral claims. Secretary of the Interior Richard Ballinger had informed President Taft that disposing of the public petroleum lands at “nominal prices” simply encouraged overproduction. Current oil production already exceeded the “legitimate demands of the trade.” Ballinger urged legislation to provide “for the sane development of this important resource.” The conservation of petroleum “demands a law,” Ballinger wrote Taft, a law that would liberate the public oil lands from the rule of capture. To protect the government’s own energy supply, as well as to rationalize the development of California’s valuable oil lands, the administration had to find a way to develop the petroleum reserves more efficiently.10 In 1912, Taft identified parcels in the Elk Hills and Buena Vista Hills of the southern San Joaquin Valley, measuring roughly thirty thousand acres each, to set aside as petroleum reserves for the navy. Taft’s executive order was weaker than a law and proved to be only a temporary and ineffectual federal intervention. The 1909 oil land withdrawal, which temporarily barred further private claims on the petroleum lands, raised questions about access to federal mineral resources in California that would be debated for another decade. How vigorously would the government assert its claims? Would the government address the competitive market structure that the nineteenth-century property regime created for oil? How quickly and carefully would the government develop its oil reserves and with what financial return to the public treasury? The decade-long struggle to resolve these questions, culminating in the 1920 Mineral Leasing Act, revealed the legal and political difficulties inherent in reversing a long-standing generous public policy in the United States. The battle over California petroleum lands took place in the courts, in Congress, and in the executive branch. The largely

20

Federal Property

sectional battle pitted western judges, elected politicians, and appointed heads of agencies against their southern and northeastern counterparts. At issue was the national government’s proper role in resource management, as well as the deference, accommodation, and generosity due private companies and individuals who claimed public petroleum lands. Previous public largesse plagued the effort to retain federal control over California oil lands, as western judges viewed private land claims sympathetically and showed little enthusiasm for the new federal public land policy. Congress helped undermine the new federal policy by introducing exemptions and qualifications that undercut Taft’s executive order without directly challenging it. Within the Taft and Woodrow Wilson administrations, influential conservationists like George Otis Smith and Gifford Pinchot, anticorporate trustbusters in the Department of Justice, and Wilson’s navy secretary, Josephus Daniels, urged protection of national rights to the petroleum deposits and struggled internally with western appointees in the Department of the Interior. THE FEDERAL STRUGGLE TO RETAIN CONTROL OF PUBLIC OIL LANDS

The difficulty of changing the federal property regime became evident in the course of the Justice Department’s legal struggles to recover title to lands granted to the Southern Pacific Railroad Company during the period 1894 to 1904. The government found that it could retrieve oil lands it had granted only if it demonstrated fraud or another technical weakness in the land patent, or claim of private ownership. Federal lawyers achieved a major victory on these grounds in their 1910 suit against Southern Pacific to regain land in the Elk Hills. Yet when the Justice Department broadened its legal strategy to challenge the railroad’s ownership of a huge swath of the San Joaquin Valley, its lawyers foundered on past legislation. In the epic legal battle over Southern Pacific holdings in the Elk Hills, Judge Robert S. Bean of the U.S. District Court, and subsequently a unanimous U.S. Supreme Court in 1919, ruled in favor of the government and reinstated its title. The courts concluded that the railroad company had obtained its Elk Hills mineral lands through fraud in 1904. The national railroad land grant policy of the nineteenth century had given Southern Pacific the right to select alternate sections along each side of its right of way—as long as the railroad company did not

The End of the Old Property Regime

21

select known mineral lands (other than those containing coal and iron). Alternatively, the railroad could substitute unoccupied agricultural lands, subject to the same no-minerals restrictions, within twenty miles of the railroad line. Southern Pacific had substituted the now-contested land in the Elk Hills for known oil land along its railroad line in the San Joaquin Valley. The legal case turned on whether the company knew in 1904 that the substituted lands also contained petroleum. The government’s case against Southern Pacific had some advantages, since the Elk Hills were an odd choice for agriculture. The U.S. Supreme Court described them as “rough, semi-arid, and unfit for cultivation[,] . . . devoid of timber, springs or running water.” In fact, the Court believed it “beyond dispute” that the lands had “no substantial value unless for oil mining.” At the same time, the company’s geologists had “systematically” examined the region for oil and its desire to patent the lands had been “wholly disproportionate” to any other purpose.11 Justice Department lawyers buttressed their case against Southern Pacific with evidence that the company land agent Charles Eberlein had concealed from the General Land Office the company’s plans to lease lands adjoining the Elk Hills to the Southern Pacific’s subsidiary fuel company. Should the existence of that petroleum lease become known, Eberlein told his supervisor, Southern Pacific could not successfully resist a government effort to declare the area mineral land “after we have practically established the mineral character.” Eberlein’s superiors recognized the “very ambiguous position in which we would be placed.” They instructed Eberlein to delay the lease and to hide all papers relating to it in a separate and private file.12 Still, federal prosecutors faced significant obstacles in their efforts to recover these Elk Hills oil lands. Even with internal correspondence documenting fraud by Southern Pacific agents, Judge Bean of the district court had difficulty determining whether the lands were “known oil lands” barred under the railroad land grant. Bean ultimately decided that the topography, proximity to oil development, and oil seepages on or near the lands sufficiently indicated that this was known petroleum land.13 The Ninth Circuit Court of Appeals overturned Bean’s decision. The appellate court echoed Southern Pacific, arguing that the lands had been suspected oil territory but did not meet the higher standard of being conclusively “known.” Conditions in the Elk Hills “suggest[ed] the probability that they contained some oil, at some depth, but nothing to point persuasively to its quality, extent, or value.” The court approvingly quoted

22

Federal Property

the oil man Frank Barrett: “The true expert is the drill. You couldn’t say that a territory is known oil ground till you put a drill in it.”14 The appellate court contended that testimony had been colored by recent developments in the region. The price of oil had risen, a railroad had been extended into the Midway Valley, and the government had issued a bulletin commenting favorably on the petroleum potential of the Elk Hills. Even more important, the Honolulu Consolidated Oil Company had struck oil in the nearby Buena Vista Hills. Back in 1904, the promise of the Elk Hills had not been clear. The appellate court scoffed at the government’s effort to revisit the issue more than a decade later in order to recover the land.15 The U.S. Supreme Court handed the Justice Department a valuable victory when it unanimously overturned the appellate court opinion in 1919. The Court concluded that the “officers of the railroad company were not acting in good faith” when they patented the Elk Hills oil land.16 The government recovered land worth millions of dollars lying at the heart of a new Elk Hills naval oil reserve. The Navy and Interior Departments now could realistically expect to manage the Elk Hills oil field. Without government control of the lands in question, the checkerboard holdings would have quickly forced competitive drilling throughout the reserve. With the court victory, the government had retained the oil located in land claimed by the Southern Pacific and enhanced its ability to control oil development on surrounding government lands. Yet the Ninth Circuit’s Elk Hills ruling temporarily set a high standard for proving fraud and indicated trouble ahead for the Justice Department’s sweeping attack on Southern Pacific’s title to land in the San Joaquin Valley. While the Elk Hills case was still on appeal at the Supreme Court, the Justice Department filed a suit challenging sixteen patents issued to Southern Pacific between 1894 and 1902. The government valued the 165,000 acres of land, located between Coalinga and the Midway-Sunset oil field near Taft, at more than $400 million. The government relied on its successful Elk Hills strategy, contending that the railroad company had fraudulently misrepresented the oil lands as containing no valuable minerals. But federal lawyers lacked a sufficient legal basis for their suit. Most lands had not been acquired through obvious fraud, and their mineral character had been more ambiguous at the time of transfer. District judge Benjamin Bledsoe ridiculed the government’s position. Bledsoe effectively mocked the idea that California’s “most prominent,

The End of the Old Property Regime

23

most forceful, most far-seeing” business leaders, railroad titans like Leland Stanford, Charles Crocker, Collis Huntington, and Mark Hopkins, had carried out “one of the greatest frauds of the age.” How could the men who allegedly conspired to acquire rich oil lands have regularly sold some of those mineral lands at cheap agricultural prices and neglected to take individual possession of “a single foot of producing or probable oil territory”? Their failure to act in their individual economic interest and the company’s sale of valuable oil lands at nominal prices were unaccountable except as demonstrations of “honesty” rather than “fraud and chicanery.” Bledsoe dismissed the government’s claim as “hardly within the realm of possibility” and affirmed Southern Pacific’s title to the valuable oil lands.17 Bledsoe based his ruling partly on the Ninth Circuit Court’s negative attitude in the earlier Elk Hills suit, since the U.S. Supreme Court had not yet affirmed the government’s position in that case. Yet even after the Supreme Court overruled the Ninth Circuit in the Elk Hills case three months later, the Justice Department did not appeal Bledsoe’s district court ruling. Southern Pacific acquired friends in the department when A. Mitchell Palmer, the probusiness attorney general appointed in 1919, pushed out Francis J. Kearful, the assistant attorney general supervising the California litigation. Palmer abandoned the suit, arguing that the appeal was doomed.18 Gifford Pinchot, Josephus Daniels, and other progressives attacked “Palmer’s surrender.” Daniels called Southern Pacific’s victory “the greatest crime I ever heard of.” But the attorney general stood his ground. “There may have been more unfaithful public servants than Mitchell Palmer,” Pinchot commented bitterly, “but not many.”19 By abandoning the suit, Palmer ensured that loose nineteenthcentury land policies would deeply compromise any future federal management of California oil lands. The railroad company’s checkerboard holdings spread over the Buena Vista Hills naval oil reserve, over part of the Elk Hills reserve, and up the San Joaquin Valley over the area’s other major oil fields, including those in Kettleman Hills, Coalinga, and along the Kern River.20 The “rule of capture” problems faced in oil fields meant that Southern Pacific and then its successor, Standard Oil of California, would jointly control with the federal government the valuable oil in the San Joaquin Valley. While the effort was under way to regain former railroad land grants, President Woodrow Wilson’s attorney general, Thomas Gregory, A.

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Federal Property

Mitchell Palmer’s predecessor, simultaneously sued to recover oil lands elsewhere in California’s San Joaquin Valley. Where the railroad cases hinged on the specifics of the railroad grant, the department’s other oil litigation turned more directly on the terms of the Taft administration’s 1909 land withdrawal. The cases ranged from fraudulent gypsum claims, whereby companies evaded mineral laws by saying that they were looking for gypsum rather than oil, to insufficient development work by prospecting oil companies. The course of the litigation illustrated once again how difficult it was for the federal government to recover public rights once given away. The story also revealed the intimate relationship between courtroom conflict and political struggles occurring outside the courtroom. When in 1915 the U.S. Supreme Court upheld the constitutionality of the Taft land withdrawal, it declared that “nothing was more natural than to retain what the Government already owned.”21 The Court’s decision in United States v. Midwest Oil Company—which overturned lower court decisions by western district judges—pitted five eastern justices against dissenters from Ohio, Wyoming, and California and reflected a profound sectional split over the proper limits to national and executive power in natural resource management. For the trust-busting attorney general Thomas Gregory, a Texan who made his name driving Standard Oil’s subsidiary out of that state, the Midwest decision was “one of the greatest victories won by the Department of Justice in the last 20 years.”22 A jubilant legal team at the Justice Department hoped to reclaim for the nation hundreds of millions of dollars worth of oil lands so that the federal government could develop them efficiently and in the public interest. Within six months of the Court’s decision in February 1915, the Justice Department’s lead lawyer, the aptly named progressive lawyer E.J. Justice, filed twenty-five new suits to recover lands within the withdrawn area of California that private companies continued to claim. And the department planned more litigation as well.23 Back in California, however, western jurists continued to express skepticism about the executive intrusion into western resource management. Repeatedly, the judges told federal lawyers that claimants had entered the public domain under nineteenth-century laws established for the very purpose of encouraging such efforts. Congress’s policy had “always been to encourage the exploration of the public lands and the discovery and development of such minerals as may be found in them.” The government had sought “to encourage the development of its mineral resources and to offer every facility for that purpose.”24 District

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court judge Benjamin Bledsoe, who heard many of the lower court cases, understood intimately the cost of federal disruption of San Joaquin Valley oil development; he had lost his $300 investment in a small and unsuccessful oil company largely as a result.25 Even without such direct connections to the oil economy, the other western judges shared Bledsoe’s skepticism of the federal government’s new initiatives. Sympathetic lower court judges in California delivered numerous defeats to the Justice Department. In the western judiciary’s eyes, Congress had weakened the withdrawal order substantially with its 1910 Pickett Act. The Pickett Act gave congressional support for Taft’s withdrawal order but also sought to shield many oil operators who had only just begun to drill in 1909. Before the Pickett Act passed, operators had to strike oil before they could claim land securely; by contrast, the Pickett Act gave additional recognition to development efforts begun before 1909 that led to discovery several years later, well after the land had been withdrawn.26 Now even if claimants had not achieved legal discovery of oil under the old rules, the judges often granted them title nonetheless.27 Federal lawyers had exacerbated the government’s legal predicament by waiting to sue individual companies until the U.S. Supreme Court upheld Taft’s withdrawal order. Activities on the ground moved more quickly than the law. At the time of the 1909 withdrawal order, the North American Consolidated Oil Company and its predecessors had spent only ten thousand dollars on development of their property and had not discovered any oil. By the time of the district court’s decision in 1917, however, the oil companies had spent an additional half million dollars to develop several producing wells. In this case, as in others, the companies had moved swiftly forward after the withdrawal order, establishing themselves on the land with heavy investments and producing wells. Judge Bean concluded that the government would have imposed a “great hardship” if it had taken the land back from claimants working toward discovery, even though the mineral land laws granted no private ownership rights until oil had been discovered. Bean argued that the Pickett Act had acknowledged the government’s “moral obligation” to protect the investors’ interests. “It is now too late for the government to question the defendants’ right to the possession and the oil contents,” Bean concluded.28 In other instances, even the strong stench of fraud could not dislocate a private claim. L.B. McMurtry was a speculator and investor who became interested in the Midway field in 1900. In 1903, in an unusual maneuver, he secured the power of attorney from thirty-two laborers in the Chicago

26

Federal Property

stockyards. Then in 1907, McMurtry used these names to make separate mineral claims in the southern San Joaquin Valley. In the fall of 1908, he began selling these claims. By all accounts, including McMurtry’s own, the Chicago laborers typified a common creature of nineteenth-century land fraud, the dummy entryman. The Chicago claims were “mere paper” filings, the Court later determined. McMurtry recognized how tenuous these claims were. In January 1909, he re-claimed the lands under the names of thirty-two new individuals, this time from New York. According to the notes of Department of Justice investigators, McMurtry then used this power of attorney to locate, or file upon, the lands; enter agreements, leases, and contracts; and give options and sell portions of land—all without the “locators having any knowledge, whatever, that they were even located.” McMurtry thus used the powers of attorney “for his own use and benefit, and as his own individual property.”29 The federal government could not recover even these lands. Judge Bean discerned a plausible “good faith” explanation for McMurtry’s behavior toward the New York principals. Bean sketched an implausible narrative about how the New York locators had trusted McMurtry’s capabilities in the oil industry. Only late in the process, Bean argued, had McMurtry realized how much money he could make off the property and only then had he betrayed the trust of his New York principals. Bean’s decision converted a story about two sets of fraudulent dummy entrymen into a scenario in which McMurtry made valid claims for the New York individuals and then subsequently violated their trust in him. The tale had some weaknesses, Bean conceded. For instance, McMurtry’s conduct did not fit Bean’s story line. And the New York locators knew nothing about the mining laws and made no inquiry into them. But Bean attributed these incongruities to the locators’ “confidence” in McMurtry. Apparently all that mattered for Bean and the Ninth Circuit Court of Appeals, which upheld his ruling, was that McMurtry had covered his tracks sufficiently by paying the New York locators enough to make his deal look credible. As a result, further valuable oil lands passed into the hands of the Associated Oil Company, California Midway Company, and others that had purchased McMurtry’s claims.30 The federal courts in California thus set a high bar for the Department of Justice in the Taft land withdrawal cases. The McMurtry decisions showed how hard it was to prove fraud. The Pickett Act further loosened the discovery requirements for establishing a claim on the oil lands. Consequently, the federal government prevailed principally when claimants had not advanced their development work sufficiently to find

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Figure 2. Mineral land laws allowed oil prospectors to maintain their federal prospecting permits by building ramshackle dwellings and beginning to drill. (Courtesy of the Bancroft Library, University of California, Berkeley.)

protection under the Pickett Act’s broad relief provisions. In the 1916 United States v. Midway Northern Oil Company, for example, Judge Bean held that the defendants had acted “with full knowledge of the withdrawal order” and were therefore to be considered “trespassers.”31 When parties had performed some development work on the property prior to the withdrawal order, however, they were entitled to relief.32 Even when favoring the federal government in certain instances, however, the federal judges criticized it for deceiving the companies by allowing them to sink money into oil development that they would not realize the benefits of. “Irrespective of what else the government may have done after the making of the withdrawal order,” Bledsoe wrote indignantly in United States v. McCutchen, “it sat by and permitted wells to be sunk upon this property and permitted the oil to be produced, and permitted it to be sold, without saying a word or raising a hand in opposition until at least October, 1913.” Although Bledsoe forced the companies to surrender their land claims, he refused to judge them guilty of willful trespass and allowed them to recover their expenses out of the value of the oil produced.33 Bean similarly wrote that the oil companies were “not willful looters of the public domain, nor reckless trespassers.” The oil companies had transformed a “barren arid waste,” raising its value from $2 or $3 per acre to $2,500 or $3,000. Bean refused to rule harshly against the trespassers.34

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Federal Property

These court rulings demonstrated the Justice Department’s legal difficulties.35 Once private parties managed to stake claims on the public domain, however tenuous, the federal government could not easily break with its past public policy and the former property regime. Subsequent lower court decisions riddled with holes the Supreme Court’s 1915 Midwest ruling upholding Taft’s withdrawal order. A more generous policy that continued to favor the rapid development of mineral resources by private parties frequently prevailed. Oil operators continued to assume that they should have unfettered access to the publicly owned land. When the withdrawal order stood in the way of this access, they demanded relief from Congress and the courts, both of which protected the enterprising individuals and companies that had pushed against the limits of the law. The Justice Department’s effort to carry out the Taft withdrawal order, which intended to halt temporarily the development of oil on federal lands in California, was further undercut by the precarious financial position of many oil operators and the nature of oil production. Years of uncertainty and litigation battered the companies and left many financially vulnerable. Shutting down producing wells also posed special problems, since it risked letting water into the oil pool and losing natural gas pressure—crucial to lifting oil through the well—through slow leakage. To provide some financial relief and protect existing wells from water intrusion, the government continued to produce oil under courtappointed receiverships and under a special operating agreements act that authorized production during the litigation. This production directly undermined the campaign to save California’s oil for a wiser and more efficient oil production system and for possible future naval needs. Judge Bean described the predicament in his decision in the Midway Northern case. Trespasses onto the California oil lands had forced the government’s hand and compelled it to produce oil. “The lands were included in the withdrawn area to preserve them intact and undeveloped,” he wrote. But it was “now necessary to continue to operate the wells and extract the oil.” Bean ruled out an injunction against production as causing “serious damage” to both the property and to the embattled companies.36 Consequently, with court-appointed receivers in place, the Midway oil field continued to produce through the years of protracted litigation. The San Francisco Chronicle thus asked rhetorically in January 1917, “‘Are not the deposits in question “conserved” by this litigation and is not the Government’s fuel oil supply preserved?’ By no means is the answer.” The Chronicle, which outspokenly supported the

The End of the Old Property Regime

29

California oil operators, principally sought to undermine further the government’s “unrelenting proceedings.” Yet it accurately described how the federal land withdrawal had failed to yield a coherent or effective oil conservation plan.37 CONCLUSION

As California companies went bankrupt or pleaded with Congress and the courts for relief, the Justice Department’s effort to implement Taft’s oil land withdrawal, however ineffectual, thoroughly shook the old property regime. The unsettled years that followed the withdrawal order highlighted the political nature of the oil market and the property rights that underlay the market as an institution. Oil operators came to understand that their business depended as much on the successful staking of a property claim as it did on the successful extraction of oil. The oil lands at stake in the San Joaquin Valley constituted some of the most valuable petroleum properties in the United States. The Midway-Sunset field alone became one of the four largest producing fields in the country, yielding over 2.4 billion barrels of oil by 1997. Other oil fields covered by the Taft withdrawal order and the railroad land grants produced similarly stunning quantities of oil. The Elk Hills and Buena Vista Hills, the designated naval oil reserves, together yielded 1.75 billion barrels by 1997. Operators at the Coalinga, Kettleman North Dome, and Belridge fields produced over 400 million barrels each, either under federal leases or on former federal lands.38 New development work on these valuable public oil lands stalled and production fell off when Taft called a halt to the nineteenth-century system of land distribution in the southern San Joaquin Valley. California production did not fall as steeply as it might have if the federal government had enforced its withdrawal order more aggressively and effectively. But regional production figures declined substantially when new wells did not come on line. Oil operators quickly complained about stagnating supply and an impending “oil shortage” caused by the government’s restrictions on development. The industry lobbyist Roy Bishop declared hyperbolically that the shortage would “practically eliminate oil as a fuel from the commercial life of the State.”39 During World War I, the oil market tightened and prices rose, allowing larger producing companies with extensive oil stocks to draw down their supplies. San Joaquin Valley development failed to replenish these supplies sufficiently.40 By significantly disrupting companies’ production plans,

30

Federal Property

the litigation and uncertainty surrounding San Joaquin Valley development helped set the stage for a severe gasoline famine in the spring and summer of 1920. The vast amount of oil at stake and the growing demand for crude oil intensified the pressure to resolve the drawn-out conflict by establishing a new property regime for California’s federal oil lands. Politics intervened between the forces of supply and demand to determine how oil companies developed California’s rich oil lands. Politics structured property rights, which in turn shaped competitive relations among oil producers. Politics, then, played a key role in shaping the extent and nature of California oil production. The federal government under Taft and then Wilson embarked on a difficult effort to restructure property relations during the second decade of the twentieth century. But formidable political opposition by the oil operators, who made use of their political influence on congressional legislators and their shared interests with western judges, largely foiled any attempts to carry out an effective conservation policy. The largesse of the nineteenth century—represented by railroad and school land grants and a legacy of loose mineral laws—privatized and fragmented the public domain. Sympathetic federal judges in California weakened the Taft withdrawal order by upholding tenuous private claims on the public domain. Western legislators then led the effort to rewrite generously the withdrawal order to allow more of the public domain to slip into private hands. The shared nature and delicate workings of the oil pools forced the government to drill wells even in its naval reserves to offset neighboring producers. From the U.S. naval oil reserves in the Elk Hills and Buena Vista Hills to the lands more broadly opened up to leasing, the U.S. government largely surrendered control of how the petroleum lands would be developed. The government did not turn the land over to a private market governed by abstract laws of supply and demand. Competition with neighboring landowners or leaseholders—rather than fluctuating oil prices—would drive the production patterns on the resulting mixture of private holdings and public leases.

CHAPTER

2

The Politics of the 1920 Mineral Leasing Act

California’s unsettled oil market increased the urgency for oil operators to establish a favorable new legal framework for oil development on public lands. While the Justice Department’s suits proceeded through the courts during the second decade of the twentieth century, the companies sought to influence the new mineral legislation being developed by Congress. Following President Taft’s withdrawal of public oil lands, congressional sentiment favored retaining national ownership of these lands and leasing them to private companies who would develop them. Oil prospectors and companies already had laid claim to the most valuable petroleum territory in the San Joaquin Valley. Now they focused their lobbying effort on getting “relief” from the general leasing bill— that is, on getting provisions that gave them private title, or at least leases, to the valuable oil lands that they claimed, with favorable terms of operation and royalty payments to the government. The national campaign for favorable treatment of the California oil companies, which culminated in the Mineral Leasing Act of 1920 and in the 1920s Teapot Dome scandal over bribery and oil leases, revealed many familiar aspects of American politics and business—the characteristic revolving door for politicians and businessmen, the writing of bills by industry lobbyists, and the maneuvering for personal gain under the new property laws. Recognizing the essentially political nature of their problem, the Oil Industry Association of California, a lobbying group created to influence 31

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Federal Property

new federal oil land policies, and individual companies recruited former politicians to make their case in Washington, D.C.1 Former California governor and U.S. representative James N. Gillett coordinated the Washington lobbying effort after 1916.2 A lawyer born in Wisconsin in 1860, Gillett had moved to Northern California in his twenties to start a legal and political career. Part of the conservative wing of the California Republican Party, he was elected governor in 1906 with the formidable backing of the Southern Pacific Railroad’s political machine. Gillett left public service after one term as governor, reportedly eager to make more money in the private sector.3 Now as a lobbyist for the oil interests, Gillett was paid handsomely for his efforts; for example, he received fifty thousand dollars from the Honolulu Consolidated Oil Company for helping protect its claims in the Buena Vista Hills naval oil reserve.4 Many other former politicians from California and the West joined the advocacy effort. Judge Frank Short, a conservative Republican ally of Gillett and a prominent corporate lawyer and local judge from Fresno, carried out the Oil Industry Association work before Gillett’s arrival in Washington. A delegate to the Republican National Conventions in 1896 and 1904, Short had represented irrigation and power companies in Sacramento and Washington, D.C., opposing new state and federal conservation initiatives and seeking to gain access to public water resources for companies at minimal charge, particularly from within the new national forests.5 The Standard Oil Company of California also employed former assistant secretary of state F.B. Loomis and former lieutenant governor John Eshleman of California, as well as past members of Congress. The oil industry association joined western potash interests in employing Charles Towne, a former senator. Towne helped shore up connections with Democrats, spending two days a week in the Senate in the spring of 1916 lobbying for oil relief. Although Towne had served only two months as an appointee, his Senate credentials made him particularly helpful. F.B. Loomis reported that Towne “has access to the floor and cloak rooms of the Senate at all times and can go in and see men when they have leisure and are willing to hear the merits of our case discussed.”6 Other industry allies still in Congress, such as Nevada senator Key Pittman, a former Klondike miner, invested in the oil boom themselves, at times in partnership with lobbyists like Gillett.7 The industry’s frenzied national lobbying efforts are reflected in Gillett’s private correspondence. The former governor recorded ongoing discussions of what different elected officials should do on the industry’s behalf, including when they should present legislation, which

Politics of the 1920 Mineral Leasing Act

33

Figure 3. United States Representative James N. Gillett stands before a California Republican Party banner in 1904. (Courtesy of the Bancroft Library, University of California, Berkeley.)

meetings they should attend, and whom they should contact and lobby in Washington. “Cannot [Senators James] Phelan and Pittman get [Navy Secretary Josephus] Daniels and [Attorney General Thomas] Gregory to approve?,” Gillett’s boss Roy Bishop demanded in 1917, frustrated by a stalled relief bill. A former mining engineer from Illinois who had spent two years in Russia and Mexico on behalf of California mining companies, Bishop had returned to the United States and married into a prominent Standard Oil family from New York. Entering into the oil business in California, he had spearheaded the formation of the Oil Industry Association of California in 1915. Now Bishop offered to help raise money for Democratic politicians if necessary, even if they

34

Federal Property

were not favored by the largely Republican industry: “If you all concur that success depends upon [California politician Isadore] Dockweiler, I will disregard our beliefs and endeavor to raise money among associates.”8 Gillett and Frank Short similarly recruited retired California senator George C. Perkins, former chairman of the Naval Committee, to contact his colleagues to tell them that the oil relief legislation was “fair, just and equitable and should be granted.”9 Lieutenant Governor Eshleman and Senator Phelan worked on Secretary of the Interior Franklin Lane, a “life-long friend” of Phelan. According to F.B. Loomis, Eshleman proved “of great service[,] . . . the best man to deal with the Interior Department by far.” Short marveled at Eshleman’s “energy and aggressiveness” in pressing the case “laid before him.” Eshleman’s death in 1916 was viewed as a serious blow to their campaign.10 Industry lobbyists and political representatives worked closely on these nuts and bolts of American politics. In 1916, for example, Roy Bishop instructed Gillett by telegram on how to guide Senator Phelan’s introduction of a legislative amendment: “Whether as [a] tactical move it would be better to have Senator Phelan offer it as a concession in debate or whether it should be put at once in to substitute depends on [the] nature of [the] opposition. . . . You and your friends are on [the] ground and must judge.”11 Louis Titus, representing investors with holdings in the Elk Hills naval oil reserve, similarly informed Gillett, “Have just learned that [the] executive committee of [the] Navy League meets tomorrow to consider [the] Phelan bill. Senators [John] Weeks and Phelan are both members. Senator Weeks especially ought to be present to prevent adverse action.”12 Frank Short described to his boss at Standard Oil, Oscar Sutro, how Senator Phelan had amended the bill at their request, and Short outlined the next steps for guiding it through the House and Senate.13 Sutro told F. B. Loomis in Washington regarding the conference committee for the bill, “We would like to see, in addition to Senator [Henry] Myers and Senator [Reed] Smoot, Senator Smith and Senator Pittman.”14 Gillett reported to Sutro that the clerk of the Senate Committee on Public Lands “requested me to prepare separately the amendments that we desired to offer to the House bill and give them to Senator Myers, the Chairman of the Committee, so that he could offer them.” At times, the oil lobbyists seemed to be on the very floor of Congress, introducing legislation they had written, mustering votes, and directing bills through committees. Despite its money and influence, however, the oil lobby was not allpowerful, as the long, drawn-out struggle over the oil lands illustrates.

Politics of the 1920 Mineral Leasing Act

35

After the 1916 elections, Gillett reported “a big mistake” in neglecting to muster support for Senator Clarence Clark of Wyoming, who was defeated. “He is a member of the Public Lands committee of the Senate and for two years has been our warmest and strongest supporter. I feel a little delicate and ashamed now to go and talk to him.”15 Conservationists within the Taft and Wilson administrations constrained industry allies like Franklin Lane. Personality also factored into the oil lobby’s limitations as well as its success. According to one account, F.B. Loomis was “so cold” and unpopular with the Wilson administration that his political efforts were “not overly helpful.”16 The major oil company leaders in California tended to ally with the Republican Party, and they considered the national Democratic victory in 1916 a disaster for their struggle to control San Joaquin Valley oil lands.17 But because California had been an important electoral state, they attempted to turn the debacle to their advantage, reminding Democratic politicians that they owed California a political debt. Gillett, for example, urged the Democratic governor of Kentucky to lobby in Washington on behalf of the California oil industry and to persuade his state’s Democratic senator to “take an active interest” in the industry’s problems. “After what California did for the old Democratic Party it seems to me there should be reciprocity somewhere,” Gillett wrote.18 In addition to undertaking these political strategies, industry leaders worked closely with major California newspapers to influence public opinion. Harrison Gray Otis, president of the Times-Mirror Company in Los Angeles, decried “ill[e]gitimate raids by the administration” and assured Gillett of his support. “The [Los Angeles] Times has printed a good deal of matter on the subject,” Otis wrote Gillett suggestively, “and is ready to print more when it can receive the facts from authoritative sources.”19 The San Francisco Chronicle similarly spoke for the industry, blasting the “obstinacy” of the federal officials who persecuted small operators and investors with suits “based on trivial technicalities.” The newspaper editorialized in 1916 on behalf of a proposed leasing bill and claimed credit for legislative progress stimulated by “the force of public opinion, created almost entirely by this journal.”20 In March 1916, the Chronicle declared that the Department of Justice might be “legally justified” in its lawsuits but was “morally unjustified.” The paper warned of the “ruin of hundreds of honest men.”21 The Chronicle’s sympathies extended from the editorial to the news pages. In December 1916, the publisher Michael deYoung telegrammed Gillett in Washington regarding the Chronicle’s fifty-second annual

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Federal Property

edition. In exchange for “generous support from larger interests and their attorneys,” deYoung offered to print an article “which we will agree to write from such suggestions as you may give us. . . . You know the stand [the] Chronicle has taken editorially [on] this matter,” deYoung assured Gillett. “Let us have your data or suggestion for [the] article early . . . so [the] article may have your approval before publication.”22 Although Gillett declined deYoung’s request for money and editorial copy, the January 1917 annual edition predictably favored the California oil industry’s views. The articles liberally quoted John Eshleman, Roy Bishop, and the Chronicle’s own pro-industry editorialists. Land withdrawal and the ensuing litigation had dealt California “the greatest blow” in years.23 The government’s lawsuits caused production to fail to keep up with consumption.24 Many operators faced “financial ruin” or had suffered “irreparable loss.” Over $17 million had been expended on wells and improvements, the newspaper estimated, and wells in question had produced over 76 million barrels of oil.25 The Chronicle complained that the litigation threatened title to approximately onequarter of the state’s oil lands.26 If the federal government wanted more oil land for the navy, the Chronicle argued, it should purchase the land or condemn it. “Sooner or later [the land] must go back to the individual, unless the Government is to go into the oil business.” The government should not “cheat” its citizens.27 Not everyone agreed that this strident advocacy by the California press, or even the public airing of the oil controversy, aided their cause. A.J. Pollak of the Miocene Oil Company thought that “the fewer statements regarding the oil men’s side of the story that appear in the papers, the better will the eventual result be.”28 Gillett similarly favored backroom bargaining to public exposure, which he thought would spur eastern opposition to an advantageous bill. As the mineral leasing bill neared final passage in 1920, industry lobbyists worked hard to prevent further public hearings and push the bill swiftly through Congress. “The Committee is very friendly,” Gillett reported to William Herrin of Associated Oil, who was also the longtime political boss for the Southern Pacific Railroad Company. In accordance with the oil lobbyists’ request, the House Committee on Public Lands had “decided not to have any hearings on the Oil Leasing Bill.” Gillett explained, “There are a number of people here who are anxious to nationalize the oil and coal industries of the country, and the President himself has some leanings in that direction. . . . If we had hearings, these people would appear before the Committee and would take up considerable time in agitating this

Politics of the 1920 Mineral Leasing Act

37

question.” Sentiment in favor of national ownership had grown in the East, Gillett wrote to A.C. Diericx, head of the Honolulu Consolidated Oil Company. “It is not strong enough yet to defeat the passage of our Bill, though it might be if our Bill is delayed very long. Hence our anxiety to get it through as quickly as possible.” Gillett thought that the bill was in “splendid shape,” and that President Wilson would sign the bill if it were “passed before a strong propaganda grows for the public ownership and operation of the oil and coal industry.”29 Gillett particularly feared public attacks on the industry by eastern conservationists and navy loyalists. “The fight is a hard one” Gillett acknowledged. The eastern newspapers, unlike their California counterparts, did not help the industry’s cause, reporting that the proposed leasing bill, with its generous relief provisions for California claimants, was “a big oil steal.”30 World War I complicated political negotiations over the withdrawn oil lands and over the management of the naval oil reserves. The war allowed the oil companies to demand that the government open the public lands for increased private oil production in the name of patriotism. But the war also stimulated a countermovement to have the navy operate the naval oil reserves itself and retain greater public ownership of oil lands.31 Secretary of the Navy Josephus Daniels, with President Wilson’s support, strongly opposed private intrusions on the naval reserves, and World War I strengthened his hand. Daniels used his leverage to aid allies in the Justice Department and conservation movement.32 Alarmed by the waste described by government geologists working in California, Daniels and his allies sought to conserve oil in the ground for the navy and to make California oil production more efficient generally. They also sought greater royalties for the government, with some calling for outright government ownership and oil well operation.33 After Daniels and his allies blocked a leasing bill in 1916, the prospects for satisfactory relief for the California oil land claimants looked bleak. Then the end of the war in 1918 and Republican victories in that year’s midterm elections sharply changed the situation. As Gillett observed, the danger “that the Government would take over our oil properties and operate them vanished when the war closed; that is no longer a club held over our heads. Mr. Daniels could not get an order of that kind made now.” Gillett likewise thought that the Democrats would fear responsibility for tying up Western resources for over six years and leaving the oil issue for the new Republican Congress. “For these political reasons, I believe we will get some action soon, and if we

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Federal Property

don’t I know the Republican Party will give it to us promptly.” Only a few short months before the elections, Gillett had expected only leases on existing wells in the naval reserves, with the idea that the president might subsequently extend the right to drill to the rest of the claim.34 Now he hoped that his clients would soon gain permission to drill new wells.35 As promising legislation developed in Congress in 1919, California oil lobbyists sought to shape the final leasing bill as much as possible. A. J. Pollak, president of the Miocene Oil Company, wrote Gillett to suggest favorable clauses. He recommended that the royalty be “fixed at one-eighth on all existing wells.” If royalties could be calculated on net production, he added, subtracting development and operating costs from gross production, “it would be a very fortuitous saving for all of the companies.”36 The most important provisions of the new leasing bill concerned relief for oil operators who claimed land withdrawn by President Taft. These often involved narrow amendments to the bill that dealt with the unique aspects of each case. Pollak, for example, asked Gillett for a “personal favor” that would give him a special edge: As you probably recollect, I am a veteran of the Spanish-American War, with an honorable discharge. I therefore suggest that when Congress passes a land bill for the benefit of veteran soldiers . . . that you arrange it with some influential member so that a veteran who has lived on and asserted claim to any public land for a specified period, will be given a patent to the land which he claim[s], whether it is agricultural or mineral in character. . . . You can easily have it worded so that it would be applicable to my rights and claims with the Miocene.

In this instance, Pollak then quickly reconsidered his boldness. “Upon second thought,” he continued, “I believe that the acreage should be limited to 160 acres, which would eliminate any suspicion.”37 William F. Herrin of the Associated Oil Company urged Gillett to push back the date before which substantial development work had to have been done in order to qualify for the bill’s relief provisions. Associated had acquired valuable properties from L.B. McMurtry and wanted to hold on to them. But the company had not begun development until after the withdrawal orders. Herrin also urged Gillett to insert propurchaser provisions dealing with the purchase of properties originally acquired through fraud.38 In addition to assisting his clients and associates, Gillett sought a quick return for himself in the passage of the mineral leasing bill. As its

Politics of the 1920 Mineral Leasing Act

39

passage approached, he wrote his associates to alert them that he had introduced a provision that might “enable us to pick up something upon good terms, if we can get at it quickly.” Gillett instructed them to look for lands that might fit a little-known section of the law, lands filed upon or “located” prior to September 27, 1909, but upon which no well had been drilled or oil discovered.39 “I may be mistaken, and no such locations may exist,” Gillett noted. “But I had the bill prepared to take care of them if there are any, and of course this fact is not known by anyone in California, and will not leak out for some little time yet.”40 Gillett was not the only one rushing to lay claim to the newly opened federal domain. One of Gillett’s associates, Rudolph Pollak, sped out to patent some land only to find others staking out the same territory.41 Senator Albert Fall’s secretary Charles Safford played an inside game similar to that of Gillett, with a different set of associates in New Mexico. Safford kept his associates apprised of Washington developments. Immediately after the leasing bill passed, he alerted them with a carefully worded telegraph intended to avoid leaks.42 In exchange for Safford’s efforts, he was told, there was a “little acreage reserved for you which possibly may sometime repay you for your trouble.” With Safford’s boss soon to take over the Department of the Interior, Safford’s personal involvement in oil development on the public domain boded poorly for future federal management. A New Mexico colleague wrote Safford plainly that the “value of these locations” would “depend a great deal upon the regulations issued by the Department.”43 Loosening federal leasing regulations would be one of Albert Fall’s top priorities in the Interior Department. Gillett labored to insure that the mineral leasing bill did not lose momentum before passage. “The hardest thing I have to do today,” he reported to his Honolulu employers in September 1919, “is to keep track of people who come here and want to ‘butt in’ and amend the Bill in many ways. So far, I have succeeded very well.”44 When one lawyer proposed a number of amendments that would “prove ruinous” to the bill, Gillett provided damaging information about him “to our friends on the Committee.” He hoped to “sidetrack the whole matter quietly and without any trouble.”45 When a group of Wyoming interests seemed bent on derailing the bill in the process of making it more advantageous to them, Gillett “read [them] the riot act” in order to “settle their differences.” He also helped smooth things out between the powerful representative Nicholas Sinnott from Oregon and Senator

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Reed Smoot.46 The final version of the leasing bill pleased Gillett considerably, and he boasted to A.J. Pollak about his successes and influence. Sending Pollak a copy of the bill with “our provision” underlined in the text, Gillett crowed that they had gotten the “bill in pretty good shape.” “When I come home, Al,” wrote Gillett, “it will be up to you to give a good dinner to several of us, and help celebrate the occasion.”47 Roy Bishop of the Oil Industry Association congratulated Gillett, saying, “It would not have occurred if you had not hung on like a bull dog.”48 As passage grew more certain, Gillett turned his attention to the leasing bill’s implementation. “When the Bill becomes law,” he informed Herrin at Associated Oil, “the Secretary of the Interior will commence preparing rules and regulations to carry out its provisions. These rules and regulations are going to be very important[,] as much so as the Bill itself.” Gillett offered to stay in Washington to assist, and he urged Herrin to provide oil experts from California.49 The Mineral Leasing Act passed in 1920, and Gillett followed up with further efforts to influence federal policies for his clients. His work in Washington revealed both the continuing centrality of property rights and the ongoing political maneuvering that lay behind the adoption and protection of an oil-friendly regime. Following Albert Fall’s resignation in 1923, Gillett solicited guidance from his associate L. L. Aitken in Denver: “Have you any one in mind yet for Secretary of the Interior? If so I wish you would let me know so that I can help to put it over.”50 Gillett recalled that the Honolulu Consolidated Oil Company had retained one candidate, Senator Frank Kellogg, prior to his joining the Senate. Gillett also persisted in shaping congressional policy development, recruiting sympathetic western senators to serve on the Committee on Public Lands.51 In addition, he developed a lucrative consulting business helping companies convert contested claims into leases. He advised clients on how to acquire prospecting permits, incorporate their enterprise, and sort out the complex web of land titles.52 Overlapping claims created a legal mess. “Yours conflict with a homestead entry, three stockraising entries and lieu selection,” Gillett observed in one letter to a client.53 Gillett lobbied the commissioner of the General Land Office, William Spry, to allow for group development of permitted areas and the extension of permits.54 When Herbert Hoover’s secretary of the interior called a temporary moratorium on the issuance of oil prospecting permits in 1929, Gillett helped lead the California opposition to the new policy, becoming vice president of the

Politics of the 1920 Mineral Leasing Act

41

California Oil and Gas Permittees and Lessees’ Association.55 Gillett also joined an effort by oil operators, including the Standard Oil Company of California, to prevent the Interior Department from reviewing federal grants of mineral land to the states. Gillett and others pushed for congressional legislation to protect those who had “relied upon the title coming from the state.”56 Gillett’s political connections, legal acumen, and strategic approach to influencing legislators and agency administrators had little to do with the technology of extraction or refining. Nor was he a businessman marketing a product. Yet he and his political compatriots played a role in the California oil business as fundamental as that of any engineer or entrepreneur. They established and maintained the property regime within which the geologists, engineers, and businessmen would work profitably. From the Taft land withdrawal in 1909 to the passage of the Mineral Leasing Act in 1920, these political representatives of the oil industry—elected officials and lobbyists—struggled to open Southern California oil lands for immediate development. Their political efforts yielded a new leasing law, which would govern mineral development on the public domain through the rest of the twentieth century.

“ PATENT

IS NOW ONLY A MEMORY ”

“No one will ever know how much time, work and money” went into the drafting of the Mineral Leasing Act, Oscar Sutro, chief lawyer for Standard Oil of California, wrote James Gillett in 1920.57 F.B. Loomis concurred, telling Sutro that “I do not believe a bill has ever had more work done for it and more persistent effort brought to bear upon it than the Oil Leasing Bill.”58 Disadvantageous proposals for government oil development, steep royalty rates, and sharp restrictions on extraction had been aired during the decade-long struggle. But years of lobbying by Sutro, Gillett, Loomis, Short, and others paid off for the oil companies. They had prevented any fundamental reorganization of land and development rights and protected most corporate claims to the public oil lands. While the Mineral Leasing Act ended the patent system for mineral lands established in the 1860s and 1870s, the law replaced it with a leasing system that resembled nineteenth-century land disposal practices. The act also settled claims related to the 1909 Taft land withdrawal, dealing generously with long-standing claimants to oil lands outside the naval oil reserves in California and the Midwest. Oil operators who

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Federal Property

could not gain outright patents for their claims received preferential leases on the same properties.59 The bill created a powerful incentive for claimants to settle for a lease: if a claimant held out for a patent for more than six months after the act’s passage, he would lose his preferential rights to lease.60 Although smaller oil operators had made many land claims originally, during the years of litigation and following the passage of the leasing act, larger oil companies purchased these claims and consequently received the preferential leases. The lease agreements charged the oil companies a light, one-eighth royalty on the oil production of the previous ten years. This set a low minimum threshold for subsequent royalty payments. Observers like the former attorney general Thomas Gregory thought the leases could command at least twice that, in addition to large initial bonus payments.61 To sweeten the deal, 52.5 percent of the royalties went to the national reclamation fund for water management, 37.5 percent to the producing state in which the oil was found, and 10 percent to the general treasury of the federal government.62 Over the ensuing years, hundreds of millions of dollars in royalties built dams in the West, funded schools and roads in the oil-producing states, and paid for general federal expenses. Although the leasing act disallowed fraudulent claims, the restriction applied only to those lands that remained in the hands of the original claimant. Since speculators like L.B. McMurtry had rapidly passed on their claims in the California fields, the fraud provision applied to few claimants in 1920. So long as a company “had no knowledge” of the original fraud, it qualified as a “bona fide” claimant. By granting preferential leases to claimants, overlooking fraud, and charging a low royalty on past production, the Mineral Leasing Act thus confirmed bold actions taken by oil operators in disregard of the Taft land withdrawal. The bill rewarded those who aggressively staked their claims, developed their wells, and moved to production as quickly as possible, despite a government land policy ostensibly intended to temporarily halt such activities. As with any compromise, the new leasing law did not meet all the oil operators’ goals. Within the naval reserves, the leasing act provided little relief, granting claimants only rights to the producing wells. Standard Oil of California and other companies complained bitterly of “unjust” discrimination.63 The strict ruling perversely rewarded bold defiance of withdrawal by an enterprising firm: the more wells one drilled, the more generous the settlement was. Although claimants

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43

within the naval reserve did not acquire full leases, the act did hold out the prospect of future relief by allowing the president to approve further development within the reserves. Existing claimants would receive preferential treatment. In the hands of the incoming administration of Warren Harding, elected in 1920, this discretion would greatly reward patient oil operators. The terms for new oil exploration also did not entirely satisfy the major oil companies. The leasing act increased the acreage of prospecting permits and leases to improve production efficiency by reducing competition in new territory. Two-year prospecting permits covered 2,560 acres outside known petroleum structures; within known petroleum areas, the act provided for 640-acre leases. Companies could obtain these new leases through competitive bidding. Although the increased permit and lease sizes lessened the fragmentation of the oil fields, the acreage restrictions continued to disappoint many larger oil operators. They sought much larger lease tracts that would encompass large portions of oil fields, or even entire fields, and allow them to manage the holdings efficiently. But smaller operators fought such monopolistic control of the oil fields. The chairman of the House Public Lands Committee spoke for many in 1918 when he asked sarcastically if Standard Oil should get all the government’s oil fields “at one bite of the cherry.” In 1916, Gillett wrote similarly to his associate Frank Short that many people in California had written Senator Phelan to argue against a lease size of 2,560 acres because the amount was “entirely too large and all wrong.” Gillett and his colleagues successfully persuaded Congress to approve the 2,560-acre size, but they could not increase the lease parcels further.64 What had the long and bitter struggle over California’s oil lands achieved? Standard Oil of California denounced the “carnival of litigation” and declared that “nothing of value” had resulted from it.65 The company itself certainly had gained little in comparison to what it had acquired under the previous land patent system that gave companies private ownership. Although the bill favored oil producers, it was a compromise measure that also reserved important revenues and powers for federal and state governments. In addition to the one-eighth minimum royalty interest, ownership gave the federal government considerably greater discretionary power to determine the future of the public lands. Of course, the government always retains the power to regulate private land uses in the public interest, but this general “police power”

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is limited by constitutional restrictions—the Fifth Amendment’s takings clause—and political constraints. With the new leasing regime, the federal government had the full authority of a proprietor. In its contracts with lessees, the government could easily regulate drilling practices, for example. The government also could stipulate that wells be set back from the lease boundaries, require the filing of reports, and demand the construction of waste pits and procedures for well abandonment.66 Federal ownership also gave the government a clearer stake in labor relations. During the lengthy and bitter 1921 labor strike among oil workers in the San Joaquin Valley oil fields, the Interior Department held the key to the strike’s outcome. The department, which managed the federal oil lands and the royalty payments, had the power to intervene between the strikers and their employers. As Albert Fall’s subordinates informed their boss, if the Interior Department took control of certain properties to “prevent damage by water,” it would necessarily have to get involved with employment relations, either guaranteeing “certain wages to union men or else protection to no[n] union men.”67 Either decision would involve the government in the strike. What position would the government take in this important postwar labor conflict?68 Would the government side with the unions, continuing its mediating role from the war years? Or would it step back and let the employers break the union? Some officials in the Departments of Labor and the Interior urged the Harding administration to mediate on the grounds that the strike threatened government oil interests.69 But Secretary of the Interior Albert Fall sided decisively with the employers by staying out of the protracted conflict, thereby withdrawing the government from its mediating role.70 Fall recognized that the government as landowner possessed sufficient power to shape labor relations in the oil fields, but he denied its “right” to do so.71 Lacking federal support and faced with the united opposition of the oil operators, the strike ultimately collapsed. During the two decades following the 1920 leasing act, oil land ownership provided the sole means for the federal government to achieve conservation. When competitive practices resulted in severe overproduction in the late 1920s, the government used its leverage as proprietor to institute California’s only effective conservation program. Under federal leadership, the operators of the Kettleman Hills oil field managed the area as a unit and allocated production among the numerous companies involved. Elsewhere, the state and federal governments lacked the ease of action that ownership provided, and were stymied.

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Federal and state oil conservation initiatives in areas not owned by the federal government were incomplete or were ruled unconstitutional. Voluntary efforts by the oil companies repeatedly failed. Ownership of the public domain also allowed the government to change its mineral development policy more swiftly and effectively than the 1909 Taft land withdrawal had allowed. Near the end of the 1920s, when oil prices again plummeted as they had around 1909 and the oil market again seemed saturated, President Herbert Hoover was able to cancel thousands of federal oil permits, vowing “complete conservation of government oil.”72 Hoover’s secretary of the interior, Ray Lyman Wilbur, proposed to lease only the minimum required by the Mineral Leasing Act. Wilbur criticized the low oil prices and warned against wasting the nation’s petroleum resources. He perceived a government obligation to “reserve as much oil as possible against the time—unfortunately not far distant—when our national supplies diminish.”73 Land ownership thus enabled the secretary of the interior to implement his oil conservation plan. Conversely, of course, this enhanced control over the petroleum properties also could give the secretary discretion to open up the petroleum lands to more drilling, should it seem desirable.74 Despite these limited successes, however, the federal government’s relative failure to recover oil lands claimed before the 1909 Taft land withdrawal severely impaired its control over production from the land that it did own. The new property regime failed to address satisfactorily the basic problem of competitive production. A large number of oil operators in California in the early 1920s now owned lands formerly controlled by the federal government. Operators who worked under the leasing act had to compete with neighbors on private lands. New leases granted under the 1920 act spurred development by mandating that prospecting permittees drill within six months. Within one year after receipt of the permit, they had to have drilled to at least five hundred feet; barring discovery of oil, within two years they had to have reached two thousand feet. These drilling rules—designed to prevent companies from unproductively tying up the public domain and to safeguard the government’s royalty interest with respect to neighboring private landowners—forcefully pushed operators toward discovery and production. Even in the naval petroleum reserves, competitive forces compelled the federal government to develop its property. With the government’s defeat at the hands of Judge Benjamin F. Bledsoe, the Southern Pacific Company retained title to checkerboard sections within the Buena Vista

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naval oil reserve. “It is sheer folly for anyone to contend that the oil and gas may be held in reserve,” commented C. Naramore of the Sinclair Exploration Company. Production by the Southern Pacific and other private operators would inevitably bring water encroachment, the exhaustion of gas pressure, and the depletion of oil. Fragmented ownership had irreparably damaged the Buena Vista Reserve. As Naramore noted, the government could protect its share “only by drilling as many wells as the Southern Pacific Company.”75 At the same time, although the federal government had recovered most of the Southern Pacific’s claims in the nearby Elk Hills, rival holdings also compromised that naval reserve. By 1922, Standard Oil had forty-four wells on the eastern edge of the reserve. The wells drained the same oil pool, and they extracted oil quickly—21 million barrels by September 1921. By 1922, the wells had already earned Standard a phenomenal $27 million on its $6-million investment.76 Standard’s actions forced the government to offset this production with new wells. On a section in the heart of the reserve, acquired from the state of California, Standard Oil also embarked on an aggressive drilling campaign. The federal government ultimately recovered the latter section after decades of expensive and controversial litigation, but not before Standard’s development work forced a drilling campaign.77 By failing to address the underlying competitive situation, the leasing act failed to establish a property regime that effectively controlled California oil production. The federal government, like all other landowners in the California fields, lacked the power to match its oil production to market conditions. Unlike other landowners, however, who found themselves in a situation not of their own making, the federal government had given away this discretion. Even as the government struggled with competition, executive authority over California’s rich oil lands created fresh management issues. A spate of generous deals made by the Harding administration culminated with the notorious Teapot Dome scandal. Secretary of the Interior Albert Fall stood at the center of this controversy. A former senator from New Mexico, Fall believed that the government should open the western public domain for rapid development. The natural resource interests who backed Warren Harding’s election in 1920 specifically backed Senator Fall as their candidate for Interior Secretary. The oil man Harry Sinclair reportedly spent six hundred thousand dollars ensuring Harding’s election. Fall in particular had been, in the phrase of one historian, “bought like a steer.”78 In his brief tenure in the cabinet, Fall sought to reverse conservation policies adopted by the Roosevelt,

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Figure 4. At the Buena Vista Hills naval oil reserve, competition among rival owners, and the loose leasing policies of President Warren Harding’s administration, resulted in an oil field riddled with wells. (Courtesy of the Security Pacific Collection/Los Angeles Public Library.)

Taft, and Wilson administrations.79 As a senator, Fall had pushed for oil-friendly mineral leasing provisions and full recognition of private claims in California.80 As Interior Secretary, he loosened federal regulations for oil and gas leasing, making lease terms more generous and operating conditions more flexible. Fall expanded the acreage and number of claims allowed to oil companies under the leasing act and enhanced the rights of permit applicants to gain lower prospecting royalty rates if the government declared an oil field “known” while processing the permit application.81 Fall’s crusade against oil conservation particularly targeted the naval oil reserves. Soon after he joined Harding’s cabinet, he negotiated generous deals with the Honolulu Consolidated Oil Company for production within the Buena Vista Hills reserve. His decision to reopen the case and then grant the Honolulu leases poked further holes in the already riddled reserve. Fall claimed that experts advised early development to prevent water damage to the oil structure, but his obvious

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Figure 5. Former Secretary of the Interior Albert B. Fall (left) and the California oil magnate Edward Doheny stand outside a federal courthouse in 1926 during the Teapot Dome scandal. (Bettman/Corbis.)

eagerness to side with the company suggested ulterior motives.82 Fall’s announcement of the Honolulu leases made clear that he would have preferred to award patents, had these not been barred by law. Fall praised Honolulu’s pioneering efforts, which “created and gave value to . . . the Buena Vista field at a time when that region was apparently worthless for any purpose.”83 To compensate the company for its unjust treatment at the hands of the Wilson administration, Fall granted it generous terms on all its producing wells, as well as seventeen additional claims. He set the royalties charged for thirteen of these claims at the prescribed minimum.84 But Fall’s dealing went too far: in the Elk Hills reserve, Fall similarly used the pretext of drainage or damage to the oil structure to lease the entire reserve to his associate, Edward Doheny. The scandal surrounding this lease and a similar agreement for the Teapot Dome naval oil reserve in Wyoming ultimately toppled Fall from power. Rival oil

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companies forced the Teapot Dome affair to light, outraged that they had been unable to bid for the lucrative leases.85 Senator Robert M. LaFollette, still smarting over the McMurtry frauds in California, doggedly pursued the naval reserve leasing story. A longtime Wisconsin progressive who ran for president in 1924 on the Progressive Party ticket, LaFollette favored greater public control and ownership of natural resources. Few of Fall’s opponents expected anything as outrageous as emerged, with Doheny’s “little black bag” full of one hundred thousand dollars cash for Fall, and Sinclair’s gifts of over three hundred thousand dollars.86 This corruption ultimately derailed the Harding administration’s concerted assault on the tenuous gains of the 1920 Mineral Leasing Act.87 The storm over the leases and corruption also undermined the administration’s broader effort to overturn decades of conservation policy. Paradoxically, by using his discretion as secretary of the interior to favor oil companies on everything from labor relations to drilling conditions to leases on the naval reserves, Fall also highlighted the government’s power under its new public land policy.88 CONCLUSION

The politics that shaped the new property regime for mineral lands in California and the nation drew heavily on the political traditions of the nineteenth-century American system, distributing access to resources among private parties and generally promoting rapid development on the public domain. Money and special interests deeply corrupted the decision making. Albert Fall, with his acceptance of four hundred thousand dollars in “loans” and “gifts” in exchange for hundredmillion-dollar leases on the naval reserves, merely topped the long list of government officials who mixed their personal financial interests with lobbying on behalf of the oil industry. Many of those charged with creating and administering the petroleum property regime combined prominent public service with financial rewards in the oil business. Public office thus frequently provided a springboard for lucrative business opportunities. This was the case, for example, when a large portion of Wilson’s Interior Department took up employment in the oil industry following the 1920 election. Unlike Albert Fall, these men apparently all worked within the bounds of the law. Yet the ease with which they, and figures like James Gillett, moved from public office to oil company employment casts shadows over their political maneuvering and the legal regime that they helped to create.89

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PA R T T W O

State Property

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CHAPTER

3

Beaches versus Oil in Southern California

In the midst of the legislative conflict over federal oil lands in California, oil lobbyists frustrated by congressional inaction and hostility longed for the more hospitable climate of the California statehouse. “In any state the individuals or officials responsible . . . would be very expeditiously removed from power if they undertook to perpetrate such an injustice,” the oil lobbyist Frank Short complained privately to Republican senator John Weeks of Massachusetts in 1917.1 The oil companies got a leasing bill they mostly liked from Congress in 1920, but only after ten long years of intensive work. Frank Short, James Gillett, and their fellow lobbyists feared at times that the national government would provide no relief for the companies’ San Joaquin Valley claims, and that the Wilson administration might nationalize the oil fields for the navy. State governments, Short believed, often hewed closer to policies favored by constituents and major industries. In 1921, the California legislature confirmed Short’s faith by swiftly passing a mineral leasing act modeled on the 1920 federal bill. Previously, no legislation had governed oil and gas development from state lands. The measure allowed petroleum prospectors to lease state lands at a low 5 percent royalty rate. The speed and ease of state approval demonstrated the oil industry’s influence in Sacramento.2 But ultimately California state politics proved far tougher on the oil industry than Frank Short and others anticipated. Divided economic interests made extractive industry increasingly vulnerable in California, 53

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and the 1921 state bill opened the door for further conflict over state and municipal oil lands. In particular, wealthy coastal landowners and real estate developers, seeking to preserve ocean views and transform Southern California into a recreational and residential playground, fought industrial encroachment on the coast. “Save the Beaches” groups, particularly powerful near Santa Barbara, denounced oil pollution and the ugliness of coastal oil operations. Environmental issues thus became far more salient along the rapidly developing coast than in the dry, sparsely populated San Joaquin Valley. As with federal oil lands in the San Joaquin Valley in the second decade of the twentieth century, geology and past policy framed the political struggle over state petroleum properties. Nineteenth-century federal land grants to the states for educational purposes, for instance, specifically excluded mineral lands from the grants. California received several parcels with significant oil deposits by chance and error, including a portion of the Elk Hills naval oil reserve, but had sold these promising oil properties. As a result, the federal government or private landowners controlled virtually all onshore oil fields in California by the 1920s.3 Along the Pacific Coast, however, rich pools of oil totaling over 5 billion barrels stretched from Huntington Beach to north of Santa Barbara. The Wilmington field, one of the four largest oil fields in the United States, contained 1.5 billion barrels under tidelands in the Long Beach and Los Angeles harbors. Major petroleum deposits also abutted the coastal towns of Huntington Beach, Santa Barbara, and Ventura. California’s offshore fields would encompass 19 percent of the state’s total petroleum reserves as of the late 1990s.4 Ownership of the tidelands and offshore waters remained ambiguous until the 1947 Supreme Court decision United States v. California, which asserted federal jurisdiction, and the 1953 Submerged Lands Act, which returned the first three miles of navigable tidal waters to state control.5 In the face of the legal uncertainties, which emerged during the 1930s, the California government claimed jurisdiction over the coastal tidelands. California granted some tidelands to city governments for the purposes of harbor and municipal development and retained control of the remainder. Mounting pressure in the 1920s to develop these promising coastal fields forced California’s state and local governments to confront questions similar to those that previously had preoccupied national lawmakers: Who would gain the right to profit from the state’s natural resources? How fast would oil operators and the state develop state-owned

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Figure 6. Offshore oil development first began at the Summerland oil field near Santa Barbara. (Courtesy of the Security Pacific Collection/Los Angeles Public Library.)

petroleum deposits? How would the production revenues be spent? There also was a new set of questions: Would beaches trump oil in a struggle for political dominance? What kind of environmental protections would state and local lawmakers enact to protect California’s valuable coastal beaches? Control over the oil deposits also turned on questions of state and federal law: Where did coastal “tidelands” begin, and who owned them? Aggressive targeting of the state-owned coastal petroleum lands began in earnest in 1927. Since the 1890s, small-scale operations had flourished at the Summerland field near Santa Barbara, but these early efforts had produced little oil and had not adequately tested the potential of the coastal fields. Now oil operators demanded prospecting permits under the 1921 mineral leasing act. As oil operations moved toward the Pacific near Santa Barbara, Venice, Huntington Beach, and Long Beach, public attention turned to state management of the coast. The controversy over coastal drilling moved in waves along the shore. It first crashed fiercely in Santa Barbara County in the late 1920s. Then,

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in the key 1928 decision of K.E. Boone v. W.S. Kingsbury, the California Supreme Court undermined the political success of beach conservationists by forcing the state government to issue oil drilling permits for coastal lands. After the legislature responded by banning further coastal oil development, a high-stakes political clash broke at Huntington Beach in the mid-1930s. Finally, in the late-1930s, the coastal controversy peaked with the discovery of the Wilmington field beneath harbor lands that California had granted to Long Beach. The Huntington Beach leasing scandal and the need to establish state claims to the riches of Wilmington ultimately forced California to adopt the 1938 state leasing bill. These conditions also prompted the federal government to investigate its own rights to California’s offshore oil. Throughout the protracted conflict, the oil industry’s relationship with beachfront recreation, home ownership, and tourism remained central. BATTLING THE DRILLING FRONT AT SANTA BARBARA , VENICE , AND HUNTINGTON BEACH

When oil operators began rushing to the coast of Santa Barbara and Ventura in 1927, post–World War I prosperity had already attracted residential and commercial interests to the area’s beautiful coastline. Two competing economies in the state clashed over the use of coastal resources. Was the Pacific coastline a site for the extraction of raw materials and harbor shipping or a serene place of relaxation, recreation, and realty? This simple polarity breaks down, to be sure, since oil development itself enabled the beachfront economy by fueling the sprawling automobile-dependent settlements of the Los Angeles Basin and the state’s increasing automobile tourism. But on the coast itself, the two sets of interests clashed. The California surveyor general William Kingsbury at first granted coastal prospecting permits as requested. For reasons that are unclear, Kingsbury then reversed course and sought to block the oil development, declaring that oil would ruin California’s spectacular coastline. He contended that 1923 amendments to the state leasing law gave him discretion to block the permitting process.6 In addition to denying prospecting permits, in September 1928 Kingsbury further restricted oil development in the Ellwood field northwest of Santa Barbara. He broadly defined the Ellwood field’s geologic boundaries, declaring that it stretched twenty-four miles along the coast, beginning one mile west of Santa Barbara and extending three miles out to sea. Once a field was

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legally demarcated in this fashion, Kingsbury gained additional legal grounds to refuse new prospecting permits because it was a known oil territory under the state mineral leasing law. Kingsbury had little time to spare. Oil operators shortly afterward filed permit applications to drill along the entire Santa Barbara County coastline.7 As upland wells yielded substantial petroleum, thwarted tidelands oil operators and sympathetic observers attacked Kingsbury as an obstructionist. Following several oil strikes at Seacliff near Santa Barbara on private lands, Howard Kegley, petroleum correspondent for the Los Angeles Times, criticized naive “petroleum experts” who had stopped issuing drilling permits for the public tidelands. In addition to blocking important new development, California was forfeiting valuable oil royalties, Kegley argued. The state could now only “sit idly by and watch private land owners drain the oil from under State lands.” The Ventura County Chamber of Commerce sponsored local speakers to build support for tidelands oil development and the business activity associated with it. According to the Los Angeles Times, the chamber was “disseminating the truth” about the safety and importance of beach drilling. The Times forcefully advocated coastal oil development in its editorial and news coverage—except when oil operations threatened coastal recreation and real estate development in the Los Angeles Basin. The local Oil Workers’ Union in Ventura similarly passed a resolution calling for beach oil development, as did the Ventura County Building Trades Council and the Merchants’ Credit Association of Ventura.8 Frustrated oil operators also mounted a legal offensive by suing under the 1921 leasing law to compel the state to issue permits and leases. Yet Republican governor Clement C. Young firmly supported Kingsbury.9 Governor Young, who had won office in 1927 after serving eight years as lieutenant governor, and who had previously been speaker of the California State Assembly, was a former high school English teacher and real estate developer in Northern California. An active member of the Sierra Club, Young favored conservation of scenic areas and natural resources. In 1927, he had signed legislation creating the California State Parks Commission, to which voters would allocate $6 million in bond funding in June 1928. Like Governor Young, the California attorney general Ulysses S. Webb also aggressively defended Kingsbury’s cautious, discretionary approach to coastal drilling. An avid hunter and fisherman, Webb served as attorney general of California for an extraordinary thirty-six and a half years, from 1902 until 1939. Webb believed passionately that

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public trust doctrine protected the California coast for public navigation, fisheries, and recreation, and he sued to protect the public’s rights. In 1913, the California Supreme Court had upheld Webb’s vigorous efforts to assert continued state control over tidelands in Wilmington Bay near Los Angeles.10 In the early 1920s, Webb opposed the naturalization of Japanese immigrants to California and fought to uphold the Alien Land Law of California, which restricted agricultural land ownership by noncitizens. Although an immigrant from West Virginia himself, Webb believed that protecting the public interest in his adopted state meant fighting both the encroachment of industry and nonwhite immigrants on the state’s land and resources. Now in 1928, Webb questioned the constitutionality of California’s oil leasing laws. For more than a thousand years, argued Webb in the key case Boone v. Kingsbury, “all civilized governments” had recognized an enduring public interest in tidelands: “Their destruction has been at different times and [in] devious ways attempted, but they have survived to this day against every attack.” He called it “common knowledge” that the oil wells would pollute the water and make it uninhabitable for fish, and that a “forest of derricks” would make the coastline unattractive “except to the individual who is profiting.” Responding to oil operators’ criticism of these “aesthetic grounds” for blocking oil permits, Webb denounced their “spur of greed . . . to seize that which has been stored for years and kept and safeguarded as the people’s right.” Webb dismissed warnings that California would lose significant revenue if it failed to grant the leases, noting accusatorily that the state mineral leasing act stipulated a royalty of only 5 percent. Edward Doheny had obtained his preferential Elk Hills naval reserve lease from Albert Fall “through fraud, hypocrisy and deceit and crime,” Webb observed, yet even that lease retained for the federal government 37 percent of the oil. “Drawn, I do not know by whom, nor do I know at whose instance,” California’s mineral leasing bill had been “an inconsiderate legislative act,” stated Webb. Before the California Supreme Court he wondered plaintively, “Why did the legislature do this?”11 But the California Supreme Court majority scoffed at Kingsbury and Webb’s reasoning. In a major victory for the oil companies, the court ruled that the surveyor general lacked the legitimate power to reject permit applications.12 The court struck down on technical grounds amendments to the mineral leasing bill added in 1923 that granted discretion to the surveyor general.13 The court also dismissed Kingsbury and Webb’s public trust arguments in language steeped in awe of oil’s

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economic power. Like the federal court judges who decided the San Joaquin Valley cases in the second and third decades of the twentieth century, the California justices marveled at oil’s “enormous” significance to the modern economy, its unsurpassed contribution to commerce, industry, and “the comfort of the race.” The state legislature, the court said, “recognized the use of gasoline and oil to be practically indispensable to the needs of rapid, expanding industry and commerce.” Allying the state with what it regarded as prodevelopment federal policy, the court invoked the federal government’s recent laws as providing “the most liberal terms” to induce its citizens to explore for mineral resources. “In fact,” the court declared, “the development of the mineral resources, of which oil and gas are among the most important, is the settled policy of state and nation, and the courts should not hamper this manifest policy except upon the existence of most practical and substantial grounds.”14 The California court’s ruling in Boone swept aside administrative discretion and opened to prospecting all coastal lands not dedicated to public purposes. The high court had authorized a “tidelands oil hunt,” according to the San Francisco Chronicle. Within a short time, operators who obtained permits under the ruling would erect piers and drilling islands off the coast of Santa Barbara County, between Goleta and Ventura.15 The Boone case exposed complex tensions between differing conceptions of the public good, and between the different economic and political interests embraced by the state court and the legislature. Boone galvanized state politicians to contain the spreading oil front. In January 1929, one month after the court ruling, the legislature barred any new tidelands prospecting permits until September 1. This “urgency measure” allowed the legislature to craft a new tidelands oil policy. During the spring legislative session, an assemblyman from Carpinteria, a seaside town twelve miles south of Santa Barbara, pushed through a bill that explicitly prohibited further state oil permits for state beaches or tidelands. As he signed the bill in May, Governor Clement C. Young declared that the measure preserved for the people “the highest use that our beach lands can be put, namely—recreation.” With the new law in hand, the Young administration cut off new access to coastal oil. The state rejected seventy-two out of seventy-three applications in the fall of 1929 to prospect for oil and gas on state lands at Huntington Beach. The state’s Huntington Beach oil field would be preserved for the future, announced Finance Director Alexander R. Heron. At the same time, Surveyor General Kingsbury continued his campaign against beach

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drilling and used legal technicalities to cancel as many as possible of the coastal permits that the Boone ruling had forced him to issue.16 The administration’s restrictive policy appropriately matched market conditions in the state oil industry overall. The same day that he signed the coastal protection bill, Governor Young also approved a measure curtailing natural gas waste in the oil fields. This natural gas act provided a roundabout way to regulate oil production without violating federal and state antitrust laws. Competition among California oil operators for access to common pools had compelled the operators to extract oil rapidly during the 1920s, driving down crude oil prices and per-barrel profits. The day that Alexander Heron announced the seventy-two rejected Huntington Beach applications, Herbert MacMillan, president of the California Oil and Gas Association, declared overproduction “the most important problem confronting the oil industry.” The state’s major oil companies, and many smaller enterprises, urged voluntary cutbacks in production by California oil operators to boost prices. By restricting development of the coastal oil fields and helping to curtail production from existing wells, the Young administration thus sought to tighten the spigot that continued to gush California oil in the face of low market prices.17 This administrative and legislative activity, together with the specter of a hemorrhaging flow of cheap oil, persuaded the California courts to adjust to the new legislative mandate in the years following Boone. Instead of emphasizing petroleum’s overwhelming importance to modern society, an appellate court in 1933 upheld the 1929 restrictions in language that echoed Kingsbury and Webb’s position. The ruling deferred to the state legislature’s decision to preserve the scenic beauty of the beaches and waterfronts against “an unsightly forest of oil-well derricks” and the “obnoxious fumes from overflowing crude oil.” The court observed that “the legislature has a right to assume that it is wise and profitable to preserve the valuable minerals of the public domain for the benefit of the state. It may be reasonably assumed it would be profligate for the legislature to abandon valuable mineral resources of the state to the exploitation of private interests.” These “reasonable” assumptions reversed the tone and premises of Boone, acknowledging the aesthetic disadvantages of coastal drilling as well as the potential economic loss of valuable natural resources. The appellate court also endorsed the “urgency” stipulation of the January 1929 prohibition on prospecting permits. Shortly following the Boone decision in December 1928, Kingsbury had received a flood of inquiries from oil operators

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eager to develop coastal lands. The appellate court concluded that only the legislature’s speedy action had prevented a new round of prospecting permits.18 These political and legal developments, however, could not undo Boone’s pro-oil impact. Development proceeded apace on the coastal permits that the California Supreme Court had forced Kingsbury to grant in Santa Barbara County. The San Francisco Chronicle soon described the Ellwood field as the “most spectacular tideland development to date.”19 A “drilling race” ensued in the fall of 1929, with seven new producing wells built in the open ocean on state-controlled lands. The wells were prolific producers of high-quality oil, with low development and transportation costs. At Goleta, Carpinteria, and Capitan, oil operators also drilled twenty-six new wells, further promising to map out the Santa Barbara County region’s oil pools. Reports from Ellwood described wells like that of the General Petroleum Company, which broke loose “roaring like a giant blast furnace,” spouting nearly 1 billion cubic feet of gas daily, “enough to supply the need of nearly half the state.” Pacific Western Oil Company brought in a well producing thirtyfive thousand barrels per day of high gravity oil, from a point located about twelve hundred feet from shore.20 The single well produced seventy-six thousand dollars’ worth of oil and gas in the last month and a half of 1929 alone.21 Eleven months later, in September 1930, the Barnsdall Oil Corporation brought in another Ellwood tidelands well that flowed thirteen thousand barrels per day, the largest in California at the time. Many observers thought these drilling successes made the case for opening the coastal oil fields more widely to development. Ever the enthusiast for the money that flowed from oil, Howard Kegley of the Los Angeles Times thought the money pouring in “likely to rebuke the politicians who steadfastly opposed further tideland drilling.” Kegley wrote, “It is the impression of many an oil man that the State cheated itself out of vast fortunes in royalties by withdrawing the tidelands from drilling.”22 Yet California had little need for a new source of oil in 1929 and 1930. The state scrambled to find ways to limit oil production in order to sustain oil prices, which had fallen sharply during the 1920s. The owners of the Barnsdall well, like the owners of other new producing wells along the Santa Barbara coast, immediately curtailed production to 30 percent of the well’s potential, in accordance with a statewide curtailment program.23 If Kingsbury had prevailed in his opposition, oil operators would not have drilled tideland wells in

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Santa Barbara County at all. And legislative restrictions on new coastal prospecting permits held firm in the face of the extraordinary petroleum wealth. With the political conflict over state tidelands in Santa Barbara County temporarily resolved by Boone and the legislative ban on new leases, the coastal controversy shifted to municipal lands at Venice and Huntington Beach. The Los Angeles Playground Commission, which controlled the municipal beach, proposed to lease the Venice beachfront for oil operations in 1930. As oil operators drilled private lands nearby, development associations and chambers of commerce along the coast fought to save the beaches of Santa Monica Bay for swimming and other recreation. Beach improvement groups publicized the problems of industrialization as part of a coordinated strategy to prevent oil drilling. The preservation groups also successfully sought the legal support of Attorney General Webb, who criticized Los Angeles’ effort to lease the tidelands in Santa Monica Bay.24 A lawsuit by Lewis Stone, a popular movie actor whose residence on the Venice beach faced the ocean, ultimately blocked the beach development plan, in October 1930. The California appellate court concluded in Lewis Stone v. City of Los Angeles that the municipality could not issue oil leases on lands granted by the state for harbor purposes.25 A municipal oil lease necessarily resulted in the transfer of part of the property, contrary to the terms of the harbor grant. “Such a sale is expressly prohibited by the act granting the property to the city of Venice,” the court concluded.26 To the Los Angeles Times, which opposed tidelands drilling in the Los Angeles Basin even though it supported drilling in Santa Barbara and Ventura, the Stone decision was a hollow victory. The city council had granted city permits to drill private property immediately contiguous to the beach and on the beach itself, in some places right down to the high tide mark. Active drilling rigs hemmed the public beach on all three land sides. Given these incursions, it was a “fair question,” the Times declared, “whether the city should not accept the consequences and get the public something in return” by using oil royalties to purchase a new beach. Otherwise, the Times predicted, the city would lose the oil royalty revenue—earmarked by the Los Angeles Playground Commission to purchase another public beach elsewhere—see its own oil drained away by nearby private wells, and leave the public with only a ruined beach.27 The complex forces of beach protection, oil development, and the public’s financial interest in oil—all driven by the rule of capture in

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Figure 7. Oil derricks towered over homes in the Los Angeles neighborhood of Venice in the 1920s. (Herman Schultheis, courtesy of the Security Pacific Collection/Los Angeles Public Library.)

common oil pools—would continue to clash throughout the 1930s as private oil operators encroached on the shoreline at Huntington Beach and Long Beach. The state government increasingly recognized oil royalties as a potential source of revenue, despite continuing restrictions on tidelands drilling and California’s low 5 percent royalty rate. The pursuit of revenues derived partly from two sources: the institutional interest of state employees in the capture of resources and the increasingly grim financial position of California as the Great Depression buffeted the state. To protect its financial interest and aid operators who had received leases, the state government intervened to ensure that permittees could gain access to the beach for development. In one instance, the state tried to use its power to condemn property to clear a right-of-way so that its permittees could open a road to the coastline. The idea was to drill new wells that would prevent private upland operators at Ellwood from draining oil from common pools that underlay state beaches and tidelands.28 The Division of State Lands also honed its operations to capture oil royalties more effectively.29

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At Huntington Beach, state financial interests heightened by the Great Depression came into sharp conflict with the government’s mandate to protect the beaches and with California’s complex political and business alliances. Development of the offshore field at Huntington Beach followed the rapid rise and fall of an onshore field in the city, which had occurred in the preceding decade. This town-lot field, which surged in production along with Long Beach’s Signal Hill field and the nearby Santa Fe Springs field in the early 1920s, was situated principally under small, privately owned properties. The rule of capture had prompted an orgy of oil production as landowners and their lessees rushed to claim common subsurface petroleum deposits. Competing landowners had demanded aggressive development by lessees to offset neighboring producers.30 Where Standard Oil preferred to space wells one per every eight to ten acres on its larger holdings, oil operators at Huntington Beach, Signal Hill, and Santa Fe Springs often had crowded one well onto every one and a half to two acres on the small town lots. To raise the capital necessary for the flurry of drilling, oil promoters had flooded the market with stock certificates and royalty interests.31 These production methods had quickly depleted oil reserves and wasted capital. The town-lot development also had rapidly exhausted the gas pressure that lifted the oil naturally, leaving a large share of petroleum behind. As a result, the town-lot field at Huntington Beach was in permanent decline by the end of the 1920s. At the Signal Hill field, only the discovery of deeper oil strata prompted another oil rush to tap the new oil sands.32 Huntington Beach thus seemed in 1928 to be moving toward the beach-based economy of recreation and real estate that lay in its future. The state had stepped in to control oil pollution resulting from haphazard production methods. The state Fish and Game Commission had successfully sued seventy oil operators to stop them from letting oil run through the Huntington Beach street gutters into the sea. The Los Angeles Times had begun to envision a more recreational and residential economy at Huntington Beach. Ocean bathers would “cavort and gambol in the breakers and come out glistening with drops of pure salt water instead of having their bodies smeared with oil.”33 Oil operators did not abandon Huntington Beach, but instead shifted their sights toward the beach and tidelands. In 1927, the Standard Oil Company of California purchased rights from the Pacific Electric Land Company to a narrow strip of land between the highway and the beach.

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Figure 8. Industry and recreation vied over Huntington Beach in the late 1920s and early 1930s. Proponents of tidelands drilling at Huntington Beach argued that the coast already had been “ruined” by oil and should be developed; opponents fought to “save the beaches”—and the Standard Oil Company of California’s preferential access from the beach bluff. (Courtesy of the City of Huntington Beach.)

Standard Oil then built a fifteen-hundred-foot retaining wall parallel to the bluff along the beach, filling the space between the bluff and the wall to create a solid base on which to erect oil derricks.34 Many of the wells along this narrow strip drifted through an underground fault into the state-owned tidelands oil pool that started at the beach and went out into the ocean but did not actually lie directly beneath the Standard Oil property. As the town-lot field played out, other companies sought to follow Standard Oil onto the beach and tidelands, and Standard Oil maneuvered to protect its privileged access. As they sought to develop the coastal oil fields, the companies ran into laws that barred tidelands drilling there. The 1921 state mineral leasing act specifically prohibited the leasing of state tidelands or submerged lands fronting on a city. In 1928, aspiring oil operators tried to circumvent the 1921 restrictions by arguing for an exemption for the Huntington Beach tidelands. Surveyor General Kingsbury rejected their argument, declaring the tideland area off-limits to oil development. As in the Santa Barbara region, oil operators sued Kingsbury to force him to

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issue the coastal permits. Attorney General Webb continued his strong support of Kingsbury and personally appeared in the Orange County courthouse to oppose the petitions. Webb conceded that the city beach already had been “despoiled” by oil wells, instead arguing against a precedent-setting decision that might undermine the law against tideland drilling.35 The California appellate courts agreed with Kingsbury and Webb’s position and rejected the permit demands.36 In contrast to the judicial reasoning in Boone, which described the legislature as eager to help industry tap state oil reserves, the courts’ decisions identified a “trend of the legislative mind” toward beach protection. The legislative amendments passed in 1929 to bar oil and gas development along the entire California coast demonstrated that the legislature had hardened its stance, Judge Marks wrote in Arthur Carr v. W.S. Kingsbury.37 Defeated in court, the oil companies pursued a political solution in alliance with local governments that had close ties to oil operators and depended on the industry for tax revenues and commercial activity. If the state leasing act would not allow the oil operators to develop the offshore field, then the cities would fight alongside the operators to change the law. In the spring of 1931, their political allies in the legislature pushed a bill through to transfer to Huntington Beach all tidelands fronting on the coastal town. At first presented as a beach development measure, it quickly became clear that the bill’s true aim was to spur oil development. The Huntington Beach city attorney declared that modern devices could prevent pollution and that the field’s low gas pressure would prevent dangerous gushers. He attacked his opponents for being shills for Standard Oil, for protecting its exclusive access to the tideland oil pool from the beach bluff, and for generally bolstering its dominance of the California industry. The Santa Ana City Council, the Orange County Board of Supervisors, and the Los Angeles County Board of Supervisors passed resolutions urging Governor James Rolph, who succeeded Clement C. Young in 1930, to approve the bill.38 In this new political alignment, local governments saw themselves protecting the public interest against a state legislature that was under the sway of Standard Oil and was keeping revenues out of public coffers. The public and private records of these proceedings display the opaque combinations of interests and principles in play. In private meetings in the state capitol, lawyers and lobbyists for Standard Oil of California quietly opposed the bill.39 William Randolph Hearst, said

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to be protecting his immense coastline estate as well as carrying the battle for Standard Oil, publicly denounced coastal oil development.40 At a contentious June hearing in Sacramento, private property owners along the beaches near Huntington Beach protested coastal oil drilling. Governor Rolph concluded the June hearing by warning against the “evil of oil drilling” on the tidelands. “I am opposed to drilling for oil on the beaches and I think the people of the entire State are opposed to it,” Rolph said.41 Unlike Clement C. Young or Ulysses S. Webb, “Sunny Jim” Rolph had no clear track record favoring conservation and beach protection. Rolph had been in banking and shipping before he became San Francisco’s mayor for the nineteen years prior to his election as governor in 1930. Where Young was a staunch moralistic “dry,” Rolph favored an end to prohibition. Rumors circulated that Standard Oil paid for Rolph’s veto. What is known is that the mayor and city attorney of Huntington Beach and Standard Oil’s Sacramento lobbyist milled around the governor’s office until midnight on June 19, the last day on which Rolph could sign the bill, and that the governor vetoed it.42 The coalition of those opposed to tidelands drilling had prevailed. Governor Rolph’s alliance with Standard Oil and the Southern California property owners forced the independent oil operators and their local political allies to go directly to California voters with a ballot referendum, hoping to strike down the legal obstacles to drilling the Huntington Beach oil lands. Into a routine 1931 description of the powers of state officers, a legislator had surreptitiously slipped a provision empowering the director of finance to lease state tidelands. When the provision was discovered the following day, the legislature immediately passed an amendment to remove it, thereby affirming once again the 1929 ban on tidelands leasing. Now Huntington Beach politicians and oil operators sought to reinstate that provision by a referendum vote. In a ballot information pamphlet circulated to voters, the mayor and city attorney of Huntington Beach denounced Standard Oil by implication and appealed in blunt terms to the public’s interest in tax revenue and fairness: If the State could lease the land from which this oil is being drained, millions of dollars would start flowing into the State Treasury. . . . Private interests are opposed to the leasing of such State-owned land. They want to take oil from under State lands without paying the State anything for it.

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State Property These private interests are trying to create a smoke screen by yelling “protect our beaches.” These same companies are now producing millions of barrels of oil within a stone’s throw of such state-owned land. Where this has occurred the beach has already been ruined.43

But California voters rejected these appeals in May 1932 by a vote of 59 to 41 percent, embracing instead the counterargument that “the beaches should be preserved for the people of the State.” Determined because of the money at stake, the Huntington Beach City Council tried again in November with Proposition 11, a proposed constitutional amendment to transfer the tidelands to the city for development purposes. At the same time, the Huntington Beach City Council also negotiated a number of leases with local operators whose successful wells would offset Standard Oil’s domination of the tidelands field. The council granted a thirty-year oceanfront lease to the Pacific Exploration Company, which promised to spend $2 million to offset seventeen upland Standard Oil Company wells by building fourteen piers and drilling fifteen new offshore wells. Leading Pacific Exploration were several prominent local oil operators, including Roy Maggart, whose previous tidelands permit application had been rejected by the courts.44 Maggart and his colleagues sought to reverse their legal defeat through further political maneuvering. The Huntington Beach City Council also worked with other rejected permit applicants to try to offset Standard Oil’s upland wells from the onshore side. To get as close as possible to Standard’s strip of land on the bluff above the beach, the city attempted to lease part of the coastal highway to the local Carr Oil Company. Like Roy Maggart, the Carr Oil Company’s president, Arthur Carr, had recently had his permit application rejected in state court.45 Carr proposed to dig large underground pits beneath the highway, to place all the producing machinery there once the wells had been drilled, and then to reinstate the highway above the pumping wells. The following spring, the city council similarly tried to give the Signal Oil and Gas Company access to twenty-four-foot strips down the center of beachfront streets in exchange for a 20 percent royalty. Tens of millions of dollars rode on the validity of the leases and the city’s control of the tidelands field. The city council demonstrated its determination to open the offshore field to local oil operators through its embrace of these unusual, and unsuccessful, highway deals.46 Local business and political leaders split on these efforts to develop Huntington Beach’s coastal oil. On the day that the city council granted the tidelands lease to the Pacific Oil Company, the

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Huntington Beach Chamber of Commerce adopted a resolution protesting the plan. The small businesses represented by the chamber wanted the city to control the coast for the benefit of recreational and commercial development, not oil.47 In the ballot arguments presented to voters, the Huntington Beach Chamber of Commerce and the local Beach Protective Association called the “spoliation of our beaches” a “tragic public sacrifice.” Other Southern California civic associations and business groups also organized a Save the Beaches movement to mobilize opposition statewide. In nearby Los Angeles, the city’s chamber of commerce declared that tidelands drilling would “desecrate the beaches,” potentially ruining the coast from San Pedro to San Diego.48 Governor Rolph and other statewide organizations strongly allied themselves with the beach protection groups. Before a gathering of the California Real Estate Association, Rolph blamed the oil industry and its precipitously low prices for the general economic demoralization of the state. “The oil industry has already prostituted itself,” Rolph said. “Let us not allow it to prostitute our beaches.” Following Rolph’s address, the California Real Estate Association joined the attack, arguing that coastal drilling “tends to destroy real estate values” and pollute beaches so that they could not be used for recreation. The association denounced this “opening wedge” that would extend oil drilling up and down the California coast.49 The Mineral Resources Section of San Francisco’s elite Commonwealth Club similarly opposed the November ballot proposition. In light of the general state of overproduction in the petroleum industry and considerable reserves available in the state’s other oil fields, the Commonwealth group urged the state to conserve the Huntington Beach petroleum. San Francisco mayor Angelo Rossi and the San Francisco Board of Supervisors agreed, and urged voters to reject the coastal drilling proposition.50 These appeals to protect coastal beaches from the “spoilers and oilers” resonated with California voters, who defeated the November 1932 proposition, again by a 60 to 40 percent vote.51 Once more, the broad beach protection alliance had denied oil operators access to the Huntington Beach offshore field. Despite enormous political pressure on the state government to allow tidelands drilling at Huntington Beach, the 1921 and 1929 prohibitions held firm, specifically barring prospecting leases on coastal lands fronting municipalities and more generally blocking new tidelands leases. The Huntington Beach tidelands field was to remain untapped except for drainage by Standard Oil Company wells on the beach bluff. But local oil operators would not let the oil lie.

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BREAKING THE BAN AND THE LAW AT HUNTINGTON BEACH

Frustrated on the political front, Huntington Beach oil operators illegally bypassed state restrictions.52 Recent technological advances enabled oil operators to better control their drills underground. Pioneering operators located in Huntington Beach’s town-lot field, for example, could tilt their drilling shafts toward the Pacific, sending diagonal oil wells out through Standard Oil’s beach bluff property into the tidelands oil pool. The technology intensified the controversy around coastal drilling restrictions by giving small operators the capability to bend regulations in surprising ways. W.E. McCaslin had confounded expectations in 1931 when he developed a commercial well seventyseven hundred feet deep, three blocks from the ocean. A closely watched test well by Superior Oil several months earlier had produced only water, confirming for many that at Huntington Beach, unlike Signal Hill, no deep oil zone would replace the rapidly tapped higher oil strata. But McCaslin’s well now suggested otherwise. Other Huntington Beach operators eagerly began to redrill and deepen old wells in the summer of 1932. Statistics indicate a steady decline in Huntington Beach production in the late 1920s and early 1930s and then a sharp increase in 1932: the operators had tapped a new source of oil. In the summer of 1933, Huntington Beach oil operators regularly reported major new producing wells, frequently drilled with the same derricks situated above diminished older wells. Wells that had been only “small strippers” from 1926 to 1930, and then abandoned, now produced a princely one thousand barrels per day. Huntington Beach was enjoying “a real oil boom”—one that the combination of geology and California leasing laws did not allow for.53 A fault running along the coast sharply separated the declining onshore field from the tidelands pool, neatly preventing drainage into older Huntington Beach wells. In order to produce from the offshore pool, a well had to breach the fault. But except for Standard Oil’s wells perched directly above the fault on the beach bluff, and a lone permit north of the city limits that had been granted under Boone, no oil company could legally do so. The mineral leasing act of 1921 specifically prohibited the leasing of tidelands fronting on an incorporated municipality. The 1929 legislative changes further barred any tidelands leases for the entire California coast. The large sums of money generated by the drillings that defied restrictions impressed onlookers as much as did the environmental

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threat or the sheer illegality of the activity. Reports that operators were slanting wells in the summer of 1933 led William Kingsbury, now the chief of the new Division of State Lands in the Department of Finance, to send Arthur Alexander, a state petroleum production inspector, to investigate. Alexander rented binoculars from a local store and set up, at some distance away, to survey drilling activity. In subsequent litigation, he described how at 4 A.M. on August 1, 1933, he observed the Termo Oil Company preparing to drill a well in the town-lot area. At that time, the drilling rig was open so that “all operations could be clearly observed from the street.” But upon his return at 10 A.M., drilling had begun and “the rig was carefully covered for approximately eighteen feet from the ground.” Even so, above the covered part of the rig Alexander could see that the drill pointed toward the tidelands. During the next two days, Alexander saw drill pipe placed and removed at an angle from the well. A veteran oil well driller named C.M. Potter confirmed Alexander’s observations, adding in an affidavit that he had “never seen or heard of” a deliberately angled well before working at Huntington Beach. Potter recalled that the operators had taken “unusual precautions . . . to conceal operations by carefully enclosing the derricks.”54 When the Huntington Beach story burst into full public view, the scandal focused on the economic losses to state coffers, rather than beach protection, since the new wells were not on the beach. “In the face of some denials and diplomatic silence elsewhere,” the San Francisco Chronicle reported in September 1933, “extreme perturbation exists in high State offices over oil drilling conditions at Huntington Beach.” Oil operators had extracted thousands of barrels per day from slanted wells. The state’s losses, which ran to millions, continued “to pile up.” Attorney General Webb vowed to restrain illegal production and to seek damages for the drainage of state oil.55 His office filed suits in Orange County Superior Court seeking court permission to determine whether operators had drilled diagonal shafts to extract oil from state-owned tidelands. Governor Rolph’s director of finance, Rolland Vandegrift, initially joined this push to crack down on trespassers. Born in Pennsylvania in 1893, Vandegrift had served as a military officer in World War I and then moved to California, where he studied and taught California history and governmental affairs. A California booster who collected old California branding irons and early American pressed glass, Vandegrift bought a sixty-acre ranch south of Ventura in the 1920s. Around that

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time, Vandegrift left his academic career to enter the political fray as director of research for the California Taxation Improvement Association and then the California Taxpayer’s Association. Attracted to Vandegrift’s reputation as a budget hawk and antitax conservative, Governor Rolph had appointed him as finance director.56 In response to growing publicity about the Huntington Beach situation, Vandegrift announced that the state would use “every legal means” to prosecute trespassers and recoup lost revenues.57 Vandegrift also asked the commissioner of corporations, Harry Daugherty, to scrutinize permit applications carefully to protect investors from buying shares of companies producing oil that “belongs to the State of California.”58 Vandegrift called the state’s oil litigation “the biggest suit in the United States,” involving “$300,000,000 worth of oil.” He said in early November 1933, “The interested operators are moving heaven and earth to stop us.”59 As in the controversy over California’s federal oil lands, however, Vandegrift’s early positioning and brazen defiance soon turned to preferential legal treatment and political acquiescence. Vandegrift reversed his public position twelve days after his bold threats, announcing that California would settle with the operators who had begun drilling before November 13. His policy shift reflected heavy lobbying by associates of Governor Rolph and legislative leaders to persuade Vandegrift to settle. Trespassing operators formed the Huntington Beach Townsite Association and hired J.M. Jefferson, a lobbyist for small loan interests and a major supporter of Orange County assemblyman and speaker Edward Craig. Subsequently, any oil operators hoping to settle with the state government were forced to join the Townsite Association as a precondition. Another lobbyist, supposedly close to Governor Rolph and his son, allegedly contracted with Huntington Beach producers “to receive $100,000 for securing a contract with the State on a five or six percent royalty basis.”60 Although eager to satisfy these powerful economic interests by letting them extract the state’s oil, the Rolph administration still hungrily eyed oil royalties from the Huntington Beach field. California was mired in the Great Depression and chronically short of revenue. A major fight over how to deal with California’s fiscal crisis had roiled the statehouse during the previous June. Legislators imposed a new sales tax, slashed property taxes, and debated a new income tax and the shift of highway revenues from road construction and maintenance to the general fund. Finance Director Vandegrift looked to royalties from the

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Huntington Beach trespassers to help make up the state budget shortfall. This financial imperative did not dominate Rolph administration policy. Vandegrift agreed to low royalty arrangements that benefited the Huntington Beach oil operators, who were lobbying the administration heavily. But his eagerness to obtain some royalties from the Huntington Beach field foreshadowed the fiscal arguments that liberal Democratic and Republican lawmakers would make, beginning in 1935, on behalf of much tougher royalty arrangements.61 Uncertain legal authority and the steadfast opposition of Attorney General Webb hampered Rolph and Vandegrift’s plans to settle with the oil operators. The legal dispute centered on whether California could grant easements and arrange to get royalties from slanted wells that were illegal given the continuing ban on beach and offshore drilling. Webb contended that it could not. The state legislature had authorized agreements when adjacent wells drained oil from a common oil pool, he thought, but not when illegal wells tapped oil under state lands.62 The Huntington Beach oil operators worked closely with Vandegrift to challenge Webb’s administrative ruling with a test case in Sacramento Superior Court. With Vandegrift’s blessing, James B. Utt, an assemblyman from Orange County, sued Vandegrift to force him to settle with the oil operators. Judge Malcolm Glenn, who previously had ruled against Webb and Kingsbury’s efforts to block coastal drilling, now concluded that the dire situation at Huntington Beach threatened California’s ability to manage its petroleum resources. Without addressing Webb’s concerns about accommodating illegal trespassers, Judge Glenn authorized Vandegrift to settle with the oil operators.63 Ruling in hand, Vandegrift proposed a royalty schedule for operators tapping the Huntington Beach offshore field. Under a sliding scale based on price and output, wells producing fifty barrels per day at a price of $.50 per barrel would pay the minimum royalty of 5 percent. Those producing a high three thousand barrels per day at the unlikely price of $1.75 per barrel would pay a maximum royalty of 66 percent. Vandegrift predicted average royalties of 15 percent and annual net state revenues of around $1 million. He called the schedule “fair” and the state’s “last word.”64 California then sued to force unwilling Huntington Beach trespassers to sign the royalty agreements. The evidence was overwhelming—officials of the Termo Oil Company confessed—and the cases proceeded smoothly, resulting in royalty settlements.65 When some operators resisted royalty agreements, Vandegrift threatened “hard-boiled tactics.” He

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warned that trespassers who did not sign agreements by April 15 would face suits to close their wells and transfer all oil profits to the state. By March 1934, the State Lands Division reported that California had collected $340,000 from operators. At the same time, however, Vandegrift anticipated that low oil prices and a statewide program to lower oil production would halve anticipated royalties, yielding only $500,000 per year.66 Orange County politicians urged the state government to leave the local oil operators alone. Lawyers for the city of Huntington Beach sued to stop California from pursuing its litigation, complaining that it undermined the local property tax base. The city argued that local operators were entitled to take the tidelands oil. Oil in the tideland pool was simply “free to anyone who can reduce it to possession, provided he commences to drill his well on his own land.”67 The real villain, Huntington Beach argued, was Standard Oil, which stood to benefit most from the state’s litigation. As early as 1927, the lawyers reminded the superior court, the Standard Oil Bulletin had printed pictures of company wells “actually drilled on the Beach.” Stopping the local oil operators would leave Standard Oil all the oil, with no obligation to compensate the state.68 The strategy of cracking down on the local oil operators thus was vulnerable to the charge of pandering to Standard Oil. Local politicians tried to draw attention to California’s dealings with Standard Oil in order to shift the focus away from local oil operators. Orange County assemblyman and speaker Edward Craig demanded that Vandegrift investigate Standard Oil to determine whether its wells also tapped the state pool. And in the state’s suit against the Wilshire Oil Company, Huntington Beach filed a cross-complaint accusing Standard Oil of conspiring with the state to force royalty agreements on other companies in exchange for not signing one itself. Huntington Beach claimed that state officials had known for years that Standard and others had pumped state oil from coastal wells, extracting more than 6 million barrels without compensating the state. The city council’s aggressive counterattack, which sought to force the state to back away from its suits, dovetailed with the personal interest of at least one of its members. The city councilman John Marion’s Huntington Beach Oil Company faced suits over two wells that demanded $300,000 in damages.69 California’s coupling of generous royalty terms with the threat of litigation persuaded the final independent operator, the W.K. Company

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of Los Angeles—the sixty-sixth company the state had sued—to settle in December 1934. Webb Shadle, attorney for the Division of State Lands, estimated that the agreements together would yield about $100,000 a month. The state also would receive an additional $850,000 for oil and gas extracted earlier by the trespassing companies.70 A calculation done several years later indicated that the royalties averaged a little below 12 percent, above the 5 percent minimum prospecting royalty rate stipulated in the state mineral leasing act but far below the 30 to 40 percent royalties proposed in the legislature soon afterward.71 Even as the independent oil operators paid the state, their complaints drew Standard Oil into the controversy. An investigation of connections between the government and Standard Oil found no collusion but suggested that several beach-bluff wells did drain from the tidelands. Arlin Stockburger, Vandegrift’s successor in the Department of Finance, moved quickly to make royalty arrangements with Standard Oil on the same terms as with the independent operators at Huntington Beach. The oil companies “should all be treated alike,” Stockburger maintained, using egalitarian rhetoric to protect Standard Oil’s privileged position.72 Being treated alike meant, at bottom, paying the state little. If California had been a private landowner, it never would have allowed the trespassers to keep most of what they stole. The state’s capitulation underscored the mix of politics and law that shaped the management of publicly owned natural resources. The state gave the companies a sweetheart deal despite political and legal factors that weighed against accommodation. No industry consensus supported the companies that slanted their wells under the tidelands. Many members of the California oil industry vocally disapproved. Proposed revisions to an August 1933 document on regulating oil production in California, for example, distanced statewide oil industry committees from the unethical behavior of the Huntington Beach operators. One key subsection underscored the fundamental point that “subsurface equities are coincident in extent with surface ownerships and have the same inalienable and inviolable rights as property.” In other words, diagonal drilling violated clear property rights and constituted unlawful trespass. Another subsection specifically attacked the slanted drilling practices at Huntington Beach, declaring that the “abnormal and unconventional development of any field such as is now occurring in the Huntington Beach ocean front area . . . is so contrary to any conceivable code of ethics or regulation as to merit the utmost condemnation.”73

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The California courts similarly rejected slanted drilling. In contemporaneous cases involving private parties, state courts protected landowners and lessees from trespassers who penetrated their land through slanted wells. When landowners filed suit to stop slanted-well trespass, they asked for monetary damages equal to the quantity of oil extracted from beneath their lands. Landowners like the Union Oil Company and Pacific Western Oil Company prevailed on virtually all accounts. The case against slanted drilling, in short, was an easy one to win in court.74 The courts’ willingness to protect the rights of private landowners strongly indicates that the state government easily could have won injunctions to close the Huntington Beach slanted wells and collect damages equal to the value of the oil extracted. Nathan Newby, a losing defendant in a Union Oil case, complained bitterly that Standard Oil had not been held to the same 100 percent damages standard.75 Attorney General Ulysses S. Webb had brought criminal charges against the company that trespassed on Pacific Western’s property. Yet Rolland Vandegrift sued Huntington Beach trespassers for full damages and an injunction only when they refused to pay low royalties, and he dropped the suits as soon as he won settlements.76 Why did the Rolph administration settle for such low royalties? Vandegrift and Governor Rolph tread a fine line with their Huntington Beach policy. On the one hand, they favored the politically powerful operators and their political contributions, and wanted the state budget boost that oil royalties, though low, would bring. On the other hand, oil operators elsewhere in the state, as well as public officials, pointed out that Huntington Beach crude was contributing to the overproduction and low oil prices that plagued the state oil industry during the 1930s. Huntington Beach operators were among the “chief offenders” in disregarding state oil quotas, complained Ralph Lloyd, the head of the state conservation committee that sought to reduce output and boost prices.77 Vandegrift also could not completely ignore the 1921 prohibition on tidelands leasing near municipalities and the 1929 law barring leases along the coast. To allow some production, but not too much, Vandegrift struck deals with operators who had begun drilling wells illegally by November 1933. But Vandegrift would not negotiate with those who began trying to drill beneath the tidelands only after he had signaled, through the settlements, that it could be legal to do so. Vandegrift’s solution rewarded oil operators guilty of trespass and theft while freezing out those who obeyed the law.78

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CONCLUSION

California’s struggle over coastal oil drilling in the 1920s and early 1930s underscored the increasingly uneasy relationship between coastal extractive industry and the booming tourist, recreational, and residential economy. The controversy also deepened the conflict over who would reap the economic benefit of California’s rich coastal oil fields—local oil operators, Standard Oil, or the state government—and when that development would occur. Surveyor General William Kingsbury and Attorney General Ulysses S. Webb favored beach protection and feared that widespread coastal drilling would imperil the recreational use of the beaches, the fishing industry, and other businesses dependent on the coast. Yet the California Supreme Court’s 1929 decision in Boone v. Kingsbury scuttled legal and political efforts to prevent coastal drilling in the Santa Barbara region by denying discretionary power to the surveyor general to withhold state drilling permits from applicants. Beach protection advocates in the legislature, spurred by coastal real estate developers and small business groups, needed only one month to overcome the court’s Boone ruling. They passed an emergency moratorium on new coastal oil permits and followed it several months later with an outright ban. The popular majority signaled agreement by rejecting ballot referenda that would have opened the coast to drilling, though industry infighting and extravagant and misleading political campaigns also influenced the result. Still, the clear legislative mandate of 1929 failed to protect the beaches. The new legislation did not take away drilling permits that the California Supreme Court had already approved. As a result, Boone set off a coastal drilling spree in the Santa Barbara region in 1929 and 1930. In the Los Angeles region, the 1929 statewide ban preceded a similar tidelands oil rush. Once rich coastal oil pools were discovered there, oil operators maneuvered to circumvent the law. At Venice, the judicial decision in Stone v. Los Angeles blocked drilling in Santa Monica Bay. At Huntington Beach, small oil companies and local government officials, who fumed as Standard Oil quietly established lucrative wells on the beach bluff, first fought in the state legislature and on the ballot to open the tidelands. Next they tried to compete with Standard’s operations from the upland side by proposing to bury oil wells beneath the coastal highway. Rebuffed on these fronts, the independent oil operators finally tilted their drills toward the ocean and drained the state’s valuable petroleum through slanted wells. These slanted wells violated

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industry practice, legal norms, and the 1929 drilling ban. Yet Governor James Rolph’s administration neither enforced the ban to protect the beach nor aggressively asserted the state’s financial interest by demanding high royalties. Instead, the state administration gave the trespassers most of what they wanted in exchange for a small cut. The outcome of these struggles to develop California’s coastal oil was not determined by the market, but instead by fierce political struggle among competing interests. For a time, coastal oil producers found themselves at a surprising disadvantage. The governor’s office under Clement C. Young sought to prevent coastal oil development; the legislature banned it; and voters repeatedly rejected it. And yet the producers succeeded in opening much of the Southern California coast to oil development in the late 1920s and early 1930s. Judges who supported the oil industry for ideological reasons prevented Governor Young from protecting the Santa Barbara and Ventura coast. Then Governor Rolph, whose administration also publicly opposed coastal drilling, embraced an extraordinary backroom deal to transfer publicly owned natural resources at Huntington Beach to trespassing private companies. Slanted drilling from the uplands did largely protect the coastal waters from pollution. But the trespassing and royalty agreements did little to capture revenue for the state government or to speed Huntington Beach’s transition to its future beach economy.

CHAPTER

4

“The Same Unsavory Smell of Teapot Dome”

Governor James Rolph’s bid to resolve the Huntington Beach uproar through low-royalty settlements with trespassing oil operators ran aground as California state politics changed during the Great Depression. Liberal Democrats elected to the state legislature in 1934 used the tidelands oil controversy to attack the dominant Republican Party. To these Democratic politicians, the controversy symbolized the Republican administration’s eagerness to transfer millions of dollars of public natural resources to private economic interests, including the Standard Oil Company. Between 1934 and 1938, state politicians battled repeatedly over tidelands oil legislation. State senator Culbert Olson, the California Democratic Party chairman, seized on the oil issue more than anyone else. Olson initiated a lengthy investigation of Huntington Beach tidelands drilling that helped position him for the 1938 gubernatorial race. He and his allies drew the debate over coastal oil into the complex politics of the state budget deficits of the 1930s. They underscored how the management of public natural resources was intertwined with questions of public finance. In general the Democrats did not oppose coastal oil development, advocating instead greater state control and dramatically higher state royalties. They also joined the fight to break Standard Oil’s monopoly at Huntington Beach and, with explicit comparisons to the Teapot Dome oil scandal, to expose insider dealing and corruption related to California’s coastal petroleum lands.1 79

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These fierce struggles culminated in the passage of the State Lands Act of 1938 and, later that year, in the election of Culbert Olson as governor. The State Lands Act resolved tensions between industrial and recreational use of the coast by tying beaches and oil together. Coastal oil royalties would fund the rapid expansion of California’s cashstrapped beach and park system. Drilling on state-owned lands would proceed on uplands or filled tidelands only. The legislature also opened state land management to greater scrutiny by creating a new State Lands Commission. These developments illustrate the ways in which California’s petroleum politics evolved largely independent of the federal government. The state courts, legislature, and executive branch, as well as private economic interests, often played roles familiar to students of federal politics. But political lobbies like coastal real estate and small business groups had a voice at the state level that they lacked in Congress. In addition, mechanisms of state politics like the initiative and referendum put California’s distinct imprint on the conflict over coastal development, particularly by strengthening the position of smaller, independent oil operators. THE EPIC DEMOCRATS AND CALIFORNIA’ S NEW PETROLEUM POLITICS

Increasing unemployment and poverty, growing numbers of business failures and real estate foreclosures, and declining state revenues drew California’s tidelands oil conflict into the broader tumult of depressionera politics in the state. After James Rolph died in office in June 1934, Lieutenant Governor Frank Merriam succeeded him as governor. A veteran of Iowa state politics from the 1890s, in 1910 the forty-five-yearold Merriam had moved to Long Beach, California, where he became a business executive for the Long Beach Press and launched a second political career. Elected to the California State Assembly for the first of five terms in 1916, Merriam went on to serve as speaker of the assembly, state senator, state party chair, and then lieutenant governor. Now in the November 1934 gubernatorial election, Merriam, a stalwart Republican closely tied to the right wing of the party, faced off against his ideological opposite, the Democratic candidate Upton Sinclair. Sinclair was a popular novelist and social crusader; his 1906 book, The Jungle, drew widespread attention to poor conditions in Chicago meatpacking and helped lead to the passage of the national Pure Food and Drug Act. Sinclair had exposed the greed and excitement of the Southern

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California oil boom in his best-selling 1926 novel, Oil! A longtime socialist, Sinclair put the radical End Poverty in California (EPIC) platform at the center of his 1934 campaign.2 After an ugly media campaign, in which many Democrats defected to support Merriam or the third-party candidate Raymond Haight, Merriam retained the governor’s house, bucking a rising Democratic tide across the nation. The success of many liberal Democrats who shared the ticket with Sinclair, however, tempered Merriam’s victory. They reshaped California’s political landscape, which the Republican Party had long dominated. Culbert Olson, Sinclair’s candidate for chair of the state Democratic Party, was elected state senator from Los Angeles and became a prominent statewide leader, rallying progressive forces in the assembly and senate.3 During the 1935 legislative session, Olson and others fought the Merriam administration on many issues, including Huntington Beach tidelands oil drilling. The new assembly bloc of twenty-six EPIC Democrats and two liberal Republicans denounced the state budget at the end of May 1935 and delayed its passage. As the Sacramento Union reported, the politicians “took their crusade for revenue and social reform to a state-wide radio audience,” with state senator Culbert Olson “lashing Governor Merriam as ‘subservient to the reactionary minority.’” The EPIC bloc demanded that California adjust its system of public finance to do more for the poor and working class. California’s tidelands oil problem became thoroughly intertwined with these conflicts over state finance. The state had sharply reduced property taxes and instituted a 2.5 percent sales tax in the summer of 1933. Liberal Democrats and Republicans sought in 1935 to reduce the sales tax, raise corporate and inheritance taxes, and institute a progressive income tax and old age pensions. Most relevant to the oil industry, they urged measures to protect natural resources and to capture their value more effectively through a state tax on oil and other mineral production.4 “The problem of taxation,” Olson declared, was the “most vital and serious” issue facing the new legislature. With millions of dollars in revenue at stake at Huntington Beach and elsewhere along the coast, fierce legislative battles ensued over California’s leasing policy. In light of the economic depression and an increasingly anticorporate mood in California and the nation, the Rolph and Merriam administration’s generous settlements with Huntington Beach trespassers and proposed deal with Standard Oil became less tenable. California’s “unbelievably wealthy” oil fields belonged to the people, declared the Democratic assembly leader William Mosely Jones. Jones thought

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Huntington Beach alone could yield $25 million annually for the state, and that petroleum royalties could make California “almost free of taxation.”5 Yet the former finance director Rolland Vandegrift said the state would earn only five hundred thousand dollars per year over the next eighteen years under the easement agreements. Unhappy with how the Republican administration was handling the coastal oil situation, Assemblyman Jones and Senator Olson initiated separate legislative committees to investigate California’s coastal oil policies.6 Although the committees were stacked against them by the Republican leadership of the assembly and senate, Jones and Olson used their investigations to focus attention on the tidelands oil problem and to frame the political dispute in the spring of 1935.7 The assembly committee displayed the mix of idealism and crass maneuvering that characterized and complicated the California oil issue. Jones and Ben Rosenthal, two liberal Democratic assemblymen from Los Angeles, displayed their political commitment to raise revenues from wealthy businesses to fund state government, as well as a less clearly idealistic determination to help independent oil companies get a piece of Standard Oil’s pie. Their argument that California should lease its tidelands at competitive royalty rates closely matched the position of the Independent Petroleum Association of California (IPA). At the committee’s hearings, William J. Kemnitzer, a technical advisor to the IPA, had criticized the “lenient” royalty agreements at Huntington Beach and derided the proposed settlement with Standard Oil as a “pittance.” Kemnitzer, who later would write a book attacking the “rebirth of monopoly” in the petroleum industry, had called the beach protection movement an effort to “sav[e] the beaches for the Standard Oil Company.” “With modern practices,” Kemnitzer had insisted, “it is possible to build beautiful islands or piers on which the wells could be located and it would not interfere with the bathing on the beaches.”8 In their report to the assembly, Jones and Rosenthal adopted Kemnitzer’s reasoning and recommended that California pursue beach drilling to develop the Huntington Beach pool. Whereas the Democratic position combined revenue generation with antimonopoly advocacy for independent operators, the Republican position mixed corporate influence by Standard Oil with civic concern for coastal protection and real estate development. The complex alliances on each side make it hard to identify either one as clearly progressive, since economic concern for smaller businesses and economic relief for citizens were pitched against an alliance between corporate interests and

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environmental conservationists. The three Republican committee members sided with the Merriam administration, Standard Oil, and many Southern California civic and municipal organizations. They urged a ban on direct beach drilling and reliance instead on upland, slanted drilling. “The attractive beaches and beach resorts throughout the state are a source of considerable revenue,” the legislators wrote, “in addition to being of inestimable pleasure and aesthetic value.”9 The rival political forces battled over royalty rates, state control, beach drilling, and competitive leasing through the tumultuous 1935 legislative session.10 The complex and often arcane political maneuvering reveals how the California legislature—in writing bills and amendments as well as in backroom dealing—played its pivotal role in determining if, when, and how tidelands oil would go to market. A 1935 bill authored by the Humboldt County Republican Michael Burns to allow slanted drilling into tideland oil pools became a focal point for widely divergent views on natural resource development, with direct implications for how much oil operators would pay for oil and who would get it. Low royalty rates favored the companies, since they would pay less to the state for its oil; conversely, higher minimum royalty rates and competitive bidding among companies for leases would increase the state’s share, raise the cost of oil to the companies, and enable smaller companies to compete for the field. Legislators struggled to influence the Burns bill as it passed through the assembly and senate, and then back to the assembly. More conservative Republicans tended to favor giving the oil away at little cost, with few provisions to open the field to others beyond Standard Oil; liberal Republicans and most Democrats urged greater payments to the state treasury and provisions that gave smaller companies a chance to compete for leases. The assembly speaker and Orange County Republican Edward Craig first amended the bill to start royalties at 5 percent, blocking a rival proposal to require 12.5 percent royalties in unproven territory and 16.5 percent in proven territory. Craig argued that higher royalties would treat new state lessees unfairly, particularly Standard Oil, by charging them more than the Huntington Beach trespassers for access to the same oil pool. Critics like Assemblyman Frank Wright, a Republican from Los Angeles County, saw no reason to stick by previous royalty arrangements, adding that the Burns bill would give Standard Oil “a virtual monopoly” at Huntington Beach.11 Wright and others temporarily revised the bill to include competitive bidding on slanted wells, which would yield higher royalties and thus more income

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for the state, with greater opportunities for independent oil operators. Ellis E. Patterson, a liberal Republican from Monterey soon to switch to the Democratic Party, and Democrat John Gee Clark of Los Angeles went much further, urging the state to condemn Standard Oil’s land and “go into the oil business.” Patterson said bluntly, “The people should own and develop their own natural resources. I am confident that the state could make enough money with her oil resources to abolish all state taxes.” The San Francisco Republican William Hornblower concurred: “The oil belongs to all of us.”12 The conservative Republican majority controlled the final bill, however, stripping the competitive bidding provisions and providing upland owners like Standard Oil with privileged access to tidelands oil pools.13 As a compromise with critics, the bill provided for a minimum royalty of 16.67 percent. As the Burns bill advanced to Governor Merriam for his signature, legislators allied with the smaller independent oil companies, as well as with the EPIC Democrats, continued to complain that the bill would grant Standard Oil unfair control of the Huntington Beach field.14 They accused Standard Oil of “steam rolling” the bill through the legislature. “If this pool . . . is to be preserved for the benefit of the people instead of the benefit of the private interests,” Olson said, California should receive “at least 50 per cent of the total production” in royalties.15 Rumors of corruption circulated the capitol as explanations for the rapid switching of several votes that pushed the measure through. “Apparently there was nothing in writing,” the Sacramento Bee reported, “but gossip was common around the corridors and Capitol grounds that from $50,000 to $200,000 changed hands.”16 To test the political winds, Governor Merriam held hearings on the Burns bill in Sacramento, which opened up “an ancient feud of California politics and industry,” according to the Sacramento Bee. Standing just feet from Merriam, William J. Kemnitzer, technical advisor to the Independent Petroleum Association, threatened that independent oil companies would force a referendum on the bill and try to recall the governor. Orange County supervisor Nathaniel West, allied with the IPA, insisted that the bill must permit competitive bidding. Royalties at Huntington Beach should reach 60 percent, West said. Giving the oil to Standard Oil for less hurt the state and unfairly excluded independent operators willing to pay more for the privilege and profits.17 Fearful of this political opposition, Merriam vetoed the Burns bill and returned the coastal oil conflict to where it stood at the outset of the legislative session, with no new drilling authorized for Huntington Beach.18

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The fight over the Burns bill was just one sally in the extended legislative struggle over tidelands oil. Culbert Olson’s senate committee began a second investigation of the Huntington Beach situation later that July. Olson’s efforts to get a reckoning of California’s tidelands oil holdings and economic losses underscored how hard it was to challenge a system geared toward protecting industry profits and weakening state management capacity. A tall, trim white-haired man of fifty-nine when elected to the California State Senate from Los Angeles in 1934, Olson experienced a rapid rise in California politics that constituted a political rebirth. A lifelong progressive Democrat, Olson had served previously in the Utah State Senate from 1916 to 1920, where he chaired the judiciary committee and sponsored progressive legislation on a range of labor and public utility issues. After failing to get the Democratic nomination for the U.S. Senate in 1920, Olson moved to Los Angeles and set up a law office. Except for his work on behalf of Robert M. LaFollette’s thirdparty candidacy in 1924, Olson largely dropped out of politics. Then in the early 1930s, Olson helped organize the Los Angeles Democratic Club and pushed the Roosevelt ticket in the 1932 election. As president of the Democratic Club in 1934, Olson strongly supported the writer Upton Sinclair’s controversial candidacy for governor. Although he did not officially join Sinclair’s EPIC movement, in 1934 Olson became chairman of the state Democratic Party with Sinclair’s support.19 The idealistic and stubborn Olson sought to reframe the oil lands debate in terms of getting the state as much as possible from its natural resources. Olson thought drilling technologies were adequate to protect the coastal waters and instead prioritized raising revenue through higher royalty rates to fund urgent governmental initiatives. He thought California should capture 50 percent of future oil production in Huntington Beach, as well as collect proper payment for past production by trespassers. Protecting the public’s financial interest in petroleum resources, however, proved an arduous task that particularly illustrated how control of information could determine public conflicts over resource allocation. To establish a factual basis for policy making at Huntington Beach, Olson wanted to examine the location and direction of wells drilled along the tidelands and to determine how much oil and gas they produced. He also sought an accurate survey to determine the boundary line between the state’s land and privately owned land. Neither the contingency fund of the committee nor the state senate as a whole could cover the twentythousand-dollar cost of surveying wells and auditing the state’s oil royalty accounts, even though several million dollars in oil royalties were at

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stake. In August 1935, after Governor Merriam promised that the executive branch would pay the well survey costs, Olson’s senate committee contracted with Alexander Anderson, Incorporated, the leading wellsurveying company, to examine many of the Huntington Beach wells. Shortly afterward, however, Merriam withdrew his offer. Olson learned that the director of finance and the Standard Oil Company had decided that the oil company would employ Alexander Anderson instead, despite its multimillion-dollar conflict-of-interest.20 The backroom arrangement between Standard Oil and the Merriam administration blocked Olson’s committee from getting the technical information it sought on Huntington Beach drilling, as he had feared would happen. In turn, the lack of information meant that the committee could not lay a firm foundation for claiming millions in royalties from Standard Oil’s beach-bluff wells and other trespassing operations. When senate committee members asked Alexander Anderson about his surveys of the Standard Oil wells, Anderson stonewalled. Anderson had in hand records on four wells he had surveyed and fourteen more whose direction he had determined. But he called it a “private order” and refused even to tell the committee which wells he had examined.21 Olson struggled to access well survey data for another entire year. His opponents on the senate committee continued to thwart him, as did California’s Division of Oil and Gas. Emile Huegeinan, in charge of the division’s Los Angeles office, refused to provide production records and surveys of the key Huntington Beach oil wells.22 Confidentiality restrictions, which the oil industry’s legislative allies had written into the division’s mandate in 1915, he said, prevented any use of the information for the purposes of litigation or investigation in 1936.23 Olson was forced to embark on a lengthy process of obtaining approval from each Huntington Beach oil operator to allow a committee of geologists to look at well data filed with the state.24 Olson vented his frustration in a bitter report to the California State Senate in May 1936. Some members of his committee offered “no willing support,” Olson declared, and the Department of Finance had offered “no cooperation.” On the contrary, the department appeared eager to accept less than $475,000 in payment for oil and gas worth between $5 million and $8 million that had been extracted from state lands by the Standard Oil Company through early 1934.25 While Olson fumed over these institutional obstacles, Standard Oil’s alliance with powerful beach protection and development groups throughout the state deepened. Independent oil operators at Huntington

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Beach had turned to the ballot initiative and referendum following legislative defeat in 1932; now, frustrated with Merriam’s veto of the Burns bill, Standard Oil and its allies tested this alternative political forum. They placed on the November 1936 ballot a proposal to allow slant drilling from adjacent uplands. The measure, Proposition 4, also stipulated a royalty of about 15 percent, lower than the earlier Burns measure. In a new twist for gaining popular assent, the proposition also linked slanted drilling from the uplands with a provision allocating half of California’s oil royalties to the State Parks Commission.26 The specific origins of this linkage between oil drilling and park development are obscure, but it likely resulted from the friendly ties between William Colby, State Parks Commission chairman and mineral law expert, and Oscar Sutro, chief lawyer at the Standard Oil Company.27 As Northern California chairman of the statewide committee for Proposition 4, Colby campaigned aggressively for the measure, as did many other civic, conservation, and Southern California development groups. The San Francisco Chronicle lobbied vigorously, continuing the skewed coverage that it had given the controversy over federal oil lands in the second decade of the twentieth century. Chronicle news articles, which published long excerpts from Colby’s public statements without mentioning any opposition to the ballot proposition, were accompanied by strongly worded editorials supporting the measure. Oil from the offshore field would help relieve the California taxpayer, the Chronicle conceded. “But who wants drilling on the tidelands and the lovely California beaches messed up with sump oil?” Proposition 4 would “get out the oil with profit to the State, stop present losses . . . from wells on contiguous properties, and at the same time prevent tideland drilling and protect the beaches.”28 The same groups that had forced Merriam to veto the 1935 Burns bill bitterly fought the ballot initiative measure. Ignored by the major newspapers, opponents took to the radio. State senator Olson denounced proponents’ “unlimited expenditures” on “false propaganda.” Begging voters to reject the measure, Olson broadcast over the air his statement of opposition from the ballot information pamphlet. He attacked the beach conservation groups, and the State Parks Commission in particular, for selling out to Standard Oil. Guy Finney, a Southern California lawyer affiliated with independent oil operators as well as beach protection groups, filed a lawsuit against the initiative to draw attention to the opposition.29 Opponents of Proposition 4 were themselves split over the question of whether tidelands drilling threatened to worsen beach and

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ocean conditions. Olson opposed the low royalties and preferential access promised by Proposition 4 because he believed that oil operators already had polluted and industrialized the coastline at Huntington Beach, destroying it for recreational purposes.30 He thought that tidelands drilling could be done safely, without further endangering the beaches. Less concerned with the environmental implications of tidelands operations than with the state’s economic predicament, Olson wanted competitive drilling with higher government royalties. By contrast, other opponents of the 1936 proposition were more focused on the threat to the beaches. The Shoreline Planning Association, claiming affiliations with the chambers of commerce of West Los Angeles, Santa Monica, Venice, Manhattan Beach, Palos Verdes, Redondo Beach, Hermosa Beach, and Playa Del Rey, attacked Proposition 4 as being deliberately misleading. As a representative of the association explained, the measure “definitely provides that drilling can be done on the beach sands down to the mean high tide line. Anyone who has ever seen a beach knows that if oil derricks and the surface equipment are placed on the beach sands down to mean high tide line, the beach is definitely destroyed.” The association argued that tourism and the development of “beautiful residential sections, business sections and beach improvements” was worth “infinitely more” to California than “the temporary revenue which will come from any oil project.”31 Drawing on these divergent themes of antimonopoly and beach protection, the campaign against Proposition 4 convinced California voters to reject the 1936 slanted-drilling initiative. In turn, the defeat of the ballot proposition convinced Governor Merriam that he was poorly positioned on the oil issue, particularly in relation to state senator Olson, who had led the successful opposition. Within weeks of Proposition 4’s defeat, Merriam announced an entirely new vision of a California freed of debt and with resources to pay for unemployment relief—all through the marketing of its oil. Merriam declared that the state should either negotiate leases for slanted wells by private interests, with considerably greater royalties than previously proposed, or California should develop its coastal petroleum itself through slanted wells developed by the state.32 “My theory is that the state owns this oil,” Merriam now declared. “It is ours and the state should be competent to get it.”33 Positioning themselves for a 1938 gubernatorial election showdown, Merriam and Olson both rushed forward with tidelands oil legislation

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in the 1937 legislative session.34 “The gathering of a powerful lobby of the oil interests in Sacramento adds all that is necessary to set off the fireworks,” reported Herbert Phillips, political columnist for the Sacramento Bee, in early January 1937.35 The recent discovery of the huge Wilmington oil field in the Long Beach and Los Angeles harbors intensified statewide interest in oil. California politics also continued to shift to the left following the 1936 election. The Democrats controlled the assembly. Republicans, largely from rural counties, still dominated the senate, but less decisively. The fierce political battle that ensued continued to tie California’s petroleum politics to broader struggles over public finance and economic policy. The outcome determined how and which companies gained access to coastal oil, patterns of production, and the timetable for coastal petroleum development. Governor Merriam navigated a contradictory course, struggling to maintain conservative policies and satisfy allies in an increasingly liberal political landscape. Merriam’s Finance Department continued to negotiate a low royalty settlement with Standard Oil for existing wells at Huntington Beach.36 At the same time, Republicans moved swiftly to try to coopt the Democrats’ use of the oil issue. Merriam’s legislative allies introduced new legislation to offer tidelands oil leases along the coast to the highest bidder. The measure would authorize the state to purchase or condemn adjacent property to allow for slanted wells from the uplands. The legislation also provided for drilling operations directly on the beach, if necessary, and for state drilling in the absence of satisfactory bids.37 Assemblyman Frank Waters, a Merriam ally, criticized the Jones and Olson committees for failing to produce legislation, and even proposed another Huntington Beach investigation. When the Democratic leadership rejected a third investigation, Waters attempted to reposition the Republicans. “We should throw party politics overboard on this issue,” he declared. “It’s a case of the people on one side and the Standard Oil Company on the other. It’s a question of whether the Standard Oil Company shall continue to dominate this legislature.” Trying to link the Democrats to Standard Oil lobbyists, Waters asked, “Are we going to lay down to the Standard Oil Company?”38 The Republican leadership had moved so far rhetorically in Olson’s direction by 1937 that Senator Olson had difficulty keeping his oppositional stance from looking like mere partisan politics. Yet the report he submitted on the same day as Assemblyman Waters’s grandstanding speech pushed the legislature farther toward higher royalties, increased

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competition, and a greater likelihood of direct beach drilling at Huntington Beach. The report, an individual statement by Olson, brought together the key elements of his critique of California’s management of its tidelands oil. Olson criticized the Rolph administration’s 1933 settlements with Huntington Beach trespassers as an illegal circumvention of the legislature’s 1929 ban on tidelands oil operations.39 He further noted that additional wells drilled by Standard Oil and others likely drained state lands, but that the oil companies and other committee members had prevented accurate surveys of the wells.40 Olson advised the legislature to develop oil from the Huntington Beach tidelands immediately. He recommended leases awarded by competitive bid, with a 30 percent minimum royalty and strict antimonopoly provisions to divide the Huntington Beach pool into nine separately leased parcels. Olson called on the Merriam administration to require payment of the “full amount of the proceeds” from past production from state tidelands.41 Finally, he urged the legislature to open oil well records filed with the Division of Oil and Gas for inspection by other state officials.42 Accompanying Olson’s report was a proposed bill to enact these recommendations into law, which pressured the Republicans in the state senate to make further concessions. While denouncing state drilling as “socialistic” and criticizing Olson’s proposal for beach drilling, W.P. Rich conceded that Standard Oil might have stirred up past voter opposition to beach drilling. Rich and Ralph Swing, Merriam’s senate floor leaders on the oil legislation, amended the competing Republican bill to set minimum royalties of 16.67 percent, enable companies other than Standard Oil to negotiate for state leases, and allow California to drill for oil itself if it could not make satisfactory lease arrangements.43 Swing insisted that their bill differed from the 1936 ballot proposition, which he now called “a wolf in sheep’s clothing” that had favored Standard Oil.44 As in 1935, tidelands oil had emerged as one of the “top problems” in the 1937 legislature, if not the “most important single issue of the session,” noted the Sacramento Bee. Other assemblymen fleshed out further options, introducing at least twenty-four separate measures in January and February 1937 related to tidelands oil development.45 Some of the measures embraced state oil drilling more fully. Democrat John Gee Clark and Republican Ellis E. Patterson, who had proposed in 1935 that the California develop its own oil, again suggested that California extract its coastal oil through a public petroleum producing agency. Other bills

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broke Democratic unity on the tidelands oil issue. Los Angeles assemblyman Ralph Welsh, the new Democratic chairman of the Oil Industries Committee, proposed a measure much more favorable to Standard Oil, with provisions allowing upland drilling only by coastal landowners.46 The political contest between Welsh and Olson, both Los Angeles Democratic politicians, turned ugly.47 Olson publicly accused Welsh of violating “every campaign pledge” of the Democrats by promoting a “perfect Standard Oil bill.” The public clash between Olson and Welsh “broke up before too much soiled party linen was given a washing.” But the Democrats could not present an entirely united front on oil.48 California’s legislative politics remained as hard-fought and convoluted as with the Burns bill two years earlier. Both Republicans and Democrats tacked back and forth in the details of royalty rates, drilling regulation, and beach leases. Merriam’s legislative allies moved back toward their original position, favoring low state revenues, Standard Oil, and beach protection. They removed the minimum royalty provision and provided only for slanted drilling from the uplands at Huntington Beach.49 Olson, for his part, moved to the center. He moderated his tough stance on Standard Oil and other Huntington Beach trespassers, removing provisions that would have barred them from bidding on leases.50 After the senate approved Olson’s bill and defeated the rival RichSwing measure, three rival bills remained in play in the assembly.51 Oil industry allies struggled mightily to block Olson’s measure, which carried the highest suggested royalty for the state and alone provided for state drilling. But in the new political climate, the assembly felt compelled to pass a strong oil measure. Assemblymen like the Stanislaus County Democrat Hugh Donnelly recalled how “a powerful oil lobby” in 1935 had made it “so oily back of the rail in this house that if you ventured there you were liable to slip.” Donnelly urged his colleagues, “Let’s do our duty this year.”52 After Olson’s Democratic rival Ralph Welsh tied up Olson’s bill in committee over the state drilling provisions, the assembly as a whole voted to force the bill onto the floor.53 Olson’s bill passed in April, with an urgency clause to preclude a referendum by opponents.54 The assembly “snowed under” Welsh’s own bill and another rival measure.55 Merriam claimed Olson’s measure for himself, saying that it accorded with his own policy announcement of more than a year earlier.56 Olson had achieved a “smashing personal victory,” according to the Los Angeles Examiner, but his continuing struggle in the remainder of the same legislative session demonstrated how difficult it was to move

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California’s oil policies sharply and decisively in a new direction.57 Near the close of the legislative session in late May, Ralph Welsh made an “eleventh hour effort” to push his bill through. “Flaring tempers” and “charges and counter-charges” swirled around the legislature, and representatives fought into the early morning hours. Competing bills, including Ralph Welsh’s measure, staged miraculous recoveries amid allegations of corruption.58 The Republican attorney general Webb, who passionately opposed coastal oil drilling, further complicated the political situation by ruling on a technicality that the Olson bill could not be an “urgency” measure and, therefore, could be held up and overturned on referendum.59 Olson complained “that so many constitutional questions are immediately raised when the state tries to protect its own natural resources.”60 But oil companies successfully collected the necessary signatures for a referendum vote. The legislative impasse of 1937 reflected a standoff between rival oil interests and between progressive and conservative forces in the state. In the new political climate, a fearful Governor Merriam felt compelled to veto Ralph Welsh’s industry-backed giveaway. At the same time, Olson’s oil bill was waylaid first by the Republican attorney general and then by oil companies, which forced a referendum vote on the tidelands oil bills that Merriam signed. As the Sacramento Bee observed, the referendums made “every scrap of legislation” enacted in 1937 to govern Huntington Beach oil production ineffective for more than a year, until the fall elections of 1938. California’s negotiations with Standard Oil for past production at Huntington Beach remained similarly unresolved at the conclusion of the 1937 legislative session. Olson and his legislative allies attacked the existing 10 to 12 percent royalty arrangements as “absurd,” “grossly inadequate,” and a “log-rolled settlement.”61 The Merriam administration argued weakly that, although the state lacked the legal authority to grant leases under the 1929 law, easement agreements allowing oil production from existing and, in some cases, new wells differed technically from leases.62 In the middle of the March 1937 legislative session, the Department of Finance announced that it had settled the claims on previously unpaid royalties with Standard Oil for $505,000. Senator T.H. DeLap of Contra Costa County, the site of Standard Oil’s principal California refinery, introduced a bill that Standard Oil had given him to ratify the agreements, and on the final day of the session the senate ratified it. Yet continued controversy dissuaded Governor Merriam from signing the bill ratifying what his own Department of Finance had

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negotiated.63 Three months later, when the legislature was out of session, the Merriam administration did finally settle with Standard Oil for $518,628 on oil production estimated at more than $5 million. Standard Oil’s stonewalling of Olson’s senate investigation had served the company’s interests well. California settled with Standard Oil without ever surveying additional upland wells also suspected of tapping the tidelands field. Olson denounced this “$5,000,000 gift” as a “flagrant violation of the people’s rights.”64 California desperately needed an effective way to manage the coastal tidelands. Legislative maneuvering in the previous two sessions had focused primarily on the Huntington Beach situation. But in the summer of 1937, the Merriam administration realized that the Wilmington oil field surpassed the Huntington Beach offshore pool, and that California already had begun to lose control of the field.65 Private upland drainage at Wilmington, with oil wells yielding as much as seven thousand barrels per day, threatened to repeat the Huntington Beach fiasco.66 And on the public tidelands at Wilmington, both Long Beach and Los Angeles planned municipal drilling strategies. Decades before, the California legislature had granted Long Beach its tidelands for harbor development. Now Long Beach claimed that mineral rights had passed with the harbor grant.67 Attorney General Webb and the Merriam administration sued to validate California’s claims, arguing that the state retained the tidelands oil and mineral rights, and that drilling for oil would violate the harbor trust purposes.68 Amid the great uncertainty about which governmental entity controlled access to Wilmington’s riches, oil operators, politicians, and military leaders also began to call for federal ownership of offshore oil reserves. The U.S. secretary of the navy urged Congress to empower the president to seize California’s coastal oil, and the North Dakota senator Gerald Nye asked the U.S. attorney general to sue to recover title to the coastal lands for the nation.69 With renewed determination to resolve the coastal oil problem before the 1938 state elections, Merriam called the legislature back for a special session in March 1938 to address the long-standing Huntington Beach problem and the new conditions in the Wilmington field.70 “We don’t want to interfere with oil operations,” Merriam said. “We simply want to gain for the State its full share of the oil.”71 Merriam proposed a new state lands commission empowered to enter royalty leases with private companies that would locate new wells on uplands or filled tidelands.

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Merriam frankly admitted that his tidelands oil bill had been drafted and revised three times by oil lobbyists.72 The Democratic opposition lambasted Merriam’s bill for its favors to private companies, including the Southern Pacific Railroad Company, Standard Oil, and others seeking to gain access to the Wilmington oil field. “It looks very much like we’re turning the oil pool over to private interests lock, stock and barrel,” Assemblyman Paul Peek complained.73 After battling over oil legislation until four in the morning, however, the state legislature approved Merriam’s State Lands Act virtually intact. The legislature rejected state drilling and proposals granting Los Angeles and Long Beach rights to develop their tidelands; state leasing was limited to instances where onshore operators drained state oil deposits and drilling would proceed from uplands or filled tidelands only. While the measure required competitive bids, it did not stipulate a minimum royalty. The state legislature amended Merriam’s bill in only two significant ways, making changes that capped political trends that had dominated petroleum politics throughout the previous decade. Acknowledging the growing public awareness that oil politics had corrupted both the legislature and the Rolph and Merriam administrations, the California legislature established the new State Lands Commission outside the Department of Finance and substituted an elected lieutenant governor for an appointed director of natural resources on the commission. Olson and his allies successfully spread responsibility for state land management among three elected officials—the governor, represented by the director of finance; the lieutenant governor; and the state controller—and opened the leasing process to greater transparency and public accountability.74 The legislature also changed the State Lands Act to dedicate 30 percent of the state’s oil royalties to parks, reflecting the fact that beach protection groups, often in alliance with oil industry factions, had blocked efforts to develop coastal oil resources since 1929. In the 1938 bill, the conservation and coastal protection groups now acquiesced to coastal oil operations in exchange for funding for California’s beaches and parks and an agreement that oil operations would be kept off the beaches, on the uplands. This trade of tidelands oil for beaches and parks endured for decades, and the abundant coastal oil funded the rapid expansion of California’s state park system. Coastal oil royalties came at a critical juncture for California’s beach and park system. The California legislature had created a State Parks Commission in 1927 to administer the newly unified state park system.

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Voters approved a constitutional amendment the following year authorizing $6 million in state bonds to purchase parklands if private sources contributed matching funds.75 In this watershed moment for California’s beach and park system, real estate prices dropped precipitously, making it less expensive to purchase new properties.76 From 1931 to 1938, the number of parks increased fourfold, the financial investment by seven times, and the acreage by fifteen. But the California park system, while popular, remained vulnerable because it lacked a regular source of state funding. Antitax groups like the California Taxpayer’s Association opposed funding park maintenance and operation.77 Without money to complete planned acquisitions or maintain recent purchases, in 1936 the State Parks Commission formed an odd but valuable alliance: it teamed up with Standard Oil to support a slanted drilling initiative that promised to dedicate state royalties to the beaches and parks. William Colby, the San Francisco mining lawyer who chaired the park commission, promised on radio and in print that “this measure will make future park bond issues unnecessary, and will provide for the entire park system at no future expense to the taxpayers.”78 In subsequent testimony before Olson’s senate committee in November 1936, Colby described redwood groves and beaches that needed protection but would be destroyed because there were “no revenues in sight.”79 The situation only worsened between 1936 and 1938. With no new funds in sight, the commission reluctantly reported, “the period of acquisition is nearing completion.” California’s park system was “taxed to the utmost.”80 With the 1938 State Lands Act, the State Parks Commission turned again to oil royalties as a possible fiscal savior.81 As early as January 1938, the Shoreline Planning Association began lobbying to ensure that the state allocated a “reasonable portion” of state oil royalties to buy and maintain state beaches and parks.82 The beach and park groups parlayed support for the leasing bill into a 30 percent share of oil royalties. The fiscal outlook for California’s beaches and parks had reversed by December 1938, with a proposed biennial budget of approximately $1.37 million drawing almost exclusively from oil revenues. The State Parks Commission hoped to continue its acquisition program at three hundred thousand dollars per year for the next ten years, targeting Southern California beaches and northern redwood groves for protection. In addition to their conservation value, these projects rewarded the powerful coastal development associations of Southern California and the Redwood Empire Association, a Northern California development

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Figure 9. California used its tidelands oil royalties to develop public beaches, including this one at Santa Monica, which visitors accessed by gasolinepowered automobiles. (Courtesy of the Security Pacific Collection/Los Angeles Public Library.)

group.83 The legislature strengthened this bargain in 1941, when it increased the share of state oil royalties dedicated to beaches and parks from 30 to 70 percent.84 With the changes that favored the beaches and parks, and that opened the land management process by including the lieutenant governor on an independent commission, the State Lands Act leasing measure prevailed. Critics failed to muster sufficient signatures to force a referendum on the bill, and the act became law in June 1938. The State Lands Act also made largely irrelevant the alternative 1937 tidelands leasing bills, which remained held up on referendum until the November 1938 election.85 The complicated layering of political and legal jurisdiction in state and federal oil management policy remained evident in the spring of 1938. Even as the legislature passed the State Lands Act, the California Supreme Court undermined the legislative policy initiative by twice stripping away state ownership of the tidelands that California sought

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to manage. In Bolsa Land Company v. Vaqueros Major Oil Company, the court affirmed a lower court decision that pushed private ownership down the beach toward the water, depriving California of much of the tidelands it might have leased in Huntington Beach and elsewhere.86 The court decision deferred to federal boundary lines, dismissing the idea that the state could determine independently the line between private and public coastal lands. Some one to two hundred feet at Huntington Beach, along with millions of dollars of subsurface mineral rights, rode on the question of where the tidelands boundary lay.87 In a second decision, the Supreme Court of California also ruled that California’s harbor grant to Long Beach had included mineral rights, so that the city could freely develop the oil. California had made no attempt to reserve oil rights for itself, the court concluded. Indeed, in 1937 the state legislature had approved a charter amendment authorizing drilling by the city. “If the State was inclined to commit itself to such an improvident transaction it is not the function of the courts to nullify it,” wrote Associate Justice William Langdon in City of Long Beach v. D.A. Marshall.88 The Marshall decision differed strikingly from an appellate court’s ruling in Lewis Stone v. City of Los Angeles eight years earlier, which had prevented Los Angeles from leasing municipal harbor land for drilling.89 The Bolsa and Marshall court rulings transferred California’s coastal oil lands to upland property owners all along the California coast and to Long Beach and Los Angeles in the case of the Wilmington field. In the spring of 1938, allegations that economic interests improperly influenced California politics finally prompted an independent investigation of legislative corruption. Rumors swirling around earlier California petroleum legislation were confirmed, and a broader scandal in state management of the state tidelands was uncovered. According to the investigation of the legislature, Assemblyman Gene Flint of Los Angeles had solicited funds to deliver votes on the Welsh oil bill, while Assemblyman Charles Hunt of Los Angeles and his associates had been promised they could get in “on the ground floor of a stock deal” if Merriam signed the Burns bill.90 The oil industry, along with railroad companies and other interests, had quietly contributed considerable funds to legislative candidates. Between 1935 and 1938, for example, Sacramento’s preeminent lobbyist, Arthur Samish, had controlled a slush fund of at least ninety-seven thousand dollars in cash and destroyed all records of its distribution.91 Among other triumphs, Samish claimed credit for squashing a 1937 oil bill sponsored by the administration.92

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A Sacramento grand jury investigation of Samish precipitated additional disclosures of petroleum-related corruption. In June 1938, following Samish’s arrest for failing to testify before the grand jury, his lawyer, John Francis Neylan, demanded an investigation of the governor’s office. Neylan threatened that Samish would reveal contributions to legislators as well as information regarding oil legislation promoted by two of Merriam’s associates, his campaign manager Joe Rosenthal and the former state senator Ralph Clock.93 Just a few hours after Neylan’s remarks, the director of finance, Arlin Stockburger, filed affidavits with the state personnel board detailing how several state employees had conspired to control rich oil lands in the Wilmington field. Those implicated included the State Lands Division chief Carl Sturzenacker, longtime state petroleum production inspector Arthur Alexander, Rosenthal, and Sturzenacker’s former secretary, now employed in Ralph Clock’s law firm.94 Sturzenacker denied the charges and fought to retain a position with the new State Lands Commission.95 A cursory investigation by the Los Angeles district attorney concluded that the state employees had committed no crimes. But the state personnel board, in its first-ever civil service investigation, hired the San Francisco attorney Norris J. Burke to probe the administration of the Southern California oil fields.96 In early August 1938, as Burke waited in Sacramento for guidance as to whether he should file his charges, Arlin Stockburger announced in Los Angeles that Sturzenacker and Alexander had resigned, in hopes that this would end the personnel board proceedings. As Stockburger rushed north through the night to Sacramento with the resignation letters in his pocket, Fred Wood, chairman of the State Personnel Board, ordered Burke to file his report before the resignations became official.97 “VAST TIDELANDS OIL FRAUD,” the San Francisco Chronicle headline blared on August 14, 1938.98 Burke’s sixty-page report accused Sturzenacker and Alexander of a wide range of wrongdoing, including incompetence, dishonesty, and improper political behavior. Sturzenacker and Alexander had forced oil operators in the Huntington Beach offshore field to pay Joe Rosenthal to get drilling permits. Go “see Rosey,” employees at the State Lands Division allegedly told applicants. Representatives of the Huntington Beach Oil Company were told that they could obtain a permit more quickly if they gave 2 percent interest in oil production to a relative of Arthur Alexander who lived in Chicago.99 Burke also substantiated allegations that state employees had conspired to control state tidelands in Wilmington. According to

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Burke, Alexander and Sturzenacker attempted to cover up their activities by giving the land back to the state.100 Burke’s charges went beyond the original affidavits, further documenting how corruption had undermined all legislative efforts to manage the coastal oil lands. The Division of State Lands surreptitiously had allowed oil companies to drill new wells in the Huntington Beach tidelands. The division also permitted the Termo Oil Company, the first Huntington Beach operator to confess to trespass in 1934, to relocate wells into closed-off fields after others had been refused access. Similarly, Sturzenacker authorized William Bonnelli, a member of the State Board of Equalization and the head of the Magnor Oil Company, to drill sixty new wells. Sturzenacker secretly issued the Bonnelli permits in May 1937, even as the California legislature battled over how to dispose of the Huntington Beach field.101 Under his loose governance, a prior easement and political connections were the ticket. Sturzenacker’s secretary backdated a letter by a year to provide written precedent for transferring the easements to Bonnelli.102 Burke also attacked Sturzenacker and Alexander’s pro-owner determination of the tidal high-water mark for land owned by the swank Belle Aire Bay Club on Malibu Beach, which deprived California of valuable coastal property. Burke described how the pair had accepted royalties inappropriately in the form of oil rather than cash in Huntington Beach, neglected to track royalty payments accurately, and sold state oil at 17 percent below market price to the mayor of Huntington Beach.103 Burke reported that Sturzenacker had tried to amend the State Lands Act to make himself a member of the commission. Finally, he accused Sturzenacker of campaigning for Governor Merriam in violation of civil service rules.104 Burke’s charges “rocked the Capitol,” according to the Sacramento Bee.105 Sturzenacker withdrew his resignation, complaining that he had been double-crossed. Wood in turn charged that the Merriam administration had arranged the resignations to prevent Burke from filing his report.106 As the oil scandal became increasingly prominent in the Republican gubernatorial campaign, Merriam’s director of finance dismissed the controversy as a “routine matter” exaggerated to strengthen Lieutenant Governor George Hatfield’s challenge to Merriam for governor.107 Sturzenacker also said that opponents conspired to remove him from office so that Standard Oil, Signal Oil, and other oil companies could gain control of the Huntington Beach pool.108 On the radio, Merriam denied Burke and Wood’s charges against his administration.109

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Whether or not an allegiance to Hatfield motivated Burke and Wood, “California’s $1,000,000,000 tideland oil scandal” temporarily energized Hatfield’s candidacy. Three state Republican leaders publicly urged Hatfield’s gubernatorial nomination to give California a “much needed house cleaning.” Arthur Samish’s lawyer, John Francis Neylan, similarly denounced Merriam’s “disgraceful” administration of state oil lands. “No sane person” would allow a group of “utterly incapable and inexperienced men” to administer California’s “greatest single material asset,” Neylan said.110 As a member of the new State Lands Commission, Hatfield voted with the state controller Harry Riley to suspend Sturzenacker and Alexander. Hatfield’s presence as lieutenant governor on the commission had tipped the balance of power away from the governor.111 In April 1939, the State Personnel Board would uphold Norris Burke’s charges, dismissing Sturzenacker and Alexander from the state government.112

“ THINGS WILL NO LONGER BE MERELY ‘ OIL’ RIGHT IF I AM ELECTED GOVERNOR ” In the 1938 election for governor, the Democrats, led by their candidate, Olson, successfully made oil a key campaign issue. Meanwhile, the Sturzenacker and Alexander scandal ultimately failed to revive Hatfield’s challenge to Merriam’s Republican candidacy. Merriam and Olson squared off against each other in the fall election of 1938. The bitter contest had gestated since 1934, when Merriam defeated Upton Sinclair, while Olson, Sinclair’s choice as head of the state Democratic Party, joined the state senate.113 Olson now pushed hard on the oil issue. The Democrats promised to reserve for the state all oil and gas on California lands and to secure from the resource the greatest possible revenue. “We condemn the abject subserviency of the Republican State administration to special privileged interests,” their platform stated. The Republicans, they said, had given away millions of dollars’ worth of oil by allowing oil companies to extract petroleum “which rightfully belonged to the people of the state.”114 Olson particularly emphasized his years of labor on the tidelands oil problem. An Olson campaign broadside from August 1938 used the “Olson Oil Fight” as the prime example of his leadership of progressive Democrats: Perhaps the most conspicuous of his great services to the people has been Olson’s fight—against overwhelming odds—to save the State’s enormous oil reserves. He exposed the most wanton depredations perpetrated by

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large oil companies. He fought them to the point of securing laws to protect the people’s interest; only for their purpose to be defeated and subverted by the Merriam-Hatfield regime, which, because of their behavior on this one issue, deserve dismissal by the people.115

In a major radio speech in October 1938, just weeks before the election, Olson accused Merriam of having let the department of finance, which housed the Division of State Lands where Carl Sturzenacker and Arthur Alexander worked, become “the agencies of private interests.”116 Merriam sought to dodge the oil issue. His campaign literature warned of an “Olson menace” and a “Lewis-Bridges-Olson dictatorship,” linking Olson to John L. Lewis and Harry Bridges, two prominent labor leaders. Merriam claimed that Olson had endorsed a California labor relations act in exchange for the political support of communists in the Congress of Industrial Organizations (CIO).117 But Merriam’s red-baiting strategy failed. In November 1938, California voters put Olson in the governor’s office as the state’s first Democratic governor in forty years. Olson’s election affirmed the Democratic platform and perhaps signaled voter disgust with corruption. As with all elections held before intensive issue-based polling, it is difficult to determine how importantly one issue, in this case coastal oil, factored in the vote. But coastal petroleum politics had dominated state legislative sessions during the previous decade, and the charged coastal oil question had appeared on the popular ballot three times since 1929. Tidelands oil was particularly prominent in 1938, underscored by the special legislative session in March and the oil scandal that erupted in June. Olson’s long struggle to protect California’s petroleum rights strengthened state management of the tidelands oil. Following the 1938 State Lands Division scandal, the new State Lands Commission tightened its administrative structure, hired additional staff, and got better at ensuring accountability and tracking royalty payments. The involvement of three different elected officials—the state finance director (representing the governor), the lieutenant governor, and the state controller—also opened to the public a previously obscure process.118 Ironically, the commission’s new emphasis on maximizing financial returns from state lands would provoke criticism from conservationists of a later generation who wanted state lands protected rather than exploited. What progressives like Olson saw as the public interest in the depression years of the 1930s proved to differ greatly from the environmental priorities of the 1960s and 1970s.119

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Figure 10. Culbert L. Olson (left) is sworn in by Associate Justice Emmett Seawell in 1939, after riding the clash over tidelands oil to become California’s first Democratic governor in forty years. (Courtesy of the Bancroft Library, University of California, Berkeley.)

Soon after becoming governor, Culbert Olson asked the California state auditors to investigate the earlier activities of the Division of State Lands. The December 1941 audit generally confirmed suspicions that Olson had formed during his years in the state senate. Although the auditors did not find that agency officials had profited personally from their “obscure, manipulative” transactions, the report sharply questioned many administrative rulings and practices that had opened the tidelands. “It is evident that statutory and contract provisions have been misinterpreted, misconstrued or ignored entirely,” the auditors concluded.120 They documented a long list of questionable actions that had deprived California of millions in royalty revenue and had transferred enormously valuable oil resources to private parties. In light of the legislature’s 1929 ban on tidelands drilling, they questioned the legality of the Huntington Beach easements granted after 1933. Their report suggested that the Rolph and Merriam administrations had used the easements to circumvent legislative prohibitions on tidelands leasing. The auditors further described how state officials had shifted at least one lease in the Ellwood field three times in order to position the

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lease most effectively for maximum production. In another instance at Huntington Beach, Sturzenacker had “transferred” an easement over a distance of nine city blocks to allow an illegally drilled well to produce. The state auditors also identified redrilling permits for old wells that had been used to dodge laws barring tidelands drilling. While redrilled wells typically deviated by only one hundred feet from where they originally bottomed, wells in the Huntington Beach field moved laterally by more than twenty-three hundred feet.121 These so-called redrillings were actually new wells drilled to tap the tidelands. The auditors asked repeatedly whether the state might recover the full value of oil extracted from such questionable leases at Ellwood and Huntington Beach.122 The answer was no. As in the San Joaquin Valley in the second decade of the twentieth century, the facts on the ground overwhelmed the state’s apparent legal advantage. No California politician, even Governor Olson, wanted to revisit the 1930s oil fights simply to recover money for the state. CONCLUSION

The 1938 creation of the State Lands Commission, the Division of State Lands scandal, and the election of Culbert Olson as governor closed one phase of California’s coastal petroleum conflict. In 1921 California passed a generous state mineral leasing policy modeled on the federal law of 1920. But to the surprise and disappointment of many state oil operators, the federal solution broke down quickly at the state level. Outrage over coastal oil operations in Santa Barbara County and the Los Angeles region generated a strong counterforce to the oil lobby. In the 1928 Boone decision, the California Supreme Court brushed aside this opposition and forced the state administration to issue oil leases around Santa Barbara. But in early 1929, legislative opponents of tidelands oil drilling blocked new operations in the rich coastal fields. With legal access closed to them, the California oil operators resorted to illegal trespass at Huntington Beach and high-stakes lobbying in Sacramento. It took them a decade to get around the 1929 ban. The operators never succeeded in overriding the 1929 law outright; oil industry factionalism and opposition from coastal development groups crushed their initiative measures and legislative bills. But in 1938, California finally settled with the oil producers, authorizing state oil leases for uplands or filled tidelands in those instance when private landowners drained oil from pools extending under state lands. The state also earmarked oil royalties for beaches and parks to placate opponents.

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This compromise underscored the difference between Californian and national petroleum politics. The initiative and referendum process, a legal recourse of state politics that gained prominence in this decade, disrupted the expected trajectory of policy making in the elected legislature. Without the referendum mechanism, legislators certainly would have resolved the tidelands oil question more quickly and in ways more favorable to major industry players like Standard Oil. Instead, the smaller independent companies successfully mounted expensive referendum campaigns that defeated coastal leasing legislation. Standard Oil and its allies also tried to bypass the legislature in 1936 by proposing an initiative measure that provided for low-royalty, limited-access drilling at Huntington Beach. But Standard Oil’s opponents successfully resisted this “save the beaches” measure, and the electorate resoundingly defeated the proposal. Direct democracy thus turned away numerous proffered solutions. California politicians responded to the powerful, although divided, oil sector, but they also juggled the economic interests of real estate developers and wealthy landowners. With Southern California growing rapidly between 1920 and 1940, coastal property owners and businesspeople worried deeply about beach oil pollution and the unappealing aesthetics of the industry. They resisted the spreading oil front at Santa Barbara and Venice. Then they blocked new tidelands oil development along the entire coast in 1929. Through the 1930s, they defended this 1929 ban. Even after the 1938 compromise that tied coastal oil extraction to beach and park development, beach protection groups continued to resist coastal drilling.123 Tidelands oil royalties financed the rapid expansion of California’s beach and park system in the 1940s and 1950s, yet the beach-oil pact remained fragile and contentious.124 The 1969 Santa Barbara oil spill thoroughly disrupted the deal, causing powerful coastal protection groups to push through another moratorium on state coastal leasing that endures to this day. State petroleum politics thus differed sharply from the earlier federal struggle but also displayed important continuities. The rule of capture as applied to common oil pools increased pressure on governmental entities at both levels. In the San Joaquin Valley, competition with neighboring landowners forced oil production by federal receiverships and within the naval oil reserves in the second decade of the twentieth century. A similar dynamic played out at Huntington Beach and the Wilmington field in the 1930s. With private wells perched on the bluffs above Huntington Beach and encroaching on the Wilmington tide-

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lands, California state and city governments rushed forward with oil development partly to protect the public’s share of the petroleum pools. This helped protect the public’s financial interest, but it hardly conserved oil. The parallel between federal and state dynamics extends to the independent political role played by the federal and state courts. As in earlier federal decisions celebrating how oil operators had transformed a barren wasteland into a productive oil field, the California Supreme Court concluded in Boone v. Kingsbury that oil’s importance to modern commerce outweighed concerns about coastal oil pollution. The court forced California’s surveyor general to permit oil operators onto the state tidelands. The courts also enforced “improvident” past political decisions, as in Long Beach v. D.A. Marshall, when the California court declined to nullify the state’s gift of mineral rights to Long Beach. Similarly, in Bolsa v. Vaqueros, the courts deferred to political and judicial precedents that allocated the beaches—and millions in subsurface oil rights—to upland owners rather than retaining them for the public. Shopping for favorable judicial rulings strengthened the industry’s hand—for instance, when the Orange County assemblyman James Utt and finance director Rolland Vandegrift asked Judge Malcolm Glenn of the state superior court to authorize the highly questionable Huntington Beach easement agreements. Glenn previously had struck down the urgency provision of the 1929 coastal leasing ban. Now he obliged Utt and Vandegrift in a weakly argued decision. The State Lands Division scandal and the investigator’s report on legislative corruption, both in 1938, opened a window on internal administrative and legislative corruption in Sacramento. As with the federal conflict and its culmination in the Teapot Dome scandal, the long state controversy over oil lands similarly dissolved in a furor over how public employees had used their positions to cut sweetheart deals for lands that by law should have remained undeveloped. Albert Fall and his colleagues in Harding’s Interior Department thus had lesserknown counterparts in Carl Sturzenacker and Arthur Alexander in the Merriam administration. Sturzenacker and his cronies opened the coastal lands through lax enforcement of leasing contracts and outrageous administrative interpretations of the law. Outright corruption also played a role, as when Sturzenacker and Alexander tried to file their own claims on land at Wilmington. Unofficial powerbrokers like Joe Rosenthal, Merriam’s ally, also took payoffs in exchange for favorable action by the Division of State Lands. Rolph and

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Vandegrift’s 1933 settlement with Huntington Beach trespassers also appears to have been orchestrated through secret backroom deals by political insiders, although the historical record on this point is frustratingly slim. Olson, who entered California politics as part of a progressive Democratic faction in 1934, appears to have been honest and committed to the goal of making government serve a broad public interest. He believed fervently in progressive taxation, an active state government, public benefit from natural resource development, more transparent and responsive government, and prolabor policies. But some of his elected and appointed colleagues were either for sale or closely allied with private economic interests. Others favored the oil industry for bringing in jobs and tax revenue and providing California with a crucial energy source. Olson found his four years as governor undermined by the defection of conservative Democrats.125 In his first year in office, Olson’s legislative opponents defeated his longtime goal of a per-barrel tax on oil and gas production, as well as his proposal to reduce tax incentives for oil drilling. And his achievement of legislation establishing an oil commission to regulate statewide production was overturned by state referendum vote.126 As at the federal level, where the debate about federal lands continues today, the political closure in state oil policy achieved by California in 1938 proved illusory. Heated politics continued to determine who controlled the extent and pace of coastal petroleum operations in California. The California Supreme Court’s 1938 decision in Long Beach v. D.A. Marshall, which favored Long Beach’s claims in the Wilmington field, sparked a tense legal struggle between the state government and the city.127 Using oil royalties that it had won, Long Beach spent $5 million on new piers, berths, streets, buildings, and landfill by 1944—and was well on its way to becoming a dominant harbor on the West Coast.128 Following further state-city conflict, California and Long Beach came to share the Wilmington royalties, with the state’s portion going to the California State Water Project, and Long Beach’s share financing harbor development. Political bargains on oil policy continued to yield funds for targeted state and city expenditures rather than for general expenses. Federal intervention also ensured continuing political controversy. In 1938, officials in the United States Navy, Justice, and Interior Departments came to agree that the federal government should control coastal oil deposits off California. Their consensus partly reflected a growing

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sense in Washington that California managed its coastal oil lands poorly. The federal government sued California (as well as Texas and Louisiana) to claim the offshore oil in 1945. In 1947 the U.S. Supreme Court sided with the federal government, concluding that the nation, not the state governments, had paramount rights in the coastal waters.129 This decision threw the entire tidelands oil situation into renewed turmoil, which was resolved only in 1952, when Republican congressional majorities and a new Republican president, Dwight Eisenhower, returned the nearshore lands to state control. California’s difficulties with U.S. intervention into offshore oil development intensified in the 1960s, when the federal government pressed forward with risky petroleum leases beyond the state-controlled three-mile limit. The 1969 Santa Barbara oil spill confirmed the worst fears of coastal oil opponents and brought a fresh state leasing moratorium, followed somewhat later by a federal leasing moratorium.130 The irony of these struggles to access oil on state and federal public lands is that they forced open California’s oil lands during a period of intense oversupply. During the late 1920s and the 1930s, when the state and federal governments struggled to conserve petroleum in the ground and to prop up oil prices for the companies, the California state courts and state administration bent over backward to open the petroleum-rich coastal oil lands to new drilling. These governmental entities helped prompt a new cycle of competition at Santa Barbara, Huntington Beach, and Wilmington. The oil industry and the state and federal governments responded by trying to limit the “overproduction” that their own petroleum politics, property law, and public land policies had created.

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Regulation

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CHAPTER

5

The Struggle to Control California Oil Production

California and national political leaders generally designed public land policies and property law to increase oil production and lower energy prices. In this sense, the market structure certainly accomplished its policy objectives. Even when opponents challenged that structure and thwarted oil development—for instance, when Taft withdrew federal oil lands or when California politicians blocked coastal oil drilling—judicial rulings, political maneuvering, corruption, and outright lawbreaking forced open California’s oil fields. By the mid-1920s, California oil production had surged due to petroleum development in the San Joaquin Valley and in town-lot fields in the Los Angeles Basin, like those at Huntington Beach and Long Beach. Oil also began to flow from the new Kettleman Hills field and from coastal fields in Santa Barbara County in the late 1920s. Rapidly rising production drove prices for crude oil and gasoline sharply downward. Between August 1921 and October 1923, the highest grade of oil dropped from $2.45 to $.76 per barrel. Retail gasoline prices slid along with crude oil prices. At the beginning of 1923, Standard Oil gasoline retailed at $.22 per gallon. By September the price had fallen to $.13. Small retailers sold “bootleg” gasoline at $.10 per gallon, with prices reportedly as low as $.06. Although these falling prices were the obvious outcome of the petroleum property regime, public officials and many within the oil industry responded with alarm. They feared industrial disarray due to overcapacity, 111

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the shutting down of wells and firing of workers, and the squandering of valuable natural resources. From the late 1920s until World War II, politicians and industry leaders struggled to contain the overproduction resulting from competition to drain common oil pools, from taxfavored investment in oil exploration and development, and from the rapid disposal of public oil lands. They sought to address a fundamental problem of collective action—how to coordinate and enforce a statewide cut in production to stabilize oil prices and develop petroleum reserves more efficiently. The overproduction that plagued California in the late 1920s and the 1930s was part of a recurrent pattern in the American oil industry. Fractured land holdings and the rule of capture pushed landowners and oil operators into a boom-bust cycle of competitive production. From the original discoveries in Pennsylvania to Spindletop Hill in Texas and the California fields, operators quickly drained each newly discovered field and sent oil prices plummeting. As production leveled off, prices would rise and stabilize until the next big discovery. New ways to extract more value from oil, such as the ability to separate petroleum into heavier oil and lighter gasoline or kerosene, and, beginning in the 1920s, the ability to “crack” petroleum thermally to make different products, also put price pressure on established fields. In the late nineteenth century, the Standard Oil Trust, a conglomerate of companies, dealt with the problem of excess oil production and excess refining capacity through vertical integration and monopoly. Overcapacity had been one key reason for the formation of the trust in the 1870s. By controlling oil refining and transportation, the Standard Oil Trust privately regulated the market and smoothed its disruptive cycles, ensuring steadier profits. Maintaining the Standard monopoly required adept political intervention. State and national politicians eventually turned against the company and other trusts, passing antitrust laws, including the federal Sherman Act in 1890 and California’s Cartwright Act in 1905, to prevent this private ordering of the market. And in 1911, the U.S. Supreme Court split the Standard Oil Company into thirty-three smaller entities to foster competition in the oil industry.1 Oil fields in California’s San Joaquin Valley followed a by-now predictable pattern of development in the 1890s and early 1900s. Operators at the Coalinga, McKittrick, and Kern River fields competed in the broader oil market, but, more locally, they also raced against neighbors to capture their share of a common pool. California production climbed from 2 million barrels of oil in 1897 to nearly 30 million seven years

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later. Prices plummeted by nearly two-thirds, and millions of barrels of oil accumulated in storage in earthen sumps or tanks. Operators also capped hundreds of oil wells to reserve oil for higher prices.2 As flush production subsided and California crude oil demand climbed, the market tightened and prices began to rise again. The Taft administration also reversed federal policy in 1909, retaining California oil lands to restrain California oil production and conserve the nation’s fuel resources. The California legislature in 1915 also considered, though it ultimately rejected, regulatory measures to slow the “feverish haste” with which producers drained oil from under their own and their neighbors’ lands.3 These unsuccessful California legislative proposals matched similar regulatory measures passed into law in Oklahoma and Texas a few years earlier.4 World War I and the litigation over federal oil lands tightened oil markets and slowed urgent calls for state regulation of oil production. After the war, robust demand and slowly expanding supply kept prices high for a brief period, even causing a short-lived energy crisis in 1920, leading to fuel rationing. As the base price shot above two dollars per barrel in the summer of 1920, the navy struggled to obtain Pacific Coast oil at a “reasonable” price, and even sought to commandeer oil supplies.5 Then, in 1921, the oil industry shifted, in the words of the Standard Oil Bulletin, from “a famine of crude petroleum” to “a period of oversupply.”6 The surge in production came partly from the San Joaquin Valley, where the Harding administration and the 1920 Mineral Leasing Act eliminated obstacles to production. In the last six months of 1920, for example, thirty-four new wells in the Elk Hills field contributed 11 percent of California’s total oil production.7 At the same time, new discoveries in the Los Angeles Basin began to shift the center of the industry. First came stunning new discoveries at Huntington Beach, Santa Fe Springs, and Signal Hill by 1921; then came discoveries at Rincon, Playa del Rey, and Venice soon afterward. More than 50 percent of California production came from the San Joaquin Valley fields in 1920. By the end of 1923, almost 70 percent of state production came from the flush Huntington Beach, Long Beach, and Santa Fe Springs fields.8 The intense development of small landholdings around Los Angeles between 1922 and 1923 increased California’s average daily production by 68 percent, from 315,000 barrels per day to 530,000 barrels per day. In addition to the new discoveries, technological advances in refining pushed yields of gasoline per barrel of crude up from 25 percent to almost 40 percent during the 1920s.9

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Figure 11. Competing landowners spaced wells closely together at Los Angeles Basin fields like Huntington Beach, rapidly draining oil reserves and driving down prices. (Courtesy of the Security Pacific Collection/Los Angeles Public Library.)

As prices plummeted in the early 1920s, Standard Oil, Associated Oil, and other larger companies closed wells in the older fields, holding off potential production estimated at 109,000 barrels per day.10 Yet in general, dramatic price reductions and public calls for production cuts did little to dampen output. The fixed terms of leases, terms that themselves reflected landowner competition over joint oil pools, compelled oil operators to continue producing. As statewide production climbed in 1923, Standard Oil spent $35 million building huge new reservoirs, some of which could store 3 million barrels of oil, near its El Segundo refinery in Southern California.11 By 1924, tanks and reservoirs in California stored approximately 97 million barrels of oil.12 Cheap California oil began to cut deeply into eastern markets, undercutting midcontinent producers.13 The California companies attempted in vain to coordinate a voluntary reduction in crude oil output to boost crude oil prices. At the same time, oil operators drilled hundreds of new wells in the same territory.14

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Figure 12. The crowded oil wells at Signal Hill in the 1920s were particularly susceptible to oil fires. (Courtesy of the Security Pacific Collection/Los Angeles Public Library.)

FROM INDUSTRY OBSTRUCTION TO DEMANDS FOR ACTION ,

1924–1929 The orgy of production in California in the early 1920s, which surpassed petroleum output in other individual states like Texas and Oklahoma, alarmed state and national politicians. President Calvin Coolidge, still vulnerable on oil issues following the Teapot Dome scandal, created the Federal Oil Conservation Board, to be led by the secretaries of war, commerce, the interior, and the navy.15 “The future of the oil industry,” Coolidge declared in his 1924 letter of appointment, could not “be left to the simple working of the law of supply and demand,” because “the oil industry’s welfare is so intimately linked

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Figure 13. When petroleum flooded the market in 1923, the oil companies constructed huge earthen reservoirs to store crude oil. Men used mule teams to grade the reservoir bottom. (Courtesy of the Security Pacific Collection/Los Angeles Public Library.)

with the industrial prosperity and safety of the whole people.”16 Coolidge asked the Federal Oil Conservation Board to find ways to achieve greater conservation and efficiency in the oil industry.17 Between 1924 and 1927, the board focused its efforts on inefficient methods of oil production and consumption, criticizing what it called inappropriate uses of petroleum.18 Yet competitive production and generous public land and tax policies had increased output so much that only these “inefficient” end uses, such as using oil as an industrial fuel, provided sufficient markets to absorb all of the petroleum. The California industry resisted these federal initiatives to adjust market dynamics.19 Privately, industry leaders mocked as irrelevant the effort to study the nation’s energy needs and anticipate its future needs.20 Publicly, they harshly criticized federal action. At a 1924 meeting of the American Petroleum Institute, the institute president, Thomas A. O’Donnell, portrayed the oil industry as “akin to a man with a broken leg.” But he did not “care to go to Washington for a doctor. If we did we might wake up to find that we had no legs at all.”21 The industry chal-

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lenged federal officials’ claim that the country might run out of oil. The American Petroleum Institute described vast unexplored, promising territory in the United States and abroad and argued that oil shale, coal, and lignites could substitute for petroleum to produce liquid fuel and lubricants.22 There had been too much talk of scarcity, Kenneth R. Kingsbury, president of the Standard Oil Company of California, informed Secretary of the Interior Hubert Work in 1925. “Personally, I do not believe that such [a] shortage impends.”23 Speaking on behalf of the American Petroleum Institute in 1926, the Republican politician and jurist Charles Evans Hughes celebrated the price mechanism in the oil sector and warned against federal action. The key to finding oil reserves in the future, Hughes declared, “must be freely moving prices.” Higher prices in the future would “furnish an incentive for men and capital to take the large risks incident to an uncertain and hazardous enterprise.”24 The flood of oil from the Southern California fields temporarily abated in late 1926, seemingly confirming Hughes’s belief in self-regulating markets. Consumption increased significantly even as production from the overdrilled Southern California fields declined rapidly.25 After five years of steady increases in stored crude oil, the California industry drew down its stocks. Higher prices rewarded Standard Oil’s past decision to shut down active wells and store crude oil. The company reported strong profits in 1926 and paid an extra dividend.26 Then major new discoveries of oil in Texas, Oklahoma, and California reversed the situation and cast new doubt on the functionality of the national oil market. The Standard Oil Bulletin noted nervously in April 1927 that the new discoveries were “enough to make anyone wonder if the oil industry has really but scratched the surface.”27 The frenetic development of new oil fields lowered prices for California crude by more than one-third and cut sharply into industry profits. Oil producers and refiners lost hundreds of millions of dollars. In the older fields, the “price of crude actually had fallen below the cost of production,” when capital investment was taken into account. “A condition approaching almost complete demoralization ensued,” according to F.B. Loomis of Standard Oil of California. Standard Oil saw its net profits on operations in 1927 drop by $9.35 million.28 Oil securities declined substantially, with the market value of thirty larger petroleum companies falling nearly $600 million in one year.29 Low oil prices and declining profits finally prompted Standard Oil and other California companies to call for government action to boost prices. Loomis, who had earlier warned against government action,

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now explicitly rejected the idea that freely moving market prices could bring the oil market into equilibrium. He now saw no way for the industry alone to “restore the balance between supply and demand.” He proposed legislation to empower oil operators to jointly develop oil pools without violating antitrust laws, and to allow the state government to enforce these joint production agreements. Because any act that constrained an individual oil operator’s ability to develop his property risked legal challenge, Loomis emphasized that state regulatory power would have to be invoked. The U.S. Supreme Court, he noted presciently, might uphold regulatory measures prohibiting waste of a valuable resource, but not laws that mandated production cuts solely to raise prices.30 The California legislature would adopt Loomis’s strategy two years later by regulating the waste of natural gas produced in conjunction with oil production. Loomis’s 1927 recommendations demonstrated how momentum had shifted decisively toward governmental action to readjust market relations in the oil sector before the 1929 stock market crash. “We are about to enter a period which will witness more legislative proposals to control the production of oil and gas than have ever before appeared at any one time,” wrote the Standard Oil employee Earl Wagy to company president Kenneth R. Kingsbury in September 1927. The Federal Oil Conservation Board, Wagy said, thought “the industry has been given its chance, that it has failed, and that national conservation and safety requires not only state but federal legislation.”31 Standard Oil and others viewed these proposals warily but supported some government action. Standard Oil now fully endorsed the idea that the market, and prices, would have to be managed through cooperative action.32 Presidents Calvin Coolidge and Herbert Hoover called for greater industry cooperation and state legislative action to solve the problem of overproduction, as part of their broader philosophy of limited federal regulation and industry-government partnerships. A national “Committee of Nine” senior government officials and oil industry leaders blamed the industry’s problems in 1928 on property law as applied to oil. A flood of oil resulted from each new discovery “regardless of economic demand,” because there was “no property . . . in the oil until it is recovered.” Only joint action by oil operators could prevent the destructive “race between all the owners in the field to recover all each can.”33 Although property rights lay at the root of the problem, the Committee of Nine thought it “wholly impracticable” to change the relevant law. Instead it proposed that states encourage cooperative field development,

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either through voluntary agreement or through coercive measures. The committee also advocated state legislation to prohibit natural gas waste and to permit oil producer agreements, otherwise illegal under antitrust law, that would curtail production in times of excess supply.34 The Committee of Nine also urged the Hoover administration to restrict the flow of oil from federal oil lands by taking advantage of federal powers under the 1920 Mineral Leasing Act. These proposed management techniques depended wholly on the victorious struggle in the second decade of the twentieth century to retain federal ownership of public oil lands. In an April 1929 letter to the governors of Utah, Wyoming, and Colorado, Secretary of the Interior Ray Lyman Wilbur told the western governors that the new federal leasing strategy aimed to “reserve as much oil as possible.” The Interior Department would release many permit holders and lessees from contractual obligations to develop leases, drill, or produce oil. The Interior Department also would curtail sharply new federal leases. The government would lease only the minimum portion of land required under law. “Lease of the remainder is discretionary,” Wilbur declared. The Interior Department would not issue additional leases “until such action is required in the public interest.”35 California similarly modified its leasing policies for the state-controlled oil lands at this time. Surveyor General William Kingsbury first tried to use his discretionary power to restrain coastal oil development. But the California Supreme Court ruled in Boone v. Kingsbury that California law required Kingsbury to issue coastal permits. The California legislature then approved a coastal drilling ban one month later, in January 1929. Yet curtailing federal and state leasing could not contain the oil rushing onto the market in late 1920s California. Private landowners and government permit holders on the coast and in the San Joaquin Valley controlled too much of the state’s petroleum resources. Property laws governing oil pools and fragmented landholdings spurred rival operators to produce oil as quickly as possible. As the San Francisco Chronicle complained, “Instead of leaving their oil in its natural storage place in the ground, producers are forced to hurry and get it out before the other fellow drains the field.”36 Antitrust laws further prevented the private solution to overproduction that the Standard Oil Trust had employed with considerable success before the U.S. Supreme Court broke up the company. Industry leaders and their allies argued unsuccessfully in the late 1920s that the antitrust laws should be changed to allow companies to agree collectively

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to cut production. Calling the California situation an “extreme case,” Oscar Sutro, chief lawyer for Standard Oil of California, said, “I don’t believe the law requires a man to produce something which he cannot sell or dispose of.” Sutro described excess oil in California as “something which cannot be the subject of competition.”37 The San Francisco Chronicle described oil producers as “up against a stone wall” with antitrust laws and urged Congress and the state to differentiate between “combinations in the public interest and combinations intended to gouge the people.”38 The Chronicle editors and antitrust critics like Sutro thus rejected the idea that market prices alone should determine the oil trade. Yet the oil industry also resisted the public supervision that antitrust laws made a precondition for industrial cooperation and consolidation.39 Disciplining California’s oil market required industry leaders and the state and federal government to regulate production more aggressively. Industry and government leaders embraced three legal and political strategies to conserve oil in the winter of 1929. First, California pursued oil production cuts under the guise of a state natural gas conservation law. Second, the Department of the Interior sponsored the cooperative development of the Kettleman Hills field in the San Joaquin Valley as a national model for the management of an oil field as a single unit. And third, the oil industry continued its struggle to reduce oil production through voluntary production curtailment agreements. Although sharply different approaches, these three strategies all sought to overcome the problem of collective action in the California oil fields by coercing or persuading oil producers to limit their production of oil, within the bounds of state and federal antitrust laws. STATE POLICE POWER : CALIFORNIA’ S CONSERVATION MEASURE

1929

GAS

How could California control its output without regulating oil production directly? The state feared violating antitrust laws by overstepping its powers. Instead, the legislature found a way to regulate the industry indirectly by targeting the natural gas waste triggered by oil production. Petroleum and natural gas are commonly found together in underground deposits. The natural gas pressure often helps lift the heavier oil up through wells, after which it escapes, burns off, or is captured. On average, in the spring of 1929, the California oil fields simply blew into the air more than 620 million cubic feet of natural gas every day.40

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Annual demand for electricity in Los Angeles could have been met by less than four days’ worth of the escaping natural gas.41 Stopping this waste of natural gas gave California the excuse it needed to limit oil production in its flush fields. Oil industry leaders proposed a gas conservation bill, which coasted through the industryfriendly Senate Oil Industries Committee, and which Governor Clement C. Young signed in May 1929.42 The amended Oil and Gas Conservation Act prohibited the “unreasonable waste” of natural gas, defined broadly as the “blowing, release or escape of natural gas into the air.” Procedurally, the natural gas conservation act empowered the Department of Natural Resources to determine whether unreasonable “waste” was occurring or threatened to occur. The oil and gas supervisor then could order the responsible parties to stop wasting the gas. If they refused, the department could sue to enforce the order.43 The legal basis for regulating oil production in a similar fashion was doubtful: so long as consumers purchased and used the oil, or producers safely stored it, no “waste” of oil occurred. Low oil prices did not indicate resource waste that warranted state regulation, whereas natural gas blown into the air possibly did. Although the conservation measure nominally targeted natural gas waste, it truly aimed at oil production. Industry leaders and investors hoped that it would solve the collective action problem facing the oil industry. The Standard Oil Bulletin called natural gas conservation a cure for “demoralization and chaos” in the oil industry. Outlawing excess gas production would curtail the overproduction of oil, increase the overall recovery of petroleum, and eliminate the expense of storing oil. By bringing “supply and demand more nearly into balance,” the law would “prolong California’s supply of both oil and gas.” The importance of successful enforcement of the measure could “hardly be overstated,” said the Bulletin.44 The American Petroleum Institute’s president, E.B. Reeser, proclaimed optimistically that overproduction would be “solved within a year, with California holding the key to the solution.”45 The seven major oil companies, which would benefit most from laws controlling flush production by small operators, formed the Gas Conservation Association to support the gas legislation and its enforcement.46 But the indirect control of oil production through natural gas conservation proved a convoluted policy. Many smaller oil operators tried to stop enforcement of the gas conservation law, seeking to prevent the state’s efforts to change oil and gas production methods, for the

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particular benefit of the major producers. Small producers, whose limited landholdings left them vulnerable to neighboring competitors and in need of cash, often felt compelled to pump rapidly. By cutting back their production, the law would help sustain crude oil prices.47 But because some operators had contracts to dispose of their natural gas, two neighboring oil wells might produce the same natural gas, but only one would “waste” it. Regulating natural gas made sense if its waste were the target, but not if excess oil was the real problem. Producers who could sell their gas did not have to reduce their oil production.48 The state began to enforce the law in the fall of 1929 by going to court to prevent dozens of oil operators from wasting natural gas at fields in Santa Fe Springs, Signal Hill, Ventura, and Kettleman Hills.49 All but three operators complied in Santa Fe Springs, cutting oil production almost by half. But angry landowners and oil operators—the three noncompliant producers at Santa Fe Springs and resisters in other fields—pursued a series of legal defenses and countersuits to block enforcement.50 They argued that “arbitrary” gas production orders violated due process and equal rights guarantees under the state and federal constitutions and constituted uncompensated regulatory takings of private property for public use.51 The defendants also criticized the law’s vague standard of “unreasonable waste.” No market existed for the natural gas, the Santa Fe Springs operators insisted, and if they were to use gas as a lifting force for oil, its most important use, then some must escape.52 The California oil industry anxiously awaited court rulings on the constitutionality of the natural gas conservation statute.53 The California Supreme Court ruled the gas law constitutional in People v. Associated Oil Company et al. in December 1930, affirming California’s power to regulate the use of natural resources and prohibit unreasonable waste. The crucial distinction between the physical waste of natural resources blowing into the air and “economic waste,” in which oil production exceeded market demand and drove down prices, thus protected the gas law from the constitutional challenge. The court dismissed three Santa Fe Springs companies’ contention that the law’s enforcement cut production excessively, harmed property, or unduly failed to recompense for alleged loss.54 Despite the history of California’s gas conservation act, which had been drafted by oil industry lawyers and pushed through by their allies, the court denied that the real purpose of the statute was “to regulate and stabilize the market price” of oil.55 The California Supreme Court instead commented on the tremendous economic importance of the oil and gas industry and noted with confidence

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a long line of cases establishing that the public’s interest in natural resources justified legal intervention to prevent their waste. Even though the courts upheld the gas law’s constitutionality, the oil industry realized by 1931 that the law could not tame the oil market. In the extraordinary Kettleman Hills field, A.L. Weil of the California Oil and Gas Association pointed out, operators could “absolutely swamp the Los Angeles Basin area and other fields” with oil, without wasting any gas.56 Standard Oil’s president, Kenneth R. Kingsbury, whose company dominated Kettleman Hills, confirmed this in an October 1931 letter to Ray Lyman Wilbur, secretary of the interior, telling Wilbur that he was “unduly alarmed” about gas waste at Kettleman Hills. A year ago, 300 million cubic feet of natural gas had blown into the air. Now, due to technology for controlling and capturing natural gas, only 17 million cubic feet escaped from the field as a whole. Standard Oil was installing compressor stations so that the company’s remaining 8 million cubic feet could enter transmission lines. Gas waste had been “definitely overcome as far as this field is concerned,” Kingsbury wrote.57 Still hoping that California could use gas waste as a pretext to control oil production, Secretary Wilbur asked whether Standard Oil could share its consumer market for gas and refrain from developing its own petroleum properties further. But Standard Oil saw no need to share its economic advantage. The exchange underscored the long-term ineffectiveness of the natural gas conservation act as a mechanism for controlling oil production. By capturing and marketing the gas that previously blew into the air, Standard could produce oil at will.58 FEDERALLY SPONSORED COOPERATION : THE KETTLEMAN HILLS CONSERVATION PLAN

What could the federal government do to advance oil conservation that would be consistent with President Hoover’s idea of limited federal regulation of business affairs? Federal power to regulate private economic activities remained circumscribed. Having transferred most California oil lands into private hands, federal officials could not specify production practices, shut down oil wells in the name of conservation, or regulate gas production. These police powers rested with the state government alone in the late 1920s, at least according to the Hoover administration. Secretary of the Interior Ray Lyman Wilbur, a former medical professor on leave from the presidency of Stanford University, tried to figure out how the federal government could help resolve the problem of split

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ownership of oil pools, which caused neighboring operators to maximize their share of production. Wilbur thought that the three geologic domes of Kettleman Hills in the San Joaquin Valley, located to the north of the contested Elk Hills and Buena Vista Hills naval oil reserves, offered him a unique opportunity to exercise conservation leadership in 1929. The petroleum beneath the domes lay more than seven thousand feet belowground, and oil operators had not developed the drilling technology to strike oil there until the late 1920s. This fortuitous delay in development enabled Wilbur to intervene before competitive development spiraled out of control. The federal government also still owned between onequarter and one-third of the Kettleman Hills oil lands, strengthening Wilbur’s hand considerably. Standard Oil, which had purchased the Southern Pacific Railroad Company’s land grant holdings, owned approximately half the Kettleman Hills field, providing a key partner. Major oil companies also controlled most of the federal and private leases in the area. They could satisfy their need for petroleum elsewhere in California and leave their Kettleman Hills leases untapped. Kettleman Hills thus presented Wilbur with a unique opportunity to slow oil development by federal lessees and neighboring operators and increase production efficiency. Only the North Dome of Kettleman Hills had been drilled in 1929, and only General Petroleum and the Milham Exploration Company operated wells at that time. Drilling new wells would take at least nine months, giving Wilbur time to negotiate with federal permittees and others to act to conserve oil in the three domes.59 Wilbur sent George Otis Smith, longtime director of the United States Geological Survey, to meet with federal lessees and help devise a conservation plan. Describing Kettleman Hills production as a menace to the nation’s oil markets, Smith warned that the interior secretary would cancel or regulate federal leases to enforce conservation if oil operators could not reach a voluntary agreement.60 Wilbur and Smith’s strategy at Kettleman Hills depended heavily on federal land ownership, for without title the federal government lacked clear authority to intervene. After months of hard negotiation, Smith successfully persuaded oil companies operating at the Middle and South Domes of Kettleman Hills to delay production for at least eighteen months.61 Speaking during a visit to the San Joaquin Valley, Wilbur placed the summer 1929 agreements in the context of a larger oil conservation agenda that would make producers “see the wastefulness of drilling when oil is not needed.” Wilbur and other Interior Department officials deserved ample credit for achieving the Kettleman Hills agreements.62

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Halting drilling at the South and Middle Domes, where it had not yet begun, was far easier than Wilbur’s next goal: persuading the North Dome operators to manage that field as a unit. Several additional companies, including Bolsa Chica Oil, George F. Getty Oil, Pacific Western Oil, and the Petroleum Securities Company, had begun to build roads and commence other preparatory work for drilling in the spring of 1929. Each well potentially would provoke offset drilling by adjoining landowners.63 By contrast, at the Middle Dome, only the Shell Oil Company had drilled a well, and the company agreed to delay development on the condition of unanimous agreement in the field.64 Further complicating the North Dome situation, Milham Exploration Company’s initial discovery well, Elliott No. 1, continued to blow wildly out of control nine months after being tapped in October 1928. To deplete the tremendous gas pressure driving the well, the government and the field’s operators planned to drill four offset wells nearby. But neighboring operators feared that their own holdings would lose oil or vital gas pressure to the offset wells.65 George Otis Smith finally persuaded operators and landowners at the North Dome to shut down the field in September 1929. Secretary Wilbur hailed the “striking result,” calling the agreement a model for how governments and companies could manage oil fields nationwide through conferences and mutual consent. Looking beyond the halt to development, Secretary Wilbur proposed operating the North Dome field jointly as one producing unit. By avoiding destructive competition, field operators would conserve natural gas and produce oil more efficiently.66 “The problem is in the split ownership,” Wilbur said. “If the Government, which owns about one-third of the field, owned all of it or one large company owned it all, the matter would be simple.”67 Kettleman Hills operators responded coolly to Wilbur’s unit plan, until a crisis at the North Dome radically altered their position. Petroleum Securities, operating a lease on private lands not party to the agreement to stop production, completed a well that stood capped and ready to produce. The landowners reportedly insisted that the company open the well. A general drilling race threatened to ensue, with six offset wells immediately anticipated. Wilbur and the companies rushed the unit plan forward to save the existing conservation plan.68 To bolster their case, the state and federal government also used the California natural gas conservation law as a legal lever to advance a “voluntary” conservation agreement on operations at the North Dome.69 The California director of natural resources, Fred Stevenot, sought a court injunction to restrain Petroleum Securities, arguing that

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its well would prompt operators to open other wells, potentially unleashing up to 500 million cubic feet of natural gas daily into the air.70 Secretary Wilbur, traveling again to California in January 1930, warned that, if his voluntary plan failed, the operators might “find California’s gas conservation law jammed down their throats.”71 Under Wilbur’s plan for joint management, an operators committee would determine production levels and divide pooled output, thereby increasing efficiency and conserving oil while eliminating competition. To facilitate federal participation, Wilbur and President Hoover obtained congressional authorization to work with private firms to reduce wasteful competition over the next eighteen months. The federal law revealed growing congressional enthusiasm for industrial cooperation and planning. The need for special authorization also sparked fresh criticism of the antitrust laws. “What a law—this Sherman act—which has to be chained up by a special act of Congress to permit some useful thing to be done!” the San Francisco Chronicle complained.72 The Kettleman Hills situation replicated the competitive property regime for oil across California and the nation. Wilbur was determined to show that the problem could be solved through industrial cooperation, by demonstrating the cost savings, gas conservation, and engineering efficiency of joint operation. Operators typically rushed to develop their holdings regardless of market demand or consequent waste, Wilbur explained. “The man who gets his well down first, and who sucks the hardest, is the man who wins.” By contrast, under a unit plan, participants produced oil only when there was a market for it. Wilbur believed widespread unit development could double the value of the nation’s oil fields by increasing recovery of oil from the fields.73 Wilbur and Smith pressed their North Dome unit plan during the fall of 1930, warning of the perils of failure. “If the lid was taken off the Kettleman wells[,] all of the other wells of California would be forced to shut down,” Wilbur said.74 “We have been sitting on the lid out there for some months, working on a cooperative plan, but the lid is getting tilted more all the time.” A “disaster” would occur “if we don’t fasten it down.”75 Under the shadow of California’s natural gas litigation against twenty-eight Kettleman Hills companies, the North Dome operators finally worked out a unit agreement in mid-October 1930.76 The North Dome companies would operate the area in two units, each controlling about 50 percent of the productive acreage. One unit consisted solely of Standard Oil, on the old Southern Pacific sections. The other unit would combine all the other operators into the Kettleman North Dome Asso-

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ciation (KNDA)—a corporation to develop and produce oil and gas under agreement with the secretary of the interior, landowners, and operators. The KNDA agreement planned one well for every twenty acres in the field, in contrast to common town-lot drilling of one well on less than two acres.77 The major companies that dominated the KNDA particularly sought to eliminate natural gas waste, since the deep Kettleman Hills oil wells depended heavily on gas pressure to lift petroleum more than seventy-five hundred feet.78 The Department of the Interior partially paid for the unit agreement, which Wilbur considered “one of the major steps toward conservation taken by this department.”79 In exchange for the agreement, the department lowered government royalties, arguing that greater efficiency would increase the overall returns to the treasury. The difficult negotiations did not end when operators signed the unit agreement, however. The KNDA, Standard Oil, and nonparticipating oil operators in Kettleman Hills “argued and fought” over their share of production and continued to renegotiate the terms.80 Wilbur hoped his Kettleman Hills work would provide a model for oil operators to replicate in California and around the country. But his difficulty in obtaining a unit production agreement for the North Dome, and then subsequently for the Middle Dome, only underscored why other oil fields did not embrace unit agreements as a way to resolve the collective-action problem pervading the entire industry. If it took the Interior Department, Standard Oil, and the other major companies two years to conclude the North Dome arrangements, how would operators and landowners in the crowded oil fields at Santa Fe Springs, Signal Hill, or Huntington Beach reach similar agreements? In those fields, small landowners eager for quick oil royalties would not allow their lessees to delay drilling or even cooperate with neighboring producers to develop a common pool more efficiently. The Mineral Leasing Act of 1920 accounted for the difference between the Kettleman Hills outcome and the government’s lack of success on other former public lands in California. At Kettleman, the federal government retained significant ownership rights and thus could pressure its lessees into a conservation plan. Elsewhere, the government had only a bully pulpit. STATE - SANCTIONED CONTROLS : CURTAILMENT

“ VOLUNTARY ”

STATEWIDE

California’s natural gas conservation act and the federally sponsored unit agreements at Kettleman Hills applied only to select parts of the

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industry. Where companies wasted relatively little gas or where a unit plan lay far beyond reach, what could be done to contain oil production? Many in the California oil industry sought more direct statewide control of production. An oil industry committee began orchestrating statewide oil curtailment in early 1929, with the backing of Governor Clement C. Young. Under the voluntary curtailment system, the committee hired “oil umpires” to estimate California demand and specify allowable production for the different oil fields and producers.81 The California industry entered into a partnership with the state government. The government authorized the industry curtailment program, but, as the head of Shell Oil’s California operations explained, the oil umpires worked for the industry as “a branch of our own business and wholly financed by us.”82 Although the major oil companies vigorously supported voluntary curtailment, many smaller oil operators again refused to comply. Many believed that the major companies sought simply to create market opportunities for their foreign petroleum reserves. Vern Dumas, president of the Independent Petroleum Association of California, saw “neither equity nor justice” in cutting domestic production while major companies shipped in “unrestricted foreign oil.”83 At the same time, many smaller oil operators needed to keep their wells flowing, even at low oil prices, to meet short-term financial obligations and maximize their share of a common oil pool. Because of resistance to curtailment, the industry called off the voluntary program following passage of the natural gas conservation act in the spring of 1929. The major companies hoped that the act would force small well owners to cut back on production instead.84 However, the gas law proved inadequate. Constitutional challenges delayed its full implementation, sending it to both the California and the United States Supreme Courts, where it was upheld. Furthermore, gas conservation controlled oil production only indirectly. As oil operators improved their ability to capture and market natural gas, it quickly became evident that gas conservation alone would not restrain state oil production. The failure of the gas law to cut oil production sufficiently prompted industry leaders to revive statewide voluntary curtailment shortly after the gas law’s troubled implementation. California’s oil curtailment committee ordered a sixty-day statewide cut of 15 percent in March 1930 to force oil production to match estimated demand.85 The curtailment order limited production by nine leading California fields, with a poten-

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tial daily output of 644,966 barrels of oil, to 379,031 barrels per day. In addition, the curtailment order cut back production by thirty older, settled fields, with an estimated potential production of 365,420 barrels, to 216,464 barrels per day.86 By March 15, California oil operators had cut daily production from 750,000 barrels to 644,464 barrels. But compliance with the curtailment policy varied widely. Within a week, Santa Fe Springs operators had brought production down to 8,000 barrels over their stipulated daily allowable production, and Ventura operators to 2,000. In the Richfield, Huntington Beach, and Signal Hill fields, however, operators largely ignored the curtailment program. Rather than cut back production, oil operators brought in ten new wells at Signal Hill during the first two weeks of March alone.87 Independent oil operators in Southern California resisted the constraints of the curtailment program as it dragged on through the spring of 1930. In fields such as Signal Hill, where twenty-five smaller producers refused to comply, curtailment faced “absolute failure,” reported the San Francisco Chronicle in May 1930. The Signal Hill disappointment underscored how much “voluntary” curtailment, like the more traditional state regulation, also depended on coercion to function effectively. The major oil companies pressured violators. “To whip mutinous operators into line,” reported the Chronicle, the major pipeline companies would refuse to purchase their oil.88 To penalize the Signal Hill field producers for recurrent violations, the statewide curtailment committee also cut back the field’s allotment.89 Likewise, to discipline Playa Del Rey producers for doubling their allotted output, the major companies refused to purchase Playa Del Rey oil until the field complied.90 And when Santa Fe Springs producers resisted the curtailment order, major oil companies cut prices sharply to subdue recalcitrant operators. Herbert MacMillan, president of the California Oil and Gas Association, glossed over this coercion when he praised the “cooperative” spirit whereby California operators cut production. Difficulties at Santa Fe Springs would be “ironed out within a few days,” he said.91 Oil curtailment countered the drive toward competitive production that resulted from the property politics and law described in earlier chapters. Slightly lower production and increased shipments to Atlantic Coast markets had reduced stored California crude oil by nearly 8.5 million barrels by the end of August 1930. At the same time, however, oil operators continued to drill many new oil wells, worsening overproduction. California oil operators completed fifty-nine new wells in August 1930 alone, increasing California’s potential oil production by

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an estimated 53,064 barrels per day. The coastal oil boom in Santa Barbara County had just ignited, following the California Supreme Court’s Boone ruling upholding state permits. Pacific Western brought in 12,000 and 15,000 barrels per day from wells on state leases at Ellwood. After establishing a high potential output for curtailment purposes, the company “pinched back” the wells’ output, but they continued to produce.92 To make room for new wells at the Signal Hill, Venice, Ellwood, and Kettleman Hills fields, operators in other California fields, particularly older ones such as the Midway Valley–Sunset, Elk Hills, and McKittrick fields, further cut their production.93 Lower oil production intentionally raised crude oil prices, which squeezed refiners. Independent oil refiners in Los Angeles urged Standard Oil, California’s leading company, to raise retail prices for gasoline in September 1930. So long as higher crude oil prices remained in effect, the Los Angeles refiners could not run profitably at the low retail gasoline prices set by Standard Oil, which set the standard for contracts. Independent refiners who also produced oil threatened to overturn the entire curtailment program by opening their wells to full capacity. Standard Oil quickly created a greater opportunity for refining profits. The company increased its retail price of gasoline by one cent per gallon and lowered its payment for crude oil by eight to twelve cents per barrel. The other major companies immediately followed Standard Oil’s lead, raising retail gasoline prices and cutting payments for crude oil.94 Standard Oil, which had ridiculed the Federal Oil Conservation Board’s early initiatives, now quoted former President Coolidge to justify its market manipulation. Conservation promised “stabilized value and price” over the long term rather than low prices during periods of excessive production and high prices when scarcity arrived.95 Standard Oil and the California oil industry generally had repudiated free-floating prices, choosing instead to try to influence the price structure for oil and gasoline. Calling for yet another production cut, now to five hundred thousand barrels per day for all producers, the California Oil and Gas Curtailment Committee’s chairman, Paul Boggs, described curtailment as the only way to “maintain a semblance of prosperity in the oil industry.” Boggs predicted that curtailment would remain in effect in California for several years.96 The curtailment program still fell short of its goals, however, with fields such as those at Venice and Santa Fe Springs producing significantly more than their share. Divergent interests within the oil industry undermined the voluntary curtailment program, as they had the natural gas act and the Kettleman

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Hills unit plan. Larger oil companies benefited most from oil production limitations, since they could hold oil off the market and wait for higher prices. Smaller oil operators and refiners often had to sell their product without regard to price; and many believed, sometimes correctly, that limiting production would bring financial ruin. Restrictions on oil well output increased a producer’s average cost per barrel and the time required to amortize the investment. Simply to meet overhead costs, an independent producer might feel compelled to violate curtailment orders or natural gas restrictions and increase output. The curtailment program further undercut independent producers by constantly ratcheting back production quotas to allow for new wells. Curtailment programs also limited the oil available to independent refiners, threatening their survival. Many companies thus had compelling financial reasons for continuing to produce in the face of low market prices and in violation of curtailment orders.97 The fractured nature of property ownership further disrupted efforts to manage oil production. Divided land ownership spurred competitive production among neighboring producers. Court-appointed bankruptcy receivers were legally obligated to maximize production to serve the interests of creditors.98 Divisions also existed within an individual lease. Although some operating companies were able to gain approval for voluntary curtailment, in other instances royalty-owners and landowners sued operating companies for breach of contract when they tried to curtail their output.99 Even those oil operators who supported curtailment disagreed about how to implement it. Many major companies complained that they bore too much of the burden, and they sought to increase their share of production by changing the rules. In 1931, for example, J.A. Brown of General Petroleum urged the state to permit oil umpires to base allowable production on a company’s total oil reserves, regardless of well completion or proven production potential. He complained that the prevailing system, which depended largely on the estimated production potential of completed wells only, forced companies to drill new wells to “increase their potentials.”100 Brown’s proposal reflected the difficult position of companies like General Petroleum and Pacific Western, which held considerable undeveloped oil land and sought to maintain their share of total production without having to drill new wells. By contrast, the oil developer Ralph Lloyd, whose Ventura landholdings did not include extensive untapped oil lands, preferred the existing system. Lloyd confirmed Brown’s complaints, however, by urging his

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lessee, Associated Oil, to drill new wells in order to maintain its “relative position” in the Ventura field.101 Rather than resolve the underlying competitive pressures causing overproduction in California, the state’s voluntary conservation program introduced new episodes of gamesmanship, encouraging landowners and operators to drill new wells to protect their share of allowable production. CONCLUSION

California experimented between 1929 and 1931 with three distinctive strategies to control oil production: a state natural gas conservation law, federally sponsored unit agreements, and voluntary statewide curtailment. In different ways, each strategy sought to overcome the problem of competitive production that had been created by the American system of property rights in oil and the history of breaking up and generously distributing public oil lands in California. The natural gas conservation act used the cover of natural gas “waste” to skirt the antitrust laws that seemed to prevent California from restricting oil production simply to raise prices. The gas law successfully contained the most egregious cases of excess gas production, as at Santa Fe Springs. It also helped stimulate a market for natural gas in San Francisco and other urban areas. But because the gas act did not target oil production directly, it could not cope with the severe overproduction of oil in 1930 and 1931 and with technological advances, such as compressor stations, that enabled operators to break the connection between wasting gas and producing oil. Enforcement also quickly became tied up in litigation, with the constitutionality of the gas law uncertain until the U.S. Supreme Court upheld the California Supreme Court’s ruling in 1931. Federally sponsored unit agreements attempted to solve the problem of waste and overproduction by rewriting U.S. public land policy. After the federal government had thoroughly fragmented oil lands and petroleum rights in the process of distributing the public domain, Secretary of the Interior Ray Lyman Wilbur and Geological Survey director George Otis Smith struggled to put the pieces back together. Wilbur and Smith negotiated with, cajoled, and threatened oil operators for two years before they successfully created a unit to develop Kettleman Hills oil cooperatively. But only the special combination of dominance by the federal government and Standard Oil, coupled with the later timing of the oil field’s development, made this strategy feasible.

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The statewide curtailment program aimed to solve the competition problem through voluntary cooperation with mandated production cuts. The program somewhat restrained state oil production, but curtailment “umpires” lacked the power to bring recalcitrant operators into line. The split between major companies like Standard Oil and minor companies—which had thwarted effective management of coastal oil development—also undermined efforts to curtail oil production. Industry efforts to manipulate the market and control errant producers underscored similarities between monopoly, self-government by trade groups, and regulation by the government. In each of these strategies, the critical importance of public authorization and a comprehensive, enforceable grip on production illustrated how far the oil market was from being a “free market.” Many in the oil industry, particularly the major companies, supported these three initiatives in hopes of raising oil prices. Every promising advance in curtailment brought renewed optimism about the state of the industry, a paradoxical situation in which drastic cuts in output signified progress and boosted company stock prices.102 Industry leaders insisted that curtailment “did not mean that prices were going to be rigged up, and the consumers made to bear the burden.”103 But higher oil prices through lower production were clearly the operators’ primary goal, even if they dovetailed with the desire of some government officials to conserve a nonrenewable resource. Each strategy achieved partial success but, ultimately, failed to contain the greater excesses. Overproduction continued to drive oil prices down in early 1931. Politicians and California oil operators desperately sought sterner state and federal action to compel compliance with statewide curtailment of oil production.

CHAPTER

6

Federalism and the Unruly California Oil Market

Oil prices remained ruinously low in early 1931, and the industry, according to the business leader Mark Requa, was “out of hand.”1 Government and business leaders in California intensified their efforts to coordinate and control the oil market. California oil operators and state politicians grasping for ways to eliminate “destructive competition” experimented with state regulation, with a private cooperative sales agency for smaller California firms, and with federal regulation. The twists and turns in petroleum regulation in 1930s California demonstrated the historical role played by both federalism and direct democracy in twentieth-century United States politics.2 Many politicians and lawyers in the 1920s and 1930s believed that regulatory power over petroleum production and other industries still rested with state governments, and the state and federal governments jostled with one another over responsibility and jurisdiction. National governance made logical sense for an increasingly integrated domestic oil market, but state governments and the oil industry also feared state control would be supplanted by direct federal regulation. They were alternately drawn to and repelled by national solutions. In this state-federal dynamic, California’s experience differed from that of states like Texas, where more effective regulatory procedures were instituted in 1930.3 In California, ballot referendum votes, which had derailed the state’s efforts to resolve its tidelands oil controversy, twice overturned oil 134

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control bills passed by the California legislature. The state’s inability to regulate oil production sped the depletion of its oil fields. By World War II, California, which had led the nation in oil production in the 1920s, verged on becoming a net oil importer. As in Texas, Oklahoma, and other states, however, California’s ongoing struggle to cut oil output, by private and public means, did somewhat dampen petroleum production and helped sustain oil and gasoline prices. California oil producers and state government leaders explored national limits on imports as a way to solve the oil market problem in early 1931 but were turned away by the Hoover administration. At a conference of major oil-producing states in Washington, D.C., to which California governor James Rolph sent twenty-three representatives, independent oil companies pressed for federal action to protect domestic oil producers.4 Kansas’s Democratic governor Harry H. Woodring accused Standard Oil of Indiana of “laying waste” to his state’s fields by importing inexpensive oil.5 The meeting participants demanded a partial embargo on crude oil imports from abroad and an outright ban on refined imports to relieve unemployment and economic distress in the oil-producing states.6 These protectionist measures did not resonate with the Hoover administration’s oil policy or with the major oil importers. Secretary of the Interior Ray Lyman Wilbur called instead for a congressionally approved interstate oil compact. An interstate compact would provide for uniform state conservation laws and consistent enforcement, bringing “fair play” and “sensible planning.” Wilbur also emphasized the importance of preserving the gas content of oil pools, permitting unit development as at Kettleman Hills, and prolonging the life of fields.7 Wilbur hoped new markets would solve the problem of an oil glut.8 Wilbur made clear that the Hoover administration also would not support the stronger federal oil conservation initiatives demanded by the major oil companies, declaring in April 1931 that “the States, which possess the necessary police power, must be the active factors.”9 Wilbur insisted that the United States constitution prevented the federal government from intervening in the oil market, since oil production did not constitute interstate commerce. “We have to face the practical problem that until the law is changed those charged with duty must see it through,” Wilbur wrote Standard Oil of California’s Francis B. Loomis. Wilbur urged Standard Oil to “control this California situation within the State and through the state authority on the basis of gas conservation.”10

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PASSAGE OF THE SHARKEY BILL

Rebuffed at the federal level, the major California oil companies turned to their state legislature in early 1931 to put more of the muscle of government behind oil conservation. The oil companies particularly sought to bolster the faltering statewide voluntary curtailment program, and some looked to Texas and Oklahoma for model legislation.11 The Texas Oil Company lawyer C.C. Stanley proposed empowering the California Railroad Commission as an “impartial tribunal” to use “the power of the state” to regulate oil production firmly and directly.12 But most California oil operators feared having an independent state regulatory agency. Stanley’s failed proposal illustrated the ambivalence California oil producers consistently felt toward government regulation. They wanted enforcement power to facilitate collective action, but resisted accepting the public responsibilities and obligations that an independent state agency might impose. The major companies in California instead advocated conservation legislation that would enable greater control by industry. The Contra Costa County Republican William R. Sharkey introduced a bill drafted by A. L Weil of General Petroleum to establish an industry-dominated oil commission to regulate California oil production. Sharkey, whose senate district included Standard Oil’s Richmond refinery and who chaired the oil industries committee, also introduced a bill drafted by Weil that would bar future town-lot drilling and reduce competitive production by setting well-spacing requirements for new drilling. As the major California companies lobbied for these initiatives in the spring of 1931, they resisted interstate collaboration. They viewed the growing interstate effort, which culminated in the Interstate Oil Compact, as a threat to their more promising state-based legislative agenda, and California never did join the compact.13 The California industry’s effort to pass an oil control bill came amid widespread concern about startlingly low gasoline prices and accusations that major firms were underpricing their gasoline to drive independent companies out of business. The debate over instituting gasoline price controls exposed the contradictory rhetoric surrounding regulation. The major companies fought direct controls on gasoline prices, celebrating the “free play of the economic law of supply and demand” even as they sought to regulate the crude oil supply.14 How could gasoline prices and production remain subject to the full “operation of economic

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laws” when a state commission restricted production in order to stabilize prices?15 The major companies evaded this contradiction and jointly pushed forward the Sharkey bill to create an oil commission that combined industrial self-government with the enforcement powers of the state.16 To forestall suits charging price-fixing, the Sharkey bill defined “waste” to include production of crude oil when current and stored production exceeded the current requirements for use inside and outside California—in other words, the legislature said that producing oil when there was no reasonable market for it constituted waste. Under the bill, companies in California’s five oil districts would elect industry representatives to determine whether wasteful overproduction of oil existed, set a desirable level of production for the state, and fix allowable production in each field. The oil commission could order a person or corporation to stop wasting oil, and order a property closed until an operator obeyed the production order. The Sharkey bill also required that producers allow the commission to inspect records of producing properties. It provided for public hearings and for recall votes of elected commissioners.17 Although the major oil companies claimed that the Sharkey oil commission would bring “financial security,” some independent operators, represented by the Independent Petroleum Association of California, complained about the “great hardship” that the Sharkey bill would impose. A.T. Jergins, an Independent Petroleum Association leader, called instead for a protective tariff or embargo and warned against dominance of the oil commission by the major companies.18 Other independent firms, particularly midsize operators like Pacific Western and large oil-land owners such as Ralph Lloyd, embraced the commission proposal. Anxious about the loss of revenue from low prices, they believed they would fare better under a system that brought lower production at more stable, higher prices.19 The legislative debate on the Sharkey bill highlighted the tricky relationship between oil production controls, gasoline prices, and industry profits. Higher prices for oil and gas would increase energy costs for consumers and other industries in the state. “Why does the oil and gasoline industry require public authority to interfere with the law of supply and demand any more than other industries suffering from price depression under competition by reason of over-supply?” asked James S. Bennett, the lawyer employed by California to enforce its Natural Gas Conservation Act. Bennett supported oil production controls, but he thought the new state oil commission needed to protect the public

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against prices being stabilized at a “too high” level. Bennett noted that, in nearly all other state industries, prices dropped when supply exceeded current market demand: “Anything that increases [the] cost of supplies used by these other industries in the face of lowered market prices for their products increases their difficulties.” Bennett thought low-cost, high-quality Kettleman Hills oil had created a condition of “permanent oversupply” that threatened to drive out of business “the independent producers of crude oil.” Only oil curtailment would avert the disaster of “unregulated competition.” At the same time, production controls had to be carefully designed to avoid “untoward economic effects elsewhere.”20 Governor James Rolph signed the Sharkey bill into law in June 1931, establishing a state oil commission and barring future town-lot drilling, as had occurred in Los Angeles Basin communities like Santa Fe Springs and Huntington Beach. Petroleum company stock prices rose sharply amid anticipation of higher gasoline prices and general optimism that the industry was being put on a “sound basis.”21 Standard Oil of California’s president, Kenneth R. Kingsbury, optimistically described to Walter Teagle, his counterpart in New Jersey, “a very general feeling throughout the industry here that overproduction of crude and gasoline must stop.” Kingsbury did not know how long this feeling would last, but he trusted the Sharkey bill to stabilize the industry. “Our new law[,] which has some real teeth in it[,] will be effective in August,” Kingsbury wrote Teagle, “and then I expect the recalcitrant operators can be made to toe the mark.”22 After Rolph signed the Sharkey bill, however, the “recalcitrant operators” turned to the referendum process to continue their fight. By the middle of July, the bill’s opponents, led by the Independent Petroleum Association of California, had collected over one hundred thousand names on referendum petitions, forcing a special vote in May 1932 to determine the fate of the oil measure.23 At the same time that the industry debated whether to force production cuts, Huntington Beach oil operators were forcing a ballot referendum vote on whether California could lease its Huntington Beach tidelands field. California’s system of direct democracy thus enabled smaller independent oil operators who could not achieve their goals in the legislature to appeal directly to voters in an expensive referendum battle. In both ballot referendums, the companies sought to promote oil production, either by repudiating the Sharkey bill or opening the Huntington Beach field to oil operators.

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Figure 14. The Ventura landowner Ralph Lloyd bridged the old and new West, investing his oil wealth in real estate and malls in Los Angeles and Portland, Oregon. (Courtesy of the Ralph Lloyd Papers, Huntington Library.)

PRODUCTION CONTROL THROUGH PRIVATE CONTRACT: THE OIL PRODUCERS SALES AGENCY

Even as the Sharkey bill gained momentum in the spring of 1931, some of the smaller oil operators simultaneously pursued a private effort to “bring order out of chaos” and increase prices for their oil.24 The independent oil operator Ralph Lloyd led the organizing effort. The son of a Ventura rancher, Lloyd had studied geology at Berkeley and correctly predicted that significant oil deposits lay beneath the ranchland in Ventura County. After drilling several successful wells in the early 1920s, Lloyd began to turn his oil wealth into real estate holdings, particularly in Portland, Oregon. Lloyd’s conversion of Southern California’s natural oil wealth into malls, golf courses, and office buildings mirrored a larger transformation occurring up and down the Pacific Coast in the early twentieth century. Lloyd believed fiercely in private initiative and enterprise and strenuously opposed the growth of government planning and regulation. At the same time, he condemned the chaotic state of the oil market in 1931 and urged voluntary reductions in oil output. To address the problem of low

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oil prices, Lloyd and his colleagues at Getty, Pacific Western, Superior, and other oil companies created a nonprofit Oil Producers Sales Agency (OPSA) to market their oil at higher prices.25 OPSA grew rapidly, selling 3.5 million barrels of its members’ oil by August 1931 and, according to one estimate, representing 40 percent of the California industry.26 Within the confines of state and federal antitrust law, OPSA attempted to control production through private coordination and cooperation.27 In return for strict compliance with voluntary curtailment orders, OPSA promised to bargain with the major companies to obtain better terms for its members’ oil. OPSA attributed low oil prices to market dominance by the major companies and overproduction. Citing agricultural and producer trade associations as historical examples, the OPSA organizers situated their project in an American tradition of populist rhetoric about fairness and cooperation.28 In a recruitment letter sent to all California oil producers in April 1931, OPSA’s leader, Ralph Lloyd, denounced “the buyers” for setting crude oil prices “without consulting producers.” Lloyd insisted on a “proper sales value” that producers could determine through study of demand and of production, transportation, refining, and marketing costs.29 Lloyd carefully specified that OPSA would not violate antitrust laws by seeking to control the state oil supply or fix crude oil prices. OPSA simply sought to obtain sufficient clout for producers “to render their collective bargaining beneficial.”30 It also sought fuller information on the oil market so that it could determine the “proper” price that would permit “producers to live, labor to receive a fair wage, and the consumer to receive the refined product at a price that is fair and reasonable.”31 OPSA aggressively embraced industrial cooperation to avoid greater public interference. At an organizational meeting in 1931, OPSA leaders advocated “cooperative action under the law but not by the force of law.”32 They viewed “curtailment under law” as “the path of litigation and delays,” and Lloyd characterized government action as a “woeful record of mistakes and inefficiency, overtaxation and misrule.”33 Yet public intervention continued to loom on the horizon. OPSA’s legal advisor, William Hazlett, a former Los Angeles superior court judge who had adjudicated some of the natural gas litigation, counseled Lloyd that the industry had to “control the situation, and very soon, if the threats of public control are not made realities” and the industry turned into a “political football.”34 As they launched the Oil Producers Sales Agency, Lloyd and his associates thus believed that the California oil industry could solve its prob-

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lems through “educational and moral pressure” to boost compliance with industry-determined curtailment orders.35 Their stance in early 1931 neither idealized a free market in oil nor demanded government action to mandate production schedules. Instead, OPSA called for a cooperative effort to limit production and to bargain collectively with the major purchasing companies on behalf of independent producers. Yet OPSA’s leading organizers quickly realized that ethical business behavior alone could not bring the market into line. By early 1932, OPSA’s core leadership strongly backed the Sharkey bill, with its state enforcement provisions, when it came up on a ballot referendum in May 1932. THE

1932

SHARKEY BILL REFERENDUM BATTLE

After the Sharkey bill’s opponents forced a referendum vote, the measure’s supporters worked closely with Governor Rolph to gain approval for the bill. On the advice of lobbyists for the major oil companies, Rolph set the referendum vote for the same date as the presidential primary in May 1932. The California Oil and Gas Association lobbyist C.R. Stevens explained privately to the Republican political leader Theodore Roche that he anticipated “no particular opposition” but thought the May date preferable to November because of the “extremely light” turnout predicted. This way, the oil industry could convey the “merits of this bill” to the electorate for far less money.36 Stevens further explained that the California Oil and Gas Association thought it unwise to submit the Sharkey bill by itself to the electorate. Stevens suggested that Roche ask Governor Rolph to submit fourteen constitutional amendments adopted by the last legislature for ratification at the same time.37 To build support for passage of the Sharkey bill, Rolph invited E.B. Reeser, president of the American Petroleum Institute, to California to document “the urgency and advisability of the Sharkey oil conservation act.”38 Reeser delivered a ringing endorsement in early February 1932, declaring curtailment the “only sound remedy” for the industry’s “deplorable conditions.” Because of reduced gas pressures and the depletion of existing oil reserves, Reeser predicted that California production would decline rapidly, and that present proven reserves would be exhausted in twenty years. California needed to “enact laws giving it the authority to enforce curtailment,” Reeser said, because “foolish selfishness” had defeated voluntary curtailment. Reeser called the

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Sharkey bill the “only tangible hope available,” particularly to protect companies operating in California’s older oil fields.39 Standard Oil, Governor Rolph, OPSA, and others launched a powerful propaganda campaign in support of the Sharkey bill. The Standard Oil lawyer Felix Smith coordinated the efforts of some advocates, like the railroad commissioner Fred Stevenot, Rolph’s former natural resources director.40 Governor Rolph joined with Governors Ross Sterling of Texas and William H. Murray of Oklahoma to broadcast radio appeals urging support for the oil control bill. Sterling and Murray described their states’ difficulties containing oil production and warned Californians of potential chaos and the possible need to invoke martial law.41 OPSA leaders like Ralph Lloyd, who had been lukewarm or opposed to the Sharkey bill in 1931, now backed the measure aggressively. Compliance with voluntary curtailment had fallen off in late 1931, and the OPSA general manager Rush Blodget described small producers as “bordering closely to a rebellion.” He saw the Sharkey bill as a way to save curtailment and to “forestall further government regulation.” Blodget’s continuing rhetorical opposition to government regulation was ironic, since the Sharkey bill promised to save curtailment by placing official state power behind production controls. Yet Blodget emphasized that industry-elected commissioners would control the state program, and he warned that a “bill of sterner stuff may be thrust upon our industry— perhaps on all industry.”42 Blodget mailed one thousand letters on behalf of OPSA asking oil operators to support the Sharkey bill.43 The California Oil and Gas Association, an industry group dominated by the major companies, publicized OPSA’s endorsement of the measure. In turn, OPSA circulated a telegram from E.B. Reeser, president of the American Petroleum Institute. “Unrestrained competition, especially in natural resources, belongs to the dark ages,” Reeser wrote.44 But the efforts by Governor Rolph, the large oil companies, and OPSA to assemble impressive endorsements failed to persuade independent oil operators suspicious of how the Sharkey commission would exercise its power. OPSA’s membership remained deeply split on the Sharkey bill, despite the board of directors’ statewide campaign for the measure.45 Smaller companies affiliated with the Independent Petroleum Association sent campaign representatives throughout the state to urge defeat of the Sharkey bill.46 Minor companies, including Mohawk Petroleum, Hancock Oil, Dabney-Johnson Oil, and Superior Oil, attacked the bill and recruited support from other organizations, including local labor unions.47

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Opponents criticized the Sharkey bill for establishing a regulatory system that would systematically disadvantage smaller, independent producers in the state for the benefit of the major oil companies. Landowners and royalty owners protested their exclusion from voting for commissioners. The Bakersfield lawyer F.E. Borton, whom Standard Oil tried to intimidate into silence, pointed out that the commission had no power to regulate imports yet had to take them into account; these unregulated imports would squeeze in-state producers.48 Other oil operators warned against “oil monopoly.” The bill “is in no sense a conservation measure,” declared Alfred Marsten of the IPA. “It is drafted and fostered by identically the same interests that were behind the gas conservation act.” The major oil companies aimed to use the commission to dominate independent producers, refiners, marketers, and royalty owners. “Watch every move made in support of this unprecedented legislation,” he warned.49 A. Wardman, an OPSA member, had supported the Sharkey bill when it passed the legislature but now opposed it because of his unpleasant experience with California’s natural gas conservation law. At Santa Fe Springs, Wardman said, the courts had “calmly proposed” to put the smaller producers “out of business” because they had no way to dispose of natural gas except to blow it into the air.50 If the Sharkey bill passed, he warned, “independent producers would soon be prorated out of business.”51 Wardman thought overproduction resulted primarily from the opening of new fields, and proposed permitting each well to open “in its chronological order,” as the oil was needed. “I do not believe the people of this State would approve of wrecking a large number of small companies, where they have drilled in good faith and have an investment to protect, and approve at the same time of the drilling of additional zones, or fields that are not necessary.”52 Wildcatting— drilling for new wells in unproven areas—could continue, but under Wardman’s scheme all existing discoveries would produce fully before new zones or discoveries could produce. The day before the referendum vote, the California Oil and Gas Association lobbyist C.R. Stevens called for a big turnout to support the Sharkey bill. The State Chamber of Commerce, International Brotherhood of Teamsters, California Fruit Growers’ Exchange, and civic leaders all issued statewide appeals on behalf of the measure. By stabilizing a critical state industry, the Sharkey bill would “do something toward ending the depression and bringing better times,” they declared.53 But the vigorous campaign came to no avail. California voters, swayed by the anti-Standard Oil rhetoric and aggressive opposition of the independent

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oil producers, rejected the Sharkey bill by a margin of almost four to one.54 The defeat of the Sharkey bill left a regulatory vacuum that oil industry leaders lamented as they criticized the narrow-mindedness of California voters. “We have no enforceable rule at this time,” OPSA told its members following the vote.55 Yet conditions in the oil industry, and American business generally, were “bordering on economic chaos” due to competitive overproduction.56 OPSA’s Ralph Lloyd urged production limits and denounced pure competition. If “unlimited competition” were so inviolable, Lloyd asked sourly in OPSA’s publication The Stabilizer, “why not . . . let every nation of the world use the limits of its competitive ability, including that of war, to find out who is entitled to survive?”57 Clearly, competition among companies, as among nationstates, had to be managed and contained. With the defeat of the Sharkey bill, Lloyd said, “we must choose between efficient voluntary curtailment or a competitive warfare to the finish.”58 Lloyd and other industry leaders pressed anew for voluntary curtailment, hoping to use the promise of increased prices to encourage greater cooperation.59 A new Executive Committee for Equitable Curtailment, which included members of OPSA, the Independent Petroleum Association, and the Central Proration Committee (selected by field operators), asked Standard Oil and other price-setting major purchasers to raise the price for crude oil in exchange for production cuts by California’s oil producers.60 Standard Oil agreed to raise the price approximately twenty-five cents per barrel if the industry complied with a statewide limit on production.61 But the company warned that it would not pay the higher price if any field in California exceeded its share.62 This voluntary curtailment and private rule-making suffered from the same weaknesses that had led companies to embrace the Sharkey bill. When Standard’s deadline arrived, California’s production had dropped 9 percent, from 505,535 barrels per day to 461,750, well under the stipulated 476,700 allowable. But fields varied in their compliance. The Ventura Avenue field, where Lloyd’s holdings were concentrated, underproduced by 11,722 barrels, but Long Beach overproduced by 3,048. Underproduction in one field would not offset overproduction elsewhere, Standard informed the industry as it refused to pay the premium price.63 Many furious operators, including small producers who had operated at a loss in expectation of higher prices, doubted that Standard would ever pay the higher price. Noncompliance increased.64 Although the state total hovered around the allowable limit, field-by-field

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adherence to curtailment slipped quickly.65 Neal Anderson, an oil umpire employed by the industry, finally resigned in frustration in July 1932, complaining that it was “almost impossible” to strictly enforce curtailment “when there is no legal method to compel obedience.”66 The California industry shared Anderson’s dissatisfaction with voluntary curtailment and grew increasingly receptive to the idea of federal regulation as 1932 drew to a close. Howard Kegley of the Los Angeles Times reported in January 1933 that some producers, “growing tired of having their lands drained, are opening up their wells.” The outlook was “anything but rosy,” and Kegley predicted an imminent “showdown on production and prices.”67 When the new presidential administration of Franklin D. Roosevelt launched its drive for general industrial legislation in 1933, OPSA and other leading segments of the California oil industry called openly for federal action. The industry desperately needed stabilization to prevent more “receiverships or worse,” according to OPSA’s general manager, Rush Blodget.68 FEDERAL REGULATION ,

1933–1935

Following the passage of the National Industrial Recovery Act in 1933 and the development of a national “code” to govern oil production in the summer of that same year, California oil operators moved swiftly to gain control of the national program’s operations in the state. In late August, Ralph Lloyd and a colleague from California’s Central Proration Committee, the industry group elected by California’s field operators, wrote to federal officials to endorse the new industry code. Lloyd and his colleague requested that the federal government use this industry-organized committee as its agent in California.69 After the Interior Department designated it to carry out the production code in California, the Central Proration Committee set a production schedule to allocate California’s 480,000-barrel-per-day quota among the state’s fields.70 The new code-based system differed from voluntary curtailment because the Central Proration Committee now had federal authority behind it. The committee relied heavily on this federal support to overcome opposition to production quotas. A week after issuing its first production orders, for example, the Central Proration Committee reported to Secretary of the Interior Harold Ickes that some crude oil producers questioned its authority to allocate production to individual operators, as opposed to fields as a whole.71 Ickes confirmed that he had “fully authorized” the committee “to exercise all powers” conferred

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upon state regulatory bodies under the petroleum code.72 Two days later, the Central Proration Committee reported that the “uncertainty in many producers’ minds” had “to a large degree disappeared,” and that a “fine spirit of cooperation is becoming evident.”73 Standard Oil and the other major companies embraced the federal code and organized the California refiners to prevent any violators of production limits from selling their oil. Standard Oil Company’s president, Kenneth R. Kingsbury, spent April 1934 in Los Angeles negotiating an agreement among the state’s refiners. All but five had signed up, and he thought the remaining ones would come around soon. Kingsbury called the federally sanctioned agreement “the only effective weapon to enforce proration.” The refiners would “deny a market” to anyone producing oil in excess of his federally specified level. “Of course, it is always possible that some producer of ‘hot’ oil may want to stick his neck out by building his own little refinery,” he said, but if we “cannot find some way to stop that we are not much good.”74 Even as the industry relied on federal authority, it feared federal action. As with the Sharkey bill at the state level, the California oil industry sought federal enforcement of industrial self-government rather than regulation. The oil producers struggled to establish their authority under the new federal law. Rush Blodget noted in December 1933, for example, that some people thought the interior secretary had the “’authority to allocate’ and that the California ‘Agency’ is merely advisory.” If the courts recognized the secretary as the sole authority, Blodget warned, then “autocratic Federal Control” would result. Blodget urged the Central Proration Committee to make itself responsible for determining allotment schedules and estimating demand. The committee should compile “a record of industry control, which the courts may rely on.”75 Blodget articulated clearly the California oil industry’s delicate strategy: rely on federal power to enforce curtailment goals set by industry, but deny the federal government independent authority to set and allocate production and demand. The committee gained considerable discretionary power. For example, the committee decided in September 1933 not to permit any withdrawals of stored petroleum, instead choosing to fill the state’s quota of 455,000 barrels per day entirely by drawing from the current production.76 This policy made room for new wells, such as those drilled by trespassers at Huntington Beach, while forcing major California producers like Standard Oil to sustain a tremendous aboveground inventory. Still, California oil operators

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were not entirely pleased with the new national code and, in particular, protested cuts in California’s share of national production.77 The committee revised the California code four times in as many months in the fall of 1933, each new revision redistributing allowable production and provoking renewed protest. Different sectors of the industry settled quickly into predictable patterns of behavior. Oil operators who had resisted earlier statelevel regulation of production now contested the national program. “Without having seen a copy of the new formula or having heard it discussed,” Howard Kegley of the Los Angeles Times reported, “some of the independent operators said yesterday that early next week they probably will file objections to the new set-up.”78 Other independent producers were grateful that the National Industrial Recovery Act had relieved them of the burden and uncertainty of voluntary curtailment. Federal law supplanted private agreements in establishing the rules of the playing field. They again could push their production activities to the limit of a national law that set the boundaries. Landowners like Ralph Lloyd in Ventura cancelled their curtailment agreements with lessees, relying instead on federal mandates. Lloyd explained to Associated Oil that he and the other lessors had “from time to time in the interest of the conservation of gas” consented to restricted production levels. But the adoption of the National Industrial Recovery Act and the establishment of agencies to administer an oil code had “eliminated the necessity” for these voluntary agreements.79 Lloyd instructed Associated Oil to adhere strictly to its lease, which specified levels of production and competitive drilling to protect lessor interests as much as possible within the framework of the federal law.80 The federal petroleum code also changed the calculus of oil development by making it less rewarding to open new wells in established fields. Under the previous voluntary curtailment program, the state committees always rewarded new wells with production allowances. The federal code was less generous. “Code regulations have pinched most of the new wells down to a comparatively small amount,” reported Howard Kegley of the Los Angeles Times. Consequently, California oil operators increased their wildcat drilling to find new reserves for future development. “The drillers had rather hunt for something new and find it for future development,” Kegley explained, “than drill new holes in proven acreage.” Oil operators tested at least twelve counties—between Corning and Marysville and the Imperial

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Valley—for new supplies.81 The change from the voluntary curtailment program to federal regulation thus redirected industry investment. Federal officials also cracked down on the companies that had been chief offenders under the voluntary program and state gas act. Lawyers from the Justice and Interior Departments sought injunctions against the Wilshire Oil Company and its subsidiaries for producing excess crude at Huntington Beach and Santa Fe Springs in violation of the federal code of fair competition. The federal suit against the oil operators contended that they had produced eight hundred thousand barrels of crude oil above their allowable production during the previous three months. This overproduction caused “unreasonable and unwarranted waste and depletion of the country’s natural resources,” according to the suit. Oil in storage “constantly threaten[ed] the price,” and the code violations “drain[ed] and deplet[ed] the oil reserves of the government” and destabilized the market.82 Tough enforcement of the national code thus achieved the longsought goal of limiting California oil production. Even so, the California industry soured quickly on federal controls. When the U.S. Supreme Court struck down the National Industrial Recovery Act in 1935, few California operators mourned its passing. In Schechter Poultry Corporation v. United States and Panama Refining Company v. Ryan, the Court ruled that production of commodities like oil did not constitute interstate commerce and, therefore, was not subject to federal regulation under the commerce clause of the constitution.83 Rush Blodget, general manager of OPSA, previously hopeful about using federal authority to industry advantage, called the court decision “an emancipation proclamation for industry, divorcing American industry from centralized dictatorship by the federal executive.”84 Instead of supporting revised federal oil regulation that would pass constitutional muster, California politicians and industry operators renewed their push for state-level management. The California State Assembly protested federal encroachment on California’s “exclusive power” to control its own production. Federal regulation of oil production, the assembly declared, was “contrary to the principles of our dual form of government.”85 As a result of opposition from California and other oil-producing states, congressional legislation in 1935 avoided direct federal controls and instead ratified interstate coordination, limited imports, and made permanent a law barring the interstate shipment of oil produced in violation of state production con-

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trols.86 The federal experiment in direct regulation of oil production was dead. STRUGGLING TO FILL THE VACUUM ,

1935–1938

Following the demise of the National Industrial Recovery Act, California legislators proposed new state oil control measures that provoked a fierce fight within the oil industry, a fight reminiscent of the early 1930s. Proposals for commissions akin to the rejected Sharkey bill, although restructured to reduce the influence of major companies, continued to draw the ire of independent oil producers and their allies in the legislature.87 Opponents of state regulation, like John B. Elliott, an independent oil producer and prominent Democratic critic of the earlier Sharkey bill, denounced the new proposals, warning against “major company domination” and cautioning that motorists would pay the price for any production limits.88 The Senate Oil Industries Committee narrowly rejected an end-of-session attempt to push through an oil control bill in 1935, with legislative advocates of federal action and allies of the independent companies joining against senators loyal to OPSA and the major companies.89 As the California legislature struggled and failed to regulate California oil production, the state’s oil fields fell into turmoil. Following the demise of federal regulation, some independent producers decided to “throw their wells wide open.”90 Renewed efforts to restrict production through a cooperative agreement confronted the same problems experienced during the period preceding passage of the National Industrial Recovery Act. Over the summer of 1935, portions of the industry steadily broke away from the curtailment program. By August the California industry produced in excess of 600,000 barrels per day, compared to an estimated demand of 520,000 barrels per day.91 In the absence of effective state or federal action, the cooperating independent producers again begged Standard Oil to use its price-setting role to enforce and support California’s curtailment program.92 “It would be a waste of words for me to describe the chaotic condition that now exists in the oil business of the State of California,” Ralph Lloyd wrote to Standard Oil’s president, Kenneth R. Kingsbury. Lloyd asked Standard Oil to raise the price paid for California oil to the level prevailing during the two previous years of federal regulation.93 Standard Oil agreed to raise the benchmark price of Signal Hill crude from fifty to eighty cents per barrel. The company also increased gasoline prices in

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Southern California by three cents per gallon, again underscoring the close relationship between production controls and prices. But higher prices did not yield greater compliance.94 In December 1935 California oil operators produced 150,000 barrels per day over the estimated demand, and the major companies added millions of barrels of oil to storage.95 Kingsbury warned that the industry verged on filling “all available storage for crude oil.”96 Standard Oil continued to flex its muscles as the statewide price setter and curtailment enforcer. The company began paying higher prices for oil from individual fields that had complied with the mandate to cut production by 22 percent. Many of the operators working California’s major producing fields were barred from the higher prices, however, including those at Signal Hill, Alamitos Heights, Huntington Beach, Playa del Rey, Dominguez, Santa Fe Springs, and the Elk Hills, and in the Lakeview area of Midway Valley–Sunset.97 Voluntary curtailment continued to falter as a result of the industry’s fundamental problems with prices and competition. As curtailment compliance eroded among the independent producers, overproduction by major companies became increasingly divisive. S.E. Belither, president of Shell Oil of California, attacked the Central Proration Committee policy as “grossly unfair.” The Union Oil, Associated Oil, Richfield Oil, and Texas Oil Companies had exceeded their share of production and then been rewarded with increased levels of allowable output. “I want the industry to know that I have no intention of being left at the gate,” Belither said. “Curtailment should be on a basis of equity.”98 Disparities in compliance by the major companies provoked bitter feelings and further weakened support for curtailment. The major companies in Los Angeles, except for Shell, were “either inimical or indifferent” to curtailment and had actively undermined the Central Proration Committee, according to an internal Standard Oil report.99 Standard Oil blamed the six other major companies, not the small renegade independents, for excess production of 2.6 million barrels of oil during the first nine months of 1937. “If our company had over-produced at the same average rate of the other six companies, we would have produced, during the same period, an additional 1,283,000 barrels,” Standard Oil noted.100 As 1937 drew to a close, the California curtailment program foundered because of the same problems that had plagued it for almost a decade. The major companies continued to support curtailment and proration, but even they could not stick to the program under competitive field conditions. Compliance also waned as older fields began to

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decline. Many began to envision a time when California would no longer need artificial curtailment of production. The discovery of the Wilmington field around 1937, however, lent new urgency to the push for oil production controls. Observers saw the huge Wilmington field as being similar to the Kettleman Hills field in 1931–1932. Beginning around 1937, California companies began to position themselves for access to Wilmington oil.101 Just as the Wilmington field compelled resolution of the tidelands drilling problem, it also provoked the decade’s last pitched battle over oil production controls. Maurice Atkinson, a Democratic assemblyman from Long Beach, proposed a new oil commission in 1939 with broad powers over oil and gas production. Atkinson freely admitted that labor union leaders had written the bill in an effort to protect oil sector jobs by stabilizing the industry.102 In deliberate contrast to the industry-dominated commission created by the 1931 Sharkey bill, however, public officials would run the new Oil Control Commission, including the directors of the Departments of Natural Resources, Public Works, and Finance.103 Governor Culbert Olson strongly supported the bill, emphasizing that it meant “control by the State and not by any group engaged in the oil production.”104 An eclectic but powerful coalition composed of Governor Olson, the major oil companies, some independent oil companies, and the oil workers union rammed the Atkinson bill through the legislature at the very end of the session. The coalition brought enormous pressure to bear on legislators. As three Democratic assemblymen later conceded, “Our vote for the Atkinson oil control bill was not cast on the basis of our own knowledge. . . . We voted our confidence in the judgment and wishes of the Governor.”105 Olson’s alliance with major oil companies split the party by alienating many independent oil producers who previously had sided with Democrats against Standard Oil and others on tidelands bills and oil regulation. Key Olson allies, including Lieutenant Governor Ellis Patterson and J. Frank Burke, Olson’s Southern California primary campaign leader, demanded to know when their “great liberal Governor changed his mind.”106 Yet Olson signed the Atkinson bill into law, one of the few major administration initiatives to survive a generally hostile 1939 legislature. Olson’s willingness to use his precious political capital to press for the bill’s passage underscored how important he felt it was to get control of the oil production situation in California. The fight over the Atkinson oil bill replayed many aspects of the Sharkey bill conflict seven years earlier. John Smith, president of the

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Independent Petroleum and Consumers’ Association, launched a referendum petition drive almost immediately, attacking the major oil companies for trying to “put the little fellows completely out of business.”107 Despite the different governance structure that enhanced public control, opponents denounced the Atkinson bill as “essentially the same” as the Sharkey measure and warned of government “for the Standard Oil Company and by the Standard Oil Company.”108 “No oil is wasted in California,” J. Frank Burke and two Democratic assemblymen wrote in the voter information pamphlet. “Should we add to the insecurity of the low income groups, the aged, the unemployed by legalizing profiteering in gasoline and oil?”109 Atkinson bill supporters also returned to venerable themes. “The chiselers, though delighted to have other operators curtail, will not let the voluntary method succeed,” the San Francisco Chronicle declared. “Experience in California and the other oil States has proved to the hilt that curtailment of production, to succeed, must have legal enforcement behind it.”110 President Roosevelt, Interior Secretary Ickes, and other administration officials strongly backed state-level oil controls, just as the Hoover administration had endorsed the 1932 Sharkey referendum.111 Union officials, who had helped draft the initial bill, warned of an impending market collapse or a complete industry shutdown with dire implications for employment.112 Despite this formidable political support, however, the Atkinson bill met the same fate as the Sharkey bill—it was resoundingly rejected by suspicious California voters in November 1939. CONCLUSION

“California is the one great oil state maintaining the law of supply and demand and with no artificial controls running the oil business,” contended Harold C. Morton, a Los Angeles Attorney and independent producer during the 1939 campaign against the Atkinson bill.113 Morton was correct that, when the California electorate spurned the Sharkey and Atkinson bills, it rejected the strict state oil regulation occurring in Texas, Oklahoma, and other states. But had California maintained the “law of supply and demand”—or did “artificial controls” run the oil business? Since 1927, many operators in California had struggled tirelessly to control production in the state. The natural gas act that the operators pushed through in 1929 attempted to restrain flush producers from too rapidly draining their oil reserves and lowering the gas pressure of entire fields. The 1931 town-

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lot drilling bill also tried to prevent the repetition of wasteful competition at Santa Fe Springs, Huntington Beach, Signal Hill, and elsewhere. The voluntary curtailment programs that California oil operators organized beginning in 1929 sought to overrule the “law of supply and demand” and replace it with a statewide industry committee empowered to allocate production. When the industry proved unable to compel production cuts as deeply as desired, Standard Oil of California flexed its market muscle, selectively slashing crude oil prices to reward compliant operators and punish continuing overproducers. For their part, a group of independents organized the Oil Producers Sales Agency to create a cooperative bargaining unit that would reward operators who complied with curtailment. Many California operators also sought federal intervention to bolster the faltering state voluntary program. Although the Sharkey and Atkinson bills never became law, competition among firms occurred within a market framework profoundly shaped by the industry’s myriad cooperative arrangements and state and federal regulation of oil and natural gas production. What were the consequences of these attempts to discipline and control an unruly market? Production controls helped boost oil and gasoline prices, and they allocated production among the different oil fields and producers. Among other outcomes, these measures kept economically marginal fields and wells producing. If the economic markets functioned as Harold Morton claimed, efficient and high-quality producers at Kettleman Hills likely would have driven out of business the low-quality producers at the older Ventura and San Joaquin fields. Yet the industry curtailment committee sharply limited Kettleman Hills output to sustain production elsewhere, for instance at Ventura. Distributing production in this way aided many Kettleman Hills operators too, since they had extensive holdings in older fields. By boosting prices to a “living price” in less efficient fields, operators at Kettleman Hills captured additional income on their Kettleman Hills oil and earned a tidy profit on holdings elsewhere in the state too. At the same time, the structure of curtailment guaranteed a market for new wells, rewarding continued drilling and development throughout California, including on coastal lands at Huntington Beach. Each new production allocation could stimulate a new round of oil development. By draining from common oil pools and by increasing overall petroleum output, new producing wells forced cutbacks by other operators in the field and state, prompting them to try to increase their own output. As the Maricopa operator J. B. Wells complained, “All this

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development of new production calls on the operators of older properties to ‘move over’ until we are sick of it.”114 Furthermore, because industry cooperation and government action sustained prices at an artificially high level, and every new well received an allocation, the curtailment system also could encourage operators to drill expensive, deep wells by guaranteeing that they would recoup their investments.115 The extent and type of new development encouraged by oil production controls depended on the specific rules of the curtailment program. Conflict within the industry over the structuring of curtailment mediated economic competition. Some operators sought to protect older entrants, like J. B. Wells, by barring all new production until sufficient market demand existed for it, regardless of whether the older wells were as cost-efficient as new ones. Others attempted to reward operators based on their expenditures, by seeking to allocate greater production to more expensive wells.116 Exclusively California-based oil operators attempted to bar or restrict oil imports from other states or countries. Operators without storage attacked restrictions on production that would allow the major companies to unload stored oil at solid prices. Under voluntary curtailment, each operator’s allowed production corresponded to its overall potential. This encouraged landowners to drill new wells to prove they had more extensive holdings. By contrast, the federal codes did not award generous production levels to new wells in settled fields, and so sent operators on a wildcat search for new fields. Although California operators frequently embraced publicly the abstract idea of free-floating prices and the “law of supply and demand,” in retrospect it is clear that no one in the industry seriously advocated any such thing. Oil operators sought to eliminate destructive competition by ordering and controlling the oil market to their advantage. Whether they believed in public or private controls depended primarily on which they saw as most advantageous to their interests. Independent oil operators appealed to, feared, and battled the market power of Standard Oil, just as they did state and federal regulation. Standard and its allies first sought to limit oil production through cooperative agreements, and then turned to public enforcement in order to achieve the same ends—boosting the price of oil and stabilizing the industry. It is easier to identify and chronicle the constant political struggle over the contours of the market than it is to calculate the precise

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economic impact of these diverse attempts to limit oil production. But it is clear that consumers paid higher prices in the short run, and that oil companies captured greater returns on their production. One economic study of the Pacific Coast petroleum industry reported consistent average profits for the industry throughout the depression, except in 1931.117 Oil production controls sustained a window of profit between the cost of production and the market price. Public and private regulation of the market prevented competitive overproduction from thoroughly squandering California’s petroleum resources and from lowering oil prices to levels that would cause widespread well closures.

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PA R T F O U R

Consumption

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CHAPTER

7

“Transportation by Taxation”

By 1940, motor vehicles used 40 percent of each barrel of oil in the United States.1 The rapid development of streets and highways in California and the nation thus helped establish and solidify the market for petroleum. What role did politics and public policy play in shaping the infrastructure of consumption? This chapter shifts attention to transportation finance. During the decades before World War II, California and the United States drove down oil and gasoline prices through generous public land policies and a fragmented, competitive property regime. Regulation moderated the price decline and stabilized the oil market to ensure industry profits and the long-term health of the oil sector. At the same time, government agencies invested vast public resources in an extraordinary network of roads and highways. How did the state government decide how much to spend on its new highways? How much did public investment matter to the rise of the automobile and the dynamism of the oil sector? At the opening of the twentieth century, Americans relied largely on streetcars and railroads for their mechanical transport over land. Not long after World War II, many of the streetcars disappeared or declined, replaced by automobiles and buses, and railroads were losing their competition with the trucking industry. This shift in the transportation economy profoundly increased energy consumption, particularly petroleum use. Although California’s railroads also burned petroleum, having switched quickly from out-of-state coal to local oil, railroads 159

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were more energy-efficient than the new automobiles and trucks. Electric streetcars in Los Angeles and San Francisco, as another example of mass transportation, likewise concentrated energy use and used energy more efficiently than individual automobiles. The enormous energy demands of the motor vehicle revolution prompt the central question of this chapter: Why did highways replace mass transit so completely and so rapidly in California? Pure consumer demand for the autonomy, flexibility, and social status promised by motor vehicles explains much of the shift.2 Yet simple desire cannot fully explain the transformation. Political and economic conditions also strongly promoted public investment in roads and highways and decisively shaped consumer demand. State financial policy helped determine the relative balance between different forms of land-based transportation in California. The new user-financing system for highways, under which users paid separate taxes and fees that funded highway development, channeled critical financial resources to the road network. Many historians may find it difficult to see railroads and streetcars as beleaguered businesses suffering from financial discrimination at the start of the twentieth century. American railroads received substantial aid from state, local, and federal governments in the process of achieving dominance over American transportation in the nineteenth century.3 In addition to direct financial assistance, railroads benefited from lenient franchises, limited legal liability for both public and employee injuries, broad powers of eminent domain, outright grants of state and federal land, and occasional exemptions from taxation. The Southern Pacific Railroad Company, labeled the “Octopus” by novelist Frank Norris in his 1901 novel of that name, particularly dominated California politics in the late nineteenth century and shaped the legal regime to its advantage.4 Similarly, streetcar lines often originated in a complicated mix of entrepreneurial initiative and political influence. Commonly built by private developers like Henry Huntington to link their real estate holdings to the city center, streetcar monopolies became the focus of vituperative conflicts over fares, overcrowding, and safety.5 Partly as a result of the widespread public anger against private railroad and streetcar companies, motor vehicles became the newly favored mode of transportation by the second decade of the twentieth century. County and state highways benefited from assistance comparable to that received by the railroads, canals, and turnpikes during the previous

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century. At first, highway subsidies came directly from general property taxes, as with three California bond issues approved between 1909 and 1919. Then California imposed two gasoline taxes and increased motor vehicle registration and license fees in the 1920s, earmarking these levies on motorists for highways. This switch to a user-financing system reduced direct subsidies for highway development while conferring a unique combination of public and private rights. Highways and their users enjoyed valuable public exemptions from real estate and sales taxes. Highway promoters also possessed the essential power to tax users, condemn land, and develop a statewide highway plan. As California’s highways flourished with this public assistance and these public powers, the “private” nature of the user-financing system simultaneously freed the highway program from the pressures of competing public objectives, most noticeably during the difficult depression years. The mix of public assistance and institutional autonomy combined to give the highway system a substantial comparative advantage over forms of mass transit. Governmental assistance to motor vehicles thereby helped to entrench long-term patterns of motor vehicle transportation in California and the nation. Many critics of the automobile’s expansion have noted how all levels of government directly subsidized road construction and maintenance.6 Yet the new system of user financing promoted California highway development before World War II far more effectively than direct subsidies did. During the period between 1920 and 1945, California state, county, and municipal general funds paid for some $766 million in highway and street expenditures, while highway user taxes—including motor fuel taxes and motor vehicle registration fees—paid for $902 million.7 The balance between general funds and user taxes shifted considerably during this time. User fees contributed only 10 percent of total expenditures in 1920 but climbed to 65 percent by 1945. This movement away from local property taxes and state bonds represented the establishment of a userfinancing system in California.8 Both highway critics and advocates, past and present, generally have characterized the switch from direct subsidy to user financing as having brought greater equality of competition to the different forms of transportation and as having more fairly allocated the costs of highway construction and maintenance. While the increase in user fees did sharply reduce the burden of highways on the general taxpayer, the substitution of user fees for general fund support aided highway development in new and equally important ways. Earmarking user taxes for highway con-

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Thousands of Dollars

Highway user taxes 60,000

40,000

20,000

0 1920

1925

1930

1935

1940

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Year

Figure 15. Highway user taxes rose swiftly in the 1920s, supplanting general tax revenues as the major funding source for both highway and street expenses by the 1930s. (Zettel, Analysis of Taxation for Highway Purposes, 113–14.)

struction and maintenance fundamentally changed the politics and economics of highway financing, freeing the highway program from earlier constraints on growth. At the end of the late nineteenth century, residents of California relied on railroads, streetcars, and water transport as their primary forms of transportation. Dusty paths in summer and muddy morasses in winter, California roads were constructed and maintained, in the words of an 1896 California Bureau of Highways report, as “temporary expedients resorted to only when forced by necessity.”9 Local governments paid for the roads with property taxes and poll taxes or even by exacting labor from area residents. In the closing decade of the nineteenth century, California’s bicyclists and then motorists sought better roads for their vehicles.10 Farmers also called for improvements in rural road transportation. “Good roads” advocates—most prominently motorists and highway engineers—cried out for road reform through the provision of roads by the state government.11 Motorists obtained state general funding in 1909 with the first of three California bond issues for highway construction. Between 1909 and 1919, Californians approved highway bonds totaling $73 million.12 These bond issues made California’s

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Figure 16. Road construction remained rudimentary in California in 1916, the year California voters approved a $15 million bond issue for highway development. (State of California, Department of Transportation.)

general taxpayers, rather than the localities, responsible for the new state highways and defined those highways as a common good shared by all Californians. The bond issues helped transform hundreds of miles of graded roads into paved highways.13 The new multimillion-dollar pool of state money also unleashed a statewide clamor for road construction. Each county lobbied for the largest share possible of the highway funds, presenting a long list of urgent projects, few of which, it should be noted, the counties had been willing to pay for themselves.14 As the list of possible road projects grew, however, the general appetite for ever-increasing state bond issues fell, and highway officials and motorist clubs began to complain that the bond mechanism of financing roads could not provide sufficient funds for highway expansion and maintenance. As a result, the California State Legislature invoked principles of “fairness” and “benefit” and created a segmented user-financing system in 1923. According to the “benefit theory” of taxation, taxes should have

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a clear relation to the benefits received by an individual taxpayer.15 In California’s new system, motorists paid “user taxes” to the state in the form of motor fuel taxes and motor vehicle registration fees. Justifying the taxes as payments in proportion to benefits received, the state legislature separated highway user taxes from the general fund and treated them as capital to be invested exclusively in highways by the state and county highway divisions. Among the “recognized merits” of this form of taxation were that “those who use the roads pay for the privilege, and also that they pay in proportion both to the amount and kind of use.”16 Gasoline usage served as a proxy for road usage, so the tax allocated the burden among motor vehicle users. By switching from general financing to user financing, California redefined its highways. No longer a common good provided by the state, highways became a substantially private good financed by a particular group of users. Most Californians agreed that it was unfair to charge property owners who drove little to make travel cheap for more frequent road users. In an effort to be fair to property taxpayers, then, and because of weak political support for more bond issues, California abandoned bond financing. California’s experience, however, revealed some of the inherent limitations of “privatizing” transportation. However much highway supporters asserted that motor vehicle taxes followed the “benefit” logic of user fees, the relationship between the fee and the special benefit conferred was not direct. The gasoline tax and motor vehicle fees supported a wide-ranging governmental enterprise that, after education, constituted the largest single expense in the California budget during the late 1920s and the 1930s. Highways could not be consumed privately by highway users without shaping the entire transportation network. California’s user-financing system and additional public subsidies determined the transportation options of people who were not taxed and who did not use the highways. The benefit theory of taxation assumes that benefits can, and should, be segregated into distinct units. California’s experience with highways underscores the need to look at transportation as a single system. In its “benefit” justification and in its ultimate consequences, California’s privatized user financing for highways shared many attributes with the nineteenth-century system of special property assessments for public works. Typically, local governments used special assessments to fund local construction projects and assessed nearby property owners on the basis of the roads’ value to them. The special assessment system led easily to a “segmented” provision of public works. Wealthy res-

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idents who could afford sidewalks, sewers, lights, and roads paid for them, while poorer neighborhoods went without.17 California’s new highway financing system resulted in a similarly unequal distribution of public goods among different groups of citizens. Drivers built California’s renowned highway network but left those people and businesses who relied on streetcars and railroads with declining infrastructure. In the 1920s and 1930s, “motorists” was not a term that encompassed the whole public. Similarly, a particular group of roadway users, not all motorists, acted as the primary advocates for the state highway system. Highway advocates included middle- and upper-class recreationalists, intercity commercial carriers, and farmers. Touring Topics, for example, the magazine of the Automobile Club of Southern California, catered to a middle-and upper-class clientele with the time to tour in their automobiles.18 The magazine is replete with pictures of women in riding clothes or fur coats and is full of articles such as those on the national parks, prominent Los Angeles individuals, and an Arabian horse. Automotive transportation defined this distinctly 1920s sort of “class” in terms of relation to the means of consumption, not production.19 Other powerful supporters of the highways included those with an economic stake in the expansion of highways and the highway budget, such as highway contractors, automobile manufacturers, petroleum companies, and highway department officials. In the 1920s and 1930s, for example, California’s largest petroleum company, the Standard Oil Company of California, strongly promoted the combination of automobiles and parks that has come to define American tourism.20 Detailed statistics on the “motorist class” are not easily found. Automobile ownership rose rapidly during this time, so the boundaries changed constantly. In April 1931, California averaged one motor vehicle for every 2.7 persons.21 Yet numbers of registered vehicles alone do not reliably indicate vehicle use. Los Angeles had one motor vehicle for every 2.9 persons in 1929, compared to one for every 1.7 persons in 1979, but the role of those automobiles within the transportation system changed dramatically in this period.22 Californians generally did not rely solely on motor vehicles for transport in the 1920s and 1930s. California’s electric streetcars reported carrying a total of 577 million passengers in the population of roughly 5.6 million in 1931, yielding an average of 105 rides per capita each year.23 Fare passenger statistics from 1928 indicate even more rides per capita in urban areas alone, which reached 216 in Los Angeles, 260 in San Diego, and 414 in San Francisco.24 A similarly large portion of the population probably

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walked to their destinations. Automobiles were thus part of a hybrid transportation system, one in which the relative composition and emphasis shifted over time. As more of the population joined the “motorist class”—in part because of the dominant infrastructure created by a successful financial program—the uneven balance in transportation became less an indicator of conflict between different classes of consumers than an inefficient provision of transport options to the public as a whole. California’s unbalanced fiscal structure after the 1920s steadily narrowed the public’s transport options by strongly favoring motor vehicles. By the 1960s, as California’s renowned roads overwhelmed the state with smog and congestion, many Californians realized that their user-financing system had succeeded too well.

ESTABLISHING A “ FAIR ” SYSTEM OF HIGHWAY FINANCE , 1923–1933

Before the institution of user financing in 1923, California highway maintenance and construction suffered from money shortages. The 1922 biennial report of the California Highway Commission displays the agency scrambling for funds to support the basic maintenance of the state system. The commission depended on a legislature reluctant to appropriate money for highways. The legislature had refused funds for repair “in advance of actual deterioration of the roadbed,” the commission complained. Without this money, during the previous two years the highway commission could carry out this work only “where emergency conditions existed.” The highway commission warned, The work cannot be carried on indefinitely unless funds for this special purpose are provided. Given these funds the loss to the state of its original investment will be very small. Denied them, the destruction of hundreds of miles of roads can be expected. Those in charge of financing the state highway system face a heavy responsibility in this matter, a responsibility that cannot be avoided for another two years.

Announcing “an urgent necessity for widening and thickening the paving on the main highways of the state,” the commission expressed its dismay at the lack of funds for road repair and saw a gasoline tax as the proper solution to the problem. The commission had hoped that the legislature would adopt a gasoline tax during the previous session. But the legislature had failed to do so. Consequently, the commission had

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“been unable, during the past two years, to carry on more than a very limited widening and thickening program.” The commission declared that there was an “imperative need for augmented motor vehicle funds, or perhaps better, for a new fund such as might be created by a gasoline tax, which can be devoted exclusively to the work of widening and thickening the 15-foot bases.”25 Faced with declining funds from the third bond issue, the highway commission complained that the uncertain financial situation had caused disorderly highway policy. “The hit-and-miss, happy-go-lucky plan under which the road work in California has been financed in the past must give way to a carefully thought out and scientifically planned policy of highway financing,” the commission urged. Casting about for more reliable funding, the commission presented three financial options: payments from the state general fund, a bond issue, or a combination of a bond issue and higher user fees. The commission recommended the third option, that another bond issue should be raised and that “users of the roads should be asked to bear a larger share of the highway burden than has been placed on them in the past.” The institution of a gasoline tax and the increase of motor vehicle fees, particularly on commercial vehicles, would constitute a “practical and fair method for imposing a larger share of highway costs upon highway users.” Finally, the commission asked the legislature to cease adding road mileage to the state highway system unless “finances for their improvement and maintenance are provided.”26 The dismay of the highway commission proved short-lived. The California State Legislature finally heeded the commission’s dire warnings in 1923 and approved a fresh flow of money for the highway program. Simultaneously, the legislature sought to reduce the burden of the expensive highway program on the general taxpayer. Highway users, rather than general taxpayers, would finance all new highway maintenance and reconstruction. The legislature followed the guidance of the State Board of Equalization, which had concluded in 1922 that “the benefit theory of taxation applies.” The new highway program relied on several general principles of “benefit” taxation.27 First, highway users, rather than the general public, would bear the financial burden beyond the provision of local roads and streets serving specific property owners. Since construction continued to be supported by the third state highway bond issue, the legislature still designated construction a common state responsibility to be paid from the general fund. But users would pay for all maintenance and improvement. Second, taxes would be paid in proportion to highway use. A tax per gallon of gasoline, in this case two

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cents per gallon, would provide a rough approximation of highway mileage use and thus distribute the burden of maintenance and reconstruction among those who most benefited from the roads. Third, trucks and buses, whose weight caused the roads to deteriorate more than the lighter automobiles did, would pay more for the greater benefits they received from the highways. Consequently, the legislature also raised state registration fees, with higher fees for heavy commercial vehicles. The legislature also determined that there should be a special tax for the commercial use of the highways. The legislature passed a transportation license tax that provided for a 4-percent-gross-receipts levy on for-hire motor vehicle carriers.28 All the new revenues from fees and taxes were reserved specifically for highway development. The biennial report of 1924 the highway commission cast aside the grim, disappointed tone of its 1922 report. The influx of cash as a result of the 1923 measure made possible a range of new highway work. “The reconstruction and improvement of about 200 miles of highway will be accomplished during 1924 by this measure, and the maintenance of the existing highways has been brought to a high state of efficiency,” noted the commission. It estimated that the gasoline tax measure plus the greater license fees would produce $18 million per year. The state highway division would control half that revenue, while the remainder would be allocated to the counties on the basis of their proportional automobile registration. This proportional distribution of user taxes reflected the “benefit” rationale of user financing. Following legislative approval of the new funding, the state highway department affirmed its alliance with the motorists who supported it financially. The department reminded motorists of the benefits that they received from the charges and of the “fair” principles that lay behind them. In the highway department’s magazine, California Highway and Public Works, for example, pictures and diagrams of widened highways and other improvements, including the elimination of railroad crossings, bore captions declaring that they were “a gasoline tax job” or that they had been “financed with gasoline tax and motor vehicle revenues.”29 With each mention of the gasoline tax, the magazine similarly affirmed that the funds received are “reserved by law for maintenance and reconstruction of existing state highways and cannot be used for new construction.”30 These constant reminders of the benefits and logic of the gasoline tax promoted the work of the highway administration and built popular support to increase the gasoline tax for new construction. California Highway and Public Works emphasized that the gasoline tax

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Figure 17. Driving between San Diego and Phoenix in 1925, a motorist still crossed the sand dunes on a narrow wooden plank road. The California Highway Commission replaced the road with a wider asphalt and concrete surface in 1926. (State of California, Department of Transportation.)

was a unique fiscal tool “sweeping the United States on a wave of popularity even in these days of public clamor against taxation”: Its popularity is held due to the fact that it is “painless”—hardly felt because paid indirectly in nickels and dimes at filling stations on just the number of gallons put into the tank at the time—and yet it produces large sums for good roads. Also, it is held the fairest tax because the most used cars and heavy ones pay in proportion to their benefits from good roads and the wear and tear they inflict upon them, and because tourists are made to pay toward the roads they use. It is the cheapest of all taxes to collect.31

The highway department was not alone in celebrating the popularity of the gas tax. While it is difficult to determine how individual motorists viewed the levy, the gas tax received strong support from motorist representatives, including the automobile clubs and highway supporters in the state legislature. Partly because gas prices generally were in decline in the early 1920s, and partly because motorists paid the tax in small increments, highway departments in California, like those around the country, received few complaints about the new tax.32 Given the success of the gasoline tax in raising revenue for maintenance, the highway commission pleaded for more funds to allow it to complete the construction of the state highway system. “Many millions are urgently needed,” the commission announced. While the first

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gasoline tax had enabled the most essential repair work, the “completion of the [highway] system demands a continuous and adequate income for the State Highway Commission for new construction, reconstruction, and maintenance.” The commissioners estimated that completing the state highway system would cost $200 million and pointed out that an additional “tax on the users of the highways” could provide the commission with a total annual income of at least $20 million.33 The state highway engineer R. M. Morton agreed with the commission and argued that “the highway organization should be placed on a permanent revenue basis, be the revenue large or small.” He criticized the disruptive influence of uncertain finances: “More effective work can be done through a permanent organization than by a temporary one such as is required by spasmodic increments in funds from time to time.”34 California spent the last of its $73 million in highway bond money by 1926.35 But the state legislature resolved the financial difficulties bemoaned by the highway department and highway advocates by passing a one-cent-per-gallon gasoline tax for highway construction in 1927. The tax was instituted for a period of at least twelve years. Ralph Bull, chairman of the California Highway Commission, noted that financing new construction, “the most acute problem of all,” had been solved. The one-cent gas tax was “important, not only for the revenues that it will make available for building roads, but also because it establishes a policy of continuous financing for our highways.”36 Highway officials received such a windfall from the additional onecent tax that they initially did not know how to spend it. Remarking on the $7.5 million estimated for expenditure in 1928, the highway department magazine described a rush of planning to prepare a construction program for the new revenues: “The rapidity of construction will be governed by the fact that the one-cent gasoline tax . . . is received in half-yearly periods.” Spending had to proceed apace, the magazine indicated in November, for “another payment will be made in May.”37 Soon the highway commission required vendors to submit gasoline tax receipts at progressively shorter intervals, going from quarterly payments in 1927 to monthly installments in 1931, providing the department with continuous funding for its growing array of projects.38 Once California established its user-financing system, the steady stream of money that flowed from motorists to the highway administration

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decisively altered the economics and politics of highway finance. In addition to adding huge sums to the highway budget, the “pay-as-you-go plan” of continuous financing enabled substantial savings by eliminating bond interest charges and facilitated budgeting and long-term planning. California’s three highway bond issues had raised a total of $73 million for the highways, but with interest charges their final repayment cost soared to $132 million.39 User financing through highway taxes eliminated interest charges. Other “radical” changes that resulted from the pay-as-you-go plan, announced E. Roy Higgins, chief accountant for the Department of Public Works in 1928, included the establishment of a highway budget.40 For the first time, the highway program could engage in long-term planning founded on a secure funding base. Highway officials like B.B. Meek, director of public works in 1930, celebrated the new “carefully plannedin-advance building program.” Highway budgets enabled engineers to plan highway projects ahead of schedule and create a “reservoir of available highway projects.”41 Soon the highway department supplanted the biennial planning system with ten-year planning. The state highway engineer C.H. Purcell described similarly in 1932 how “current continuous revenues” allowed for an efficient administrative organization that could work consistently at maximum capacity.42 Bond issues, Purcell maintained, pushed an organization into a disruptive cycle; bonds required the rapid creation of a large organization to handle the large influx of money, and as the money was spent, the organization would persist, thus raising overhead expenses. The political impact of California’s new financing program equaled the financial benefit of eliminating interest on bonds and enabling long-term financial planning. By approving the user-financing measures of 1923 and 1927, the California legislature substantially withdrew from financial participation in the highway program. Between 1920 and 1943, the state appropriated only $2.2 million to highway expenses, other than interest on and redemption of the earlier state bond issues. This legislative contribution paled beside the $676 million expenditure of highway user taxes and federal aid. Even more striking, after the last of the third bond issue was spent in 1926, the state appropriated almost no funds to highways until 1944. During the years of deepest economic crisis and World War II, between 1931 and 1943, the state allocated a mere twenty thousand dollars to highway expenses, excluding previously scheduled bond interest and redemption charges. By comparison, highway user taxes contributed $381 million and federal aid supplied $112 million

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Consumption 60,000

Thousands of Dollars

50,000 40,000 30,000 20,000 10,000 0 1920

1924

1928

1932

1936

1940

1944

Federal aid Highway user taxes Bond expenditures and general fund appropriations

Figure 18. State highway bonds and federal aid contributed only a small fraction of the cost of highway construction and maintenance after California imposed a gasoline tax and higher registration fees in the early 1920s. (Zettel, Analysis of Taxation for Highway Purposes, 70; California Highway Commission, Fifth Biennial Report, 170.)

during that same period. These figures do not mean that the state withdrew permanently from active participation in highway finances: the state legislature again appropriated $5 million in 1944 and $4.7 million in 1945.43 In 1947, however, the legislature passed the Collier-Burns Act, again turning to highway user fees to pay for further expansion of California’s roadways. Once the state’s legislature discovered user financing, it never again spent substantial general fund monies on highways. Reduced financial participation by the state legislature and the state general fund decreased California’s direct subsidy of highways. But it also meant that those who did not use the highways had a more difficult task if they sought to challenge the rapid growth in highway expenditures. California highway planners almost never had their budget balanced against competing state fiscal needs. As user financing separated the highways’ revenue stream from general fund revenues, the highway program simultaneously reorganized its administrative structure, establishing the highway department as a separate entity within the state government, largely isolated from

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legislative or executive control. Administrative reorganizations followed in waves. The 1923 reorganization removed the highway commission from the Department of Public Works and made the commission a separate state department led by the state highway engineer. The state legislature returned highway responsibilities to the Department of Public Works in 1927 but also created a separate five-member highway commission whose members were unpaid but had the power to alter highway routes, allocate money, and authorize condemnations of land for rights-of-way.44 The state legislature evidently sought to combine independence from “political” influence with integration into the state bureaucracy. The state highway engineer and the director of public works prepared the biennial highway budgets in a process involving only minimal legislative participation. Free from the burden of asking for a legislative appropriation, the California Highway Commission automatically received its revenue from the gasoline tax, motor vehicle fees, and federal apportionment. The commission then allocated the funds to state highway projects according to a percentage system.45 California’s highway user tax laws mandated how the commission would distribute revenues between institutions (proportionately among the state, county, and municipal governments) and between geographic regions (split between northern counties and southern ones, and urban and rural areas).46 In this allocation by formula, the legislature and the director of public works, a gubernatorial appointee, had to agree only that the budgeted projects met the mandated criteria. The contest over the allocation system remained fiercely political, of course, and disputes over mandated percentages raged for decades.47 But these debates involved only a narrow range of questions, none of which included how much to spend on highways or how highway spending fit into state public policy more generally. In effect, the state legislature had eliminated by 1927 most of the potentially controversial questions about financing California’s massive highway program. The new system of gas taxes and registration and license fees worked more or less automatically. This system isolated highway finances from the pressures of competing public enterprises, most importantly in the 1930s when the state plunged into fiscal crisis. No wonder the San Francisco Examiner declared of the 1927 one-cent gasoline tax that “IT WILL END OUR HIGHWAY TROUBLES. No more bond issues, no more legislative squabbles, no more waste of time. Every part of the state upbuilt.”48

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COMPARING THE TAXATION OF MOTOR VEHICLES , STREETCARS , AND RAILROADS

Under California’s new user-financing system, motor vehicle users were favored with a unique mix of public and private rights that shielded them from some financial burdens, such as property taxes on land covered by roads, while they benefited form the use of powers of taxation and eminent domain. Although motorists paid taxes on gasoline and on their vehicles as personal property, the tax payments benefited them separately as a group because these taxes were earmarked for highways. By contrast, railroads and streetcars suffered from their distinctly private nature, paying substantial general taxes, including special taxes that directly aided their motoring competition. During this period of conversion to motor vehicles, public policies increasingly disadvantaged private railroads and streetcars in favor of public highways. The tax system caught streetcars, for example, in an inversion of the public-private combination that so benefited motor vehicles. On the one hand, the California Railroad Commission required the streetcars, as public utilities, to keep fares low. The political inertia of the five-cent fare had an effect opposite of that of earmarked motor vehicle taxes in the 1930s.49 Low streetcar fares persisted, even when they were insufficient to support streetcar operations. On the other hand, as private corporations, streetcars bore the brunt of paving and franchise taxes and general gross receipts taxes. Unlike the case of earmarked highway user taxes, state and local governments did not reinvest these taxes on streetcars in the transit system.50 The California Railroad Commission investigated the financial situation of Los Angeles streetcars in 1919 and 1929 and both times found that the streetcars were being forced to subsidize their motor vehicle competition. The commission urged Southern California municipalities to aid streetcars by relieving them of the paving tax that obligated them to pave the road surface alongside their tracks. The paved roads did not serve the streetcar companies but, rather, provided for the automobiles and trucks that competed with streetcars for passengers and clogged the streetcar routes. The financial burden on the streetcars in 1919 equaled five hundred thousand dollars, or 8 percent of the gross revenues, for the Los Angeles Railway, and over four hundred thousand dollars, or 12 percent of net revenue, for the Pacific Electric Railway.51 But the municipalities ignored the commission’s recommendations for tax reduction. A transportation engineer at the Railroad Commission

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Figure 19. Streetcar companies helped pave the way for automobiles by paying special taxes to build motor vehicle roads alongside their rights-of-way. (E.T. Estabrook, courtesy of the Security Pacific Collection/Los Angeles Public Library.)

similarly concluded ten years later that “it would be in the public interest to relieve the street car companies from the expense of [the] paving and franchise tax.”52 But the municipalities again ignored the recommendation. The position of the streetcars improved in the early 1920s, but according to the historian Robert Fogelson’s analysis of the decline of the Los Angeles system, the streetcar companies lacked money to finance extensions to their networks. A Los Angeles commission studying the streetcar situation recommended in 1925 that the city take ownership of local transport, citing the potential savings to streetcars in taxes. Savings would include California’s 5.25 percent gross receipts tax as well as the cost of the city’s paving requirements. Municipal ownership also would lower bond interest by 2 or 3 percent, thus sharply reducing the cost of short-term capital to the streetcar system. Motorist advocates had celebrated these kinds of financial advantages to the userfinancing system.53

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The push for municipal ownership failed, however, and the streetcars continued to lose ground to automobiles. When the Los Angeles Railway found it necessary to request a fare increase from the Railroad Commission in 1927, the company argued that its current fares did not yield enough net profit to constitute “just compensation for the use of the property.” Although the commission initially denied the fare increase, the company successfully appealed the decision in state court. The higher fares improved the Los Angeles Railway’s operating revenue and increased net income substantially, boosting the rate of return from 4.6 to 7.1 percent. Yet as a privately owned, profit-seeking company, the Los Angeles Railway made few additional investments to attract more patrons and prepare itself for the difficult depression years that would lie ahead. By contrast, the state reinvested highway “profits”—user taxes in excess of actual costs—in highway expansion automatically. How much did tax policy determine the ability of streetcars to expand or improve service to meet demand for transportation? When many streetcars were still profitable in 1922, they carried a 6 percent tax on their gross receipts, which equaled 24 percent of their net revenue. None of this tax money was invested in infrastructural expansion. When the streetcars began to suffer from declining patronage eight years later, their average tax burden, still at 6 percent of gross revenues, equaled 50 percent of net annual revenues.54 These taxes did not cause the decline of the streetcars, but they had a significant marginal impact at a critical time, helping to push the streetcars over the edge. Recognizing the disadvantages faced by streetcars, state legislators proposed amending the state constitution in 1930 to reduce gross receipts taxes on streetcars from 5.25 to 4.25 percent. Assemblymen Bert B. Snyder and Fred B. Noyes described how “automobile competition and excessive taxation” burdened streetcar lines that were an “essential public utility,” the “backbone of local transportation, giving dependable service at reasonable rates.”55 The strong support that the amendment received in the legislature and from the electorate, which approved the measure by two to one, suggested that Californians recognized inequities in transportation taxation, or at least favored the interests of the streetcars.56 But the new measure only partially resolved the financial challenges faced by streetcars. Government financial policy also increasingly gave highways an advantage over long-distance railroads in the 1920s and 1930s. Writing in 1936 in the Annals of the American Academy of Political and Social Science, the railroad economist C. S. Duncan identified some of the

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competitive advantages enjoyed by highway users. Raising money through less expensive government-backed bonds instead of private bonds was one crucial difference, he argued. The financial risk of railroad bonds depended “directly on the earnings of the property,” while investors valued highway bonds only “on the credit standing of that government unit, whether state, county, or municipality, issuing the bonds.”57 Duncan noted similarly that using highway construction to relieve unemployment in the 1930s provided cheap labor for highways, which the railroads did not have.58 The comparative taxation of railroads and highways also particularly favored roads. In all states, Duncan observed, highway rights-ofway went untaxed, providing motor carriers with thousands of miles of tax-free real estate over which to drive. Similarly, state governments frequently dedicated personal property taxes on automobiles to highway purposes rather than general expenses. In California and thirteen other states, state governments eliminated personal property taxes on motor vehicles altogether and replaced them with vehicle license fees. These “in-lieu” taxes often did not pay for the general functions of government, but rather were earmarked for highway improvement and maintenance.59 In the case of California, the “in lieu” tax instituted in 1935 helped pay for state highway bonds. Railroad advocates repeatedly called on government to equalize the property tax burden in the late 1930s and early 1940s. While they recognized the difficulties of administering a property tax on highway land, railroad spokesmen warned that, unless a property tax equivalent is collected from carriers using government facilities, they gain a competitive advantage over carriers providing their own facilities and paying taxes on them. If the charge for the use of a public facility for private purposes is to be sufficient to cover its full cost to the public, it must include taxes that the facility escapes by reason of being under government rather than private ownership.60

An investigation of carrier taxation funded by Congress in the mid1940s estimated that a property-tax equivalent for 1940—a levy based on the property taxes lost because of public ownership of the roads— would have equaled a charge to highway users nationally of $90 million.61 The report did not break down this estimate for each state, but California, which invested heavily in its highways, was among the top ten to fifteen states. A hypothetical property-tax equivalent of $2.5 million would have exceeded 5 percent of California’s $45 million highway budget in 1940.

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Consumption Highway bonds 9% ($49.7 million)

Sales tax exemption 14% ($72.5 million)

Remainder 66% ($350 million)

Estimated property tax equivalent 6% ($30 million)

Figure 20. Between 1933 and 1945, almost a third of the state and federal funding for California’s highways came as tax assistance, including an exemption from sales taxes, repayment of highway bonds by the general fund, and freedom from property taxes. (Zettel, Analysis of Taxation for Highway Purposes, 70, 72, 111; Board of Investigation and Research, Carrier Taxation, 185.)

Highways also received other crucial tax assistance as a result of political victories in the 1930s, including a general sales tax exemption for gasoline and the dedication of personal property and gross receipts taxes on motor vehicles and trucking companies to repay highway bonds. When the property tax equivalent, sales tax exemption, and highway bonds for the years 1933 to 1945 are added up, the tax assistance totals 29 percent of total state and federal highway expenditures in California.62 This extraordinary combination of tax subsidies for highways does not entirely explain the rapid rise of the automobile. But the tax benefits clearly influenced the relative speed and depth of the automobile revolution. Representatives of the privately held railroads correctly identified these inequalities in taxation. But railroad advocates could not propose a satisfactory solution to the problem of public ownership of the highways. The federal transportation analyst Wilfred Owen suggested in 1942 that the railroads be placed on a similar basis as the highways, with publicly owned railroad rights-of-way financed by user fees paid by private rail carriers.63 The Association of American Railroads, however, denounced Owen’s proposal as “partial socialization of the

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railroad industry” and condemned in general a larger national trend toward public ownership. The association proposed instead the “property-tax equivalent” for highways, which was politically infeasible, since American roads had always been exempt from property taxation. The chances were slim that railroads would manage to change that “public” exemption of highways from taxation simply to equalize the tax burden among different forms of transportation. The public roadways provided a powerful economic boost to railroad competitors. The railroad economist C.S. Duncan described the prospects of the Pan-American Bus Lines, a common carrier of passengers and baggage between New York City and Miami, Florida, as a typical beneficiary of governmental assistance to highway users. PanAmerican Bus Lines needed little capital to establish a route in competition with railroad carriers. The company, Duncan wrote, had no concern for, no financial participation in, no financial responsibility for, the fourteen hundred miles of expensively improved highways which he intended to use. They were there before he inaugurated service. They will remain and be maintained regardless of his use. They were constructed out of taxes, maintained out of taxes, and sustained by public credit. He was able, therefore, to establish a common carrier service over a fourteen hundred-mile route by expenditures and obligations of $43,000.64

Some of Duncan’s complaints highlighted the inherent advantages of flexible, shared roadways, which allowed a private carrier to share public highways with multiple users.65 Yet other privileges enjoyed by highways, especially tax advantages and public credit, had little to do with the inherent superiority of motor vehicles and their infrastructure. Duncan concluded, “This is ‘transportation by taxation.’”66

CONCLUSION

California’s experience with user financing helps to explain the enormous investment in highways that began nationally in the 1920s, providing critical infrastructure for explosive growth in oil consumption. The public investment in highways took place primarily at the state level, as did political struggles over transportation taxation and finance. After World War II, with the user-financing system in place, slight increases in gasoline taxes at the state and federal level flooded money into highway expansion.67 Between 1947 and 1970, local, state, and

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federal highway expenditures totaled $249 billion, with most of the money coming from special motor vehicle taxes.68 According to one estimate, 75 percent of government transportation expenditures went to highways, while only 1 percent assisted mass transit.69 As with railroads in the nineteenth century, government assistance developed the highway network in ways that private capital never would have supported. Government aid carried highways to infrequently traveled regions and encouraged the proliferation of roads in urban areas.70 The national experience with toll roads in the mid–twentieth century illustrated the American tendency to overdevelop highways. The national government considered constructing toll roads, as had been done with limited success in the nineteenth century. But the U.S. Bureau of Public Roads predicted in 1939 that “only a small portion of present traffic could be attracted to the toll system.”71 A short postwar boom in turnpike construction confirmed this view. Only three thousand miles of toll road were constructed in thirteen states during the 1940s and 1950s. With the grandest plans for toll roads anticipating only eight thousand miles nationally, it quickly became clear that toll roads could never yield the forty thousand miles proposed for the interstate highway system.72 To meet that ambitious larger goal, the federal government and the states increased their dependence on the user-financing system and decisively pushed the nation further toward an almost exclusive reliance on motor vehicle transportation. By providing highway departments with a steady revenue source protected from legislative control, the segmented financing system served a particular “public”—highway users—and distorted state finance. User financing converted highways into a private good, but with many public privileges. Citing user fees to prove the fairness of the system, few people questioned whether government should allow one group of taxpayers to determine so freely the overall transportation infrastructure of the state and nation, altering the balance between highways and mass transit. User financing also distributed transportation benefits unequally among the population. As with special assessments for public works in the nineteenth century, the needs of the poor went mostly unmet. Funding for urban and intercity mass transit declined, forcing people to rely on more expensive motorized transportation. In only a few places in the state, such as the San Francisco Bay Area, with its effective municipal bus and Bay Area Rapid Transit systems, is it relatively easy to live without a car.

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The “benefit” theory of transportation pretended to exemplify market competition, whereby those who used mass transit would pay for it and those who desired highways would finance them. Highway advocates pointed to user taxes to illustrate their competitive success in the transportation market. Yet this market was not free. Federal, state, and local governments directly subsidized highway expansion and granted generous tax exemptions to the “public” roads. The unequal means of the different classes of consumers further complicated the struggle over transportation. Middle- and upper-class motorists—allied with farmers, highway departments, labor unions, and the motor vehicle and petroleum industries— led the movement for the highways, leaving behind deteriorating mass transit systems. Wealthier motorists could afford higher user charges. Indeed, the state auto clubs had pushed through the gasoline tax in the 1920s as a means to self-finance statewide highway expansion. By contrast, mass transit patrons jealously guarded the five-cent fare. As a result, highway taxes, and thus investment in highways, could rise with little consequence, while higher transit fares stranded the poor. Yet even in the ostensibly free market terms of “benefit” transportation, the fight was never really about whether highway taxes would subsidize other general governmental expenses, such as education. The taxes never even paid entirely for the roads, and certainly not for the additional public costs of pollution and motor vehicle injuries.73 Instead, Californians, and Americans nationally, battled first over how much the general fund should underwrite highway and street development.74 Critics of general financing for highways thought that they had improved the situation by instituting the user-financing system in the 1920s. User financing removed the burden of highways from the general fund but also allowed highway advocates to capture part of the state government and to overdevelop the state highway system. The California economist William H. Anderson argued in 1951 that, among its many attributes, the gasoline tax “aids railroads to compete with trucks and buses.”75 But Anderson had his logic reversed. Rather than equalize the tax burden among different forms of transportation, user taxation exacerbated inequalities in transportation finance and enabled a more rapid replacement of mass transit by motor vehicles. Motorist advocates fought with great determination and success to protect the user-financing system during the depression years, ultimately codifying its principles in the state constitution in 1938.

CHAPTER

8

Defending the UserFinancing System

The separate revenue stream for highways, established during the early 1920s, soon faced threats. In this flush period, California regularly posted general fund surpluses. After the onset of the Great Depression, however, revenue from motor vehicle users became an increasingly attractive source of money for alternative projects. The Republican governor James Rolph and some state legislators soon proposed using gasoline tax revenues for a variety of expenses, such as paying off state highway bonds and local special assessment bonds or funding unemployment relief.1 Successful defense of highway funding protected the flow of money into road construction and maintenance. As pressure mounted on the user-financing system in the early 1930s, California’s auto clubs and their legislative allies fought back with marked success against efforts to reallocate highway taxes. They defined the acceptable expenditure of highway user charges narrowly, labeling alternate spending, even on streets or state highway bonds, as diversions from the “legitimate objectives” of gasoline tax revenues. A 1931 editorial in Touring Topics, the magazine of the Automobile Club of Southern California, warned of “raids upon the gasoline tax and motor vehicle registration fees.” According to the automobile club, these “raids” included using money for separating local streets from railroad tracks, aiding joint county highway construction and city street development, and paying interest on outstanding highway bonds.2 182

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Perhaps the most remarkable thing about these “diversions” was how closely related they were to motor vehicle use. Their classification as “raids” illustrates the intense focus of automobile clubs on the state highway system alone. Arguing against diversion in February 1933, Motorland, published by the Northern California–based California State Automobile Association, declared that earmarking highway user fees had given California “its great highway system of today. . . . Were it not for the explicit dedication of the money to highways and the further principle of spending the money where roads are needed, the Redwood Highway might still be a narrow winding dust-covered road. Yosemite might still be a two-days’ tiresome trip, instead of accessible in a few hours over fine highway the year round.”3 Touring Topics and Motorland, the official voices of California’s powerful auto clubs, opposed spending motorist taxes on mundane, local issues like city streets or grade crossings. The clubs also saw no need to let user fees repay the highway bonds, preferring that the general fund continue to carry that burden. Instead they sought to continue construction of a statewide highway network that would link metropolitan areas with popular, remote tourist destinations. As the Great Depression hit California, property values fell rapidly, resulting in lower tax revenues, partly due to default, and prompting efforts to shift the tax burden away from property owners to new sources of revenue, including entirely new forms of state taxation. High fixed charges stipulated by the constitution gave little discretion to the governor or legislature, and the California state budget was clearly headed for a substantial deficit by 1932. The California Republican Party, which continued to dominate state politics in the early 1930s, split on the proper response to the state’s fiscal crisis, with important implications for state highway funding. The Republican state controller Ray L. Riley, warning of the worst fiscal crisis since the 1890s, projected $17 and $36 million general fund deficits in 1933 and 1934.4 Riley argued that mere economies in spending would not balance the state budget. He advocated that California institute a sales or income tax and shift fiscal responsibility for education from the counties to the state.5 Governor James Rolph’s director of finance, Rolland Vandegrift, opposed Riley’s radical new tax proposals and sought to cobble together a patchwork solution that depended primarily on spending cuts. Vandegrift thought that California could weather its hard financial times with an across-the-board trimming of all programs, including highway spending. Noting that other states had tapped their gas tax

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funds, Vandegrift declared, “I cannot agree with those who would not cut the public works program and the State highway expenditures.”6 To avoid restructuring the California tax system, Vandegrift proposed reducing the state’s fixed expenses by almost $48 million—including spending on education, pensions, and salaries—and then using $8.5 million in gasoline tax funds to help pay off state highway bonds and close the remaining $12 million gap.7 Part of the struggle over California finances in 1933 thus revolved around whether to take almost 20 percent of the gasoline tax revenues away from highways and make two $8.5 million payments in 1933 and 1934 to cover interest and principal on state highway bonds. Governor Rolph attacked the continued isolation of highway user funds. He complained in his 1933 budget message that the state should have stopped repaying the highway bonds after the enactment of the gasoline tax. Instead of the so-called problem of gasoline taxes covering general expenses, Rolph said that “the diversion of general fund moneys for highway purposes” had crippled California’s general fund. “There is no logical reason, considering the enormous sums derived for highway purposes from the gas tax, the motor vehicle tax, the tax on highway transportation companies and federal aid, why the general fund should be called upon to continue to pay such a large annual amount for highway purposes.”8 Vandegrift similarly urged the state to use its abundant highway funds “in this emergency” to help relieve the deficit. “We should be more concerned with the welfare and happiness of the individual citizen than we are concerned with the building of inanimate roads,” he declared. “It should be of greater concern to relieve the taxpayers of some of their load by preventing the increase in the tax burden . . . than to maintain the theoretical contention that gasoline taxes should be used for no other purpose than the building of highways.”9 Following Rolph and Vandegrift’s lead, the state senate voted to place the highway bond question before the electorate in a June 1933 referendum. Supporters of the idea in the senate claimed that the “avowed purpose of the gas tax was to provide for all highway expenditures” yet the general fund continued to repay the highway bonds. The senators argued that it was “only logical that these highway bonds . . . should be paid for by the motorists and truckmen who are making use of the highway system rather than by the taxpayers of the State generally.”10 The Joint Legislative Tax Committee of the senate and assembly advised against “any more radical changes in the system of State taxation than are absolutely

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necessary” and thought that diverting the gas tax would allow California to weather the rough times of the depression.11 Motorist advocates—the auto clubs and their supporters in the legislature and the press—fiercely resisted this effort to shift bond repayment from the general fund to highway users. “The roads built under the original bond issue,” senate opponents argued, “have long since disintegrated and have had to be rebuilt by the gas tax on the ‘pay-as-you-go-plan.’” Propositions 9 and 10, which would have allowed California to use gas tax revenues to make two $8.5 million bond payments, constituted an “opening attack to divert this fund for general fund needs now and for all future time. It is a raid pure and simple upon easily collected funds—easily collected because those paying have done so willingly with the realization of the benefits that accrue from such form of special tax.”12 The opposition also underscored the number of jobs at stake, warning that diversion of $17 million “for relief of the general fund will throw out of employment 10,630 men for a year . . . ninety-one cents of every dollar paid for highway construction work goes directly into the pockets of labor.” They complicated the class politics of highway support by painting Propositions 9 and 10 as a referendum on the federal government’s plan for economic stimulus through public works. A vote for diversion meant a vote to “continue the depression.”13 The California oil industry also vigorously opposed the June 1933 proposals to repay the highway bonds from highway funds, seeing “peril in abandonment” of the principle that gas tax revenues would be earmarked for road construction and maintenance. The Standard Oil Bulletin warned that “diversion in this case is too likely to lead to diversion for other general purposes.” Oil companies would support a gasoline tax targeted to highway development, but they grew alarmed at the prospect of gasoline taxation to support general state expenditures. “If the state highway program can spare this $17,000,000,” the Standard Oil Bulletin declared, “the gasoline tax should be reduced.” Diverting the funds to bond repayment would “destroy any chance of gasoline tax reduction in the future, which should be possible as the highway system is finished.” The “gasoline tax joke is being carried too far,” the Bulletin complained.14 California auto clubs and their legislative advocates sought to safeguard the state gasoline tax revenues while also showing that they were helping ease the overall tax burden. To carry out this delicate balancing act, they proposed that the state relieve local property taxpayers by incorporating more roads and streets into the state system.15 The San Francisco Chronicle automobile editor Leon J. Pinkson explained that

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Figure 21. A dirt road stretched along Cahuenga Pass in the Hollywood Hills before California funded its highway construction program. (Courtesy of the Security Pacific Collection/Los Angeles Public Library.)

opponents of diversion were being accused of “advocating lavish expenditures on new highway construction” and disregarding “the bad condition of State government finances.” But Pinkson thought that the charge was “definitely disposed of” by a proposal to bring approximately sixty-six hundred miles of county and city roads into the state highway system: “Local taxpayers would be relieved of a considerable part of the burden they now carry in taxes for road and street purposes.”16 Pinkson, the auto clubs, and other highway supporters reasoned that it was better to dilute state highway funds by doubling the state system than to relinquish control of any gasoline tax revenue. With city and county budgets extremely tight, incorporating city and county road mileage into the state system also protected these roads from competition for general funds at the local level. The successful proposal to expand the state highway mileage thus rewarded highway advocates in two ways: it guaranteed coverage of county roads by the motor vehicle fund and it deflected pressure to divert state highway revenues to other pressing state needs. Highway supporters emphasized the continued earmarking of highway funds to provide employment during hard economic times, and the support of labor unions for the highway projects helped strengthen

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Figure 22. Governor Culbert L. Olson (front row, second from left) joined Los Angeles Mayor Fletcher Bowron (front row, center), singer-actor Gene Autry (front row, third from right), and others to dedicate the newly paved state highway through Cahuenga Pass in 1940. (Courtesy of the Herald Examiner Collection/Los Angeles Public Library.)

their political position. Yet it is difficult to see in their proposals a broad concern for the financial well-being of California’s poor or unemployed. Their staunch resistance to releasing highway funds helped prompt a thorough reorganization of the state tax system, one that did not favor less wealthy Californians. After the June 1933 vote to strictly earmark highway funds, California faced a $50 million budget deficit with few means to fill it.17 Voters exacerbated the financial quandary by also approving a proposed constitutional amendment to limit revenues from property taxation and shift educational financing to the state. The June 1933 special election thus squeezed California’s system of public finance. The state legislature had to fill the budget shortfall with a new revenue source. Formidable opposition to a state income tax restricted that option. As a result, two months after the June referendum, the California State Legislature instituted a general 2.5 percent sales tax.18 Gasoline received privileged treatment under the new sales tax policy. California taxed sales of staples like bread and milk for the general fund but did not tax sales of gasoline.19 Because gasoline already carried state

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and federal taxes, motorist advocates in the legislature, led by the senate president, Arthur Breed, successfully exempted gasoline from the new state levy. An Oakland real estate developer who had helped establish the user-financing system, Breed also served on the board of the California State Automobile Association and spoke for the northern association politically in the legislature. Breed helped ensure that, while the sales tax revenue went to the general fund, the gasoline tax continued to underwrite only highway maintenance and construction. Lobbyists and legislators like Breed thus forced the state general fund—propped up by the new sales tax—to continue to repay state highway bonds. Motorist advocates also protected gasoline from the new sales tax while continuing to earmark gasoline taxes for highway purposes. This political victory for the motorist “class” did not completely relieve automobile owners of levies, since they continued to pay a sales tax on purchases of motor vehicles and accessories.20 The substantial gas-tax revenues, however, totaling $35.5 million in 1933 alone, remained safe from use even for highway bonds. The losses to the general fund as a result of the sales tax exemption for gasoline climbed steadily with the rise in gasoline consumption, totaling some $72 million between 1933 and 1945.21 Gasoline remained exempt from the state sales tax until approximately 1970, even as highway advocates emerged as among the strongest supporters for retaining the sales tax on other goods.22 Motorist advocates and oil companies recognized the general sales tax as a key safeguard of the health of the general fund, a protection that eased political pressure to divert highway tax revenues.23 After California voters rejected diversion of the gasoline tax, the legislature was forced to continue to pay off highway bond debt with general funds. Perhaps in order to create the illusion that highway users paid for the bonds, the legislature dedicated highway-related general tax revenues to bond repayment, including a gross receipts tax on commercial highway operators and a tax in lieu of a personal property levy on vehicles. Whereas the gross receipts tax on streetcars and railroads went to the general fund, the gross receipts tax on for-profit motor carriers went first to highway construction and maintenance and then later to pay off highway bonds.24 Critics of this special treatment for highway users argued that the gross receipts levy was a “tax upon the business of transporting passengers and freight,” not a tax for using the highways. They argued that California’s highways did not need the money as much as other state programs.25 But only in 1935, after the gross receipts tax had funded highway projects for twelve years, did legislators shift the tax into the general fund.

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After it redirected the gross receipts tax to the general fund, the legislature continued to use general fund money for bond repayment while appearing to draw from highway funds. The legislature replaced the local personal property tax on automobiles with a state motor vehicle license fee assessed “in lieu” of the property tax. In the process of changing the means of collection, the legislature converted a generic property tax assessment on valuable motor vehicles into a highway user tax. The law establishing the “in lieu” tax stipulated that it pay for highway-related expenses such as interest on, and the redemption of, old highway bonds; law enforcement; and the regulation and control of highway traffic.26 The California Supreme Court went so far as to rule that the “in lieu” tax no longer taxed personal property but instead had become a special user fee for car owners—a mysterious transformation.27 Just as gasoline sales were exempt from the general sales tax, automobiles became exempt from the general tax on personal property. As a result of this legislative and judicial sleight of hand, between 1933 and 1945 the interest on and redemption of highway bonds consumed $50 million that ought to have gone into the general fund for general governmental expenses.28 The $50 million saved for highway development was approximately 9 percent of highway expenditures, which averaged $44 million per year.29 Meanwhile, all other nonhighway governmental expenditures, including education, totaled only $67 million per year between 1933 and 1945.30 The federal government readily accommodated a campaign by automobile association and other highway lobbyists from across the country to continue the earmarking of highway user taxes. After passing a federal highway assistance law in 1934 called the Hayden-Cartwright Act, the federal government could withhold aid from states that diverted excessive amounts of money from their highway funds.31 Under this act, the government punished states that sought to use gastax money for unemployment relief, education, or property tax relief. The Department of Agriculture, which oversaw federal highway efforts, withheld $472,000 in highway aid from Massachusetts in 1938, 14 percent of the intended apportionment of $3.1 million. New Jersey lost $250,000 in 1937.32 The threat of punitive action alone successfully pressured many states to leave motor vehicle revenues alone. The U.S. Bureau of Public Roads reported in 1939 that “committees and members of State legislative assemblies, State highway officials, and citizens’ organizations submit numerous inquiries each time that such assemblies

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are in session as to whether certain proposed legislation will constitute a diversion of the proceeds of the motor-user taxes.”33 Maryland and Pennsylvania restored diverted funds as a result of federal pressure.34 The New Jersey legislature resisted federal pressure when it voted to divert money first in 1937 and then again in 1938, creating an $8 million relief bill financed by motor vehicle taxation.35 But such resistance cost New Jersey federal aid in 1937. The federal government never penalized California, but the Hayden-Cartwright Act figured constantly in state political struggles.36 Following passage of the federal law, Leon J. Pinkson, automobile editor of the San Francisco Chronicle, demonstrated how it could be used effectively to bolster arguments against the diversion of highway funds. Pinkson warned his readers that “all California has to do to wave goodbye to more than $3,000,000 of Federal aid highway money is to divert gasoline taxes or other highway revenues.” It would be a “simple matter of arithmetic” to determine the amount “definitely and completely lost to California” as a result of diversion. The implications of the Hayden-Cartwright Act were clear, according to Pinkson, “No amount of figure-juggling by gasoline tax diversion advocates could discount the fact of a dead loss of more than $3,000,000, which would be redistributed to other States which have the good judgment and honesty to keep their highway funds intact for highway purposes.” After quoting extensively from the law, Pinkson specifically noted that the gasoline tax “never was intended” to repay California highway bonds. “Consequently, diversion of gasoline taxes for bonds payments would invoke the penalty against California the same as any other diversion of highway money.”37 When the Department of Agriculture finally penalized New Jersey in 1937 for diverting highway funds to unemployment relief, the Chronicle editorialized: New Jersey has found diversion of gas tax funds from highway purposes to be a costly sport. For such a diversion the Federal Government has charged New Jersey a quarter of a million dollars. . . . New Jersey took the chance and now knows that the Federal Government meant what it said. The State gets from the Federal road fund $250,000 less than it would have received if it had not nicked from the gas tax fund.

Chronicle editors urged that California amend its constitution to bar diversion permanently and thus remove the danger of losing federal funds. “When that amendment is adopted[,] the gas tax money will be safe for the highways and this State will be in no danger of losing a big

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chunk of its Federal road allotment,” the Chronicle declared in support of the idea.38 The Hayden-Cartwright Act thus undermined state-level efforts to use highway revenues for other purposes, underscoring again how powerful economic groups used the complex jurisdictional layering of the U.S. political system to secure political advantages. Even so, the federal threats did not entirely stifle legislative or local initiatives to lessen California’s investment in highways in order to address competing priorities: the state managed to use some highway user taxes for economic relief during this period. The state’s relief fund borrowed $5 million of “surplus” gasoline tax money in July 1936 to avoid private financiers and thereby save thousands of dollars in interest.39 Counties also repaid an unemployment relief loan out of motor fuels tax apportionments totaling $21.6 million between 1937 and 1945.40 But highway advocates and the oil industry defeated proposals to add a penny to the gasoline tax in 1935 specifically for the benefit of unemployment relief.41 Political alignments were complex in these struggles over highway funding. Republican legislators like Arthur Breed were often closely allied with real estate developers and automobile associations favoring road construction. But California Republicans also were deeply concerned about high property taxes and the need to cut state spending. Democratic politicians favored the employment provided by public works projects, including road construction, and often were tied to unions as well as real estate and other business interests. At the same time, however, Democrats also sought to shift funds away from highways toward other key Democratic initiatives such as unemployment relief. That both parties attacked the earmarking of highway funds demonstrated that many politicians believed roads were less important than competing governmental priorities. Critics generally did not oppose earmarking to improve the position of the railroads and streetcars. But their challenge threatened to weaken the highway system’s privileged position. Despite the defeat of Rolph and Vandegrift’s 1933 proposal to divert gas taxes, Republican state legislators continued their struggle through the rest of the 1930s to shift highway bond repayment onto motor vehicle user taxes. The Los Angeles Republicans E.V. Latham and Frank Wright reintroduced the idea in 1935 that highway fund revenues, instead of the “in lieu” tax, should repay state highway bonds over the next four years.42 But opponents again successfully used the “in lieu”

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tax, and its subtle conversion from property tax into apparently dedicated highway funding, to block the diversion of actual highway user taxes. The San Bernardino senator Ralph E. Swing, one of Olson’s Republican rivals on the 1937 oil leasing bills, similarly proposed that cities or counties be allowed to use their gasoline tax allocations to pay off special local bond issues for highways. Writing in opposition to Swing’s bill and five similar legislative proposals, the San Francisco Chronicle warned of the dangers of such a “direct diversion” of highway funds. The newspaper described alarmed public works officials who feared both losing millions in federal aid and declining local and state expenditures on highways.43 Conflicts at the state level were mirrored by local fights over whether city and county gas taxes would be spent on nonhighway expenses. In Los Angeles, the city and county vied for control over gas tax funds and criticized each others’ efforts to divert highway funds to reduce general property taxes within their jurisdiction. By broadening the definition of highway expense, Los Angeles politicians shifted money from road construction to street lighting. County supervisors complained about this transfer, but, at the same time, the county managed to use some of its highway funds to alleviate property tax assessments for road improvement districts. The struggle between city and county helped determine whether highway funds would be diverted to other purposes. The conflicts also influenced whether public money would be spent to develop rural county highways, which facilitated metropolitan sprawl, or local streets and roads, which served already settled areas. The pervasiveness of local conflicts over how to spend gas taxes underscored the fact that many local and county government leaders thought too much money was being spent on road development. They sought to use gas tax money to replace general fund expenses, thereby lowering general taxes or freeing up general funds to be spent elsewhere.44 But they struggled, usually unsuccessfully, against the benefit rationale for motor vehicle taxation, which prevented a clear balancing of highway spending against other public expenditures. These constant, though largely unsuccessful, efforts to reallocate highway funds prompted the Automobile Club of Southern California to agitate for a constitutional prohibition against such “diversions” in 1936. The proposed constitutional amendment to preserve motor vehicle taxes for highway purposes split highway advocates on political strategy, however, and ultimately met defeat in the November 1936

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election. The California Highway Commission publicly endorsed the constitutional initiative.45 But the northern-based California State Automobile Association (CSAA) led the opposition, signaling the relative independence and poor coordination among the two regional automobile groups. Because the proposed amendment would have equalized fees and taxes across types of fuels and engines, the northern group viewed it as a covert attempt to limit taxation of diesel vehicles.46 Untaxed at the time, diesel fuel was under consideration for a new state levy. Since diesel produced more miles per gallon than gasoline, an amendment that made the diesel tax equal to the gasoline tax would leave diesel users with a lesser burden per mileage driven. The northern auto club’s magazine, Motorland, urged that California leave the legislature “with a free hand to deal with the Diesel tax question.”47 Leon J. Pinkson, the Chronicle automobile editor who frequently articulated the northern club’s positions, labeled the amendment a “shrewd attempt to hoodwink the public.”48 The northern club also differed from its southern counterpart on whether the highway funds were seriously threatened. Motorland confidently called the constitutional amendment a “sham battle.”49 Pinkson, following the motor club, contended that attempts to divert gasoline tax money had been so “decisively rebuked by the people of California” that he could not see “any need for a constitutional amendment.”50 This split between the northern and southern automobile clubs sent a confusing message to the California electorate, and voters rejected the 1936 antidiversion amendment in the November election. However, within a year after the legislature had voted to tax diesel fuel at a higher rate, the northern auto club changed its position and strengthened its political alliance with the southern club. The northern club now advanced two new constitutional amendments to protect the highway program’s revenue base and organizational independence.51 Two rising Republican politicians from Oakland, Senator William Knowland and Assemblyman Arthur Breed Jr., shepherded through the legislature a revised constitutional amendment against diversion. Both Knowland and Breed were closely allied with the northern auto club as well as conservative Republican and Northern California development interests. Knowland was the son of the publisher of the Oakland Tribune and would go on to become majority leader of the U.S. Senate and an unsuccessful candidate for California governor in the 1950s. Breed, son of the former state senate leader and CSAA director Arthur Breed, came from a family heavily invested in Northern California real

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estate development and would have a long career in California state politics. Knowland and Breed’s proposed constitutional amendment was a fairly straightforward revision of the 1936 proposal to bar diversion of highway funds, without the complicating diesel tax problem. To make the amendment more palatable, the sponsors had not included the “in lieu” tax and the gross receipts tax on commercial vehicles within its purview. The general fund also could borrow temporarily from the highway funds under the legislation, but it would have to repay the money as soon as possible. Under the state constitution, the public schools and the university possessed first right to all state revenues in a case of fiscal crisis, but they also would have to make repayment to the highway fund their top priority.52 The provisions meant that education could borrow from the highway funds on a short-term basis, but the legislature could not reallocate highway funds to education or other general fund purposes. The campaign for the antidiversion constitutional amendment in California was part of a national effort led by state-level coalitions of automobile clubs, oil companies, highway builders, and real estate developers. Motorland called the amendment part of a “virtually nationwide determination to throw permanent safeguards around gasoline tax money and other highway funds. This determination is regarded as an inevitable reaction to long-standing threats of diversion of such funds to non-highway purposes, and actual instances of diversion outside of California running into huge sums.”53 Motorland urged passage of the proposed constitutional amendment to “end the danger once and for all.”54 In California, a formidable coalition led by the northern and southern auto clubs and joined by the Department of Public Works, the County Supervisors Association, and the California Chamber of Commerce campaigned for the new proposal. The State Federation of Labor also supported the amendment, hoping to entrench a booming highway construction program in the constitution. The San Francisco Chronicle promoted the measure in characteristic fashion, reprinting verbatim the arguments of proponents without mentioning any opposing views.55 As they worked with Knowland and Breed to put the highway funds into a constitutional lockbox, the northern and southern auto clubs also advanced a ballot initiative measure to establish a highway and traffic safety commission. This second constitutional proposal, which also appeared on the ballot in the fall of 1938, sought to ensure the highway program’s independence from democratic political control. The pro-

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posed administrative change was part of a series of efforts at reorganization dating to the 1920s. Modeled on California’s regents system of governance for the university, the commission proposed to isolate the highway program from the legislature, governor, and partisan politics. The governor would appoint five commissioners to the highway and traffic safety commission, subject to senate approval, with no more than three of five being of the same political party. Each would serve for ten years, working full-time at their positions, subject to removal by the senate only by a two-thirds vote. The amendment gave the commission responsibility for all “the powers, functions and jurisdiction relating to highways, outdoor advertising, toll bridges, other highway crossings, and vehicles.” The commission would absorb the Department of Public Works and the Department of Motor Vehicles, except for vehicle registration and tax and fee collection, and could “change, consolidate, or abolish” any division absorbed from these departments as necessary. The commission also would gain the authority to appoint the state highway engineer and, blurring law enforcement and highway development, the chief of the California Highway Patrol. Together the highway engineer and the commission would decide how to allocate funds for highway purposes, setting budgets for expenditures and determining the location and design of all highway work.56 The highway program, whose budget had grown to a third of California’s overall expenditures, had previously been relatively free from legislative control. This new law established even greater barriers to executive and legislative involvement, allowing highway commissioners to perform their work, as Motorland raved, “free from outside interference.”57 Both Breed and Knowland’s antidiversion amendment and the auto club’s restructured highway commission represented attempts by highway advocates to end the political struggle over highway funds by entrenching user financing and an autonomous highway agency in the California constitution. Motorland editorials promoting the two 1938 amendments combined the rhetoric of “benefit” taxation and a private business model. Arguing that a vote for the antidiversion amendment would bring “fair play in taxation,” Motorland presented succinctly the “benefit” rationale, “The gasoline tax is a special tax, levied on motorists only. When its receipts are properly allocated to highway purposes[,] it is one of the fairest of taxes. But diversion of the receipts to general governmental purposes constitutes double taxation on the motorist. A fair share of the cost of government is paid by the motorist through regular and generally imposed taxes.”58 The state should invest

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user fees solely on behalf of California motorists, Motorland said. Like a business investor, the motorist needed to “receive the fullest possible returns for his highway dollars.” With publicly traded companies, company officers maximized returns and value for shareholders. Motorland declared, “Public highways are today Big Business. . . . And they happen to be the business of the motorist.” The 1938 amendments would allow California’s highway business to function successfully. “The situation which the voters will be asked to remedy next November,” claimed the magazine, “is one under which no business, large or small, can be operated with full success—constantly threatened capital and antiquated business methods.”59 The proposed highway and traffic safety commission provoked strong and effective criticism, although it is difficult to determine exactly how critics made their voices heard before the election, since the newspapers did not record their opposition. Opposing arguments presented in the California voters’ ballot pamphlets reveal profound concern over the loss of legislative control over highway matters. The goodgovernment advocate Helen Swain Gilmore contended that the proposed measure would take “out of the hands of the people” control over the distribution of highway funds, the construction of highways, the creation or abolishment of toll bridges, and the regulation of highway traffic. The amendment would put “not only the highways but our present highly efficient highway patrol neatly in the pocket of a superpolitical hierarchy.” Gilmore insisted that a highway commission was not a constitutional matter and warned that, once in place, the commission would retain its powers “forever.” She criticized the lack of accountability for commissioners with ten-year terms, removable only by a two-thirds senate vote. The California Highway Patrolmen’s Association echoed Gilmore’s fears about the commission’s constitutional autonomy. The association criticized the automobile clubs’ sponsorship of the amendment and expressed fear that the clubs could “usurp and exercise governmental functions.” The commission overall would create new forms of political patronage and “inject politics into law enforcement.”60 Dire warnings such as these from the ballot information pamphlet led California voters to reject decisively the automobile clubs’ proposal to create a highway and traffic safety commission. The dangers posed by a powerful and independent commission controlling one-third of the state budget and the highway patrol outweighed any impulses to streamline California’s highway program.

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Fiscal analysts unsuccessfully criticized Knowland and Breed’s 1938 proposal to give highway user funds constitutional protection. Critics of the proposed amendment particularly questioned the way that earmarking eliminated legislative discretion and asked why highways should be favored over other desirable public goods. The assistant state legislative counsel J. Gould privately advised William Knowland that a trust fund model did not apply to highway user taxes intended to carry out “essential governmental functions.” The “mere fact” that the legislature had “customarily appropriated” such moneys to highways, Gould wrote, should not prevent it from using the revenue for “any purposes.” “To hold otherwise” would segment state finances, whereby “the moneys derived from all revenue bearing statutes could be earmarked for specific purposes, to the possible strangulation of the functions of government and education.”61 The Berkeley economist Malcolm M. Davisson similarly charged in the 1938 ballot pamphlet that the proposed constitutional amendment violated the basic principles of representative democracy. He particularly attacked the permanency of the antidiversion provision: “It is entirely unnecessary to grant constitutional protection to so large a group” as motor vehicle owners, for “their voting strength is enough to protect their interests.” According to Davisson, “An adequate program of expenditure in any field is a relative matter.” Highway expenditures should vary with the need for highway development relative to other public demands and the burden of raising revenues.62 A constitutional provision unduly constrained the legislature’s ability to adjust to changing financial circumstances. But Gould and Davisson’s abstract arguments fared poorly against the highway advocates’ drumbeat of tax justice and the motorists’ fair share. In the 1938 election, California voters approved the constitutional amendment outlawing diversion of motor vehicle funds. This amendment, which held fast for more than thirty years despite numerous attempts to alter it, barred California from spending highway user taxes on anything but highway construction and maintenance. The measure slammed the door on continuing political debate over how to spend highway funds. Yet the very need to protect user financing constitutionally underscored that politics threatened to deflate California’s rapidly growing highway budget as quickly as proponents had pumped it up. If state politicians, and by extension their constituents, valued highways so thoroughly and exclusively, why were motorist advocates compelled to entrench the user-financing system in the state constitution?

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CONCLUSION

The political controversies of the 1930s reveal that a desire for highways was only one of several reasons why California spent so much money on road construction in the 1930s and afterward. What else accounted for the robust character of the state highway program? First, automatic investment by the gasoline tax system helped the system expand even in a declining economy. Without any legislative action or popular vote, the user-financing system ran continuously and grew with the increase in gasoline consumption. The tax mechanism effectively removed politics from highway finance and particularly avoided the balancing of highway construction against all other budgetary demands. Second, principles about fairness in taxation shaped state spending. According to the concept of benefit taxation, California could spend motorist taxes only for the benefit of motorists. Federal law enforced this privatized system, and the 1938 constitutional amendment embedded it in California’s constitution. These federal and state laws mandated that the principles of benefit taxation, rather than a vision of the best transportation network for the state, would determine transportation finance. Third, concerns over employment provided road boosters with another popular argument. Road construction was a key element of the New Deal economic development strategy, and the state pushed forward with highways partly to create public works projects. Labor unions and progressive Democrats backed highways for jobs and patronage opportunities. Although ostensibly unrelated to the underlying merits of highways, these three political factors—automatic investment, tax principles, and job creation—all contributed mightily to the dominance of highways in California’s transportation system. Though many critics complained throughout the 1930s that highway funds would be better spent on other priorities, few focused specifically on the idea explored here—that politics and institutions might lead California to overinvest in its roads. Still, the possibility did not go unnoted. Self-interested opponents like the Oil Producers Sales Agency (OPSA), which disliked how the gas tax raised the price of its product, exclaimed at the “staggering sum” that the tax raised. The “alleged ‘painless method’” of gasoline taxation was “so fruitful that it tends toward profligacy” in highway spending, OPSA declared.63 The state controller and fiscal conservative Ray L. Riley shared OPSA’s belief that high gasoline taxes caused California to

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Fund Balance (thousands of dollars), June 30

$60,000 $40,000 $20,000 $0 1928

1930

1932

1934

1936

1938

1940

1942

-$20,000 -$40,000 General fund -$60,000

Highway funds

-$80,000 -$100,000

Figure 23. While California’s general fund seesawed wildly, the state’s highway funds were insulated from the economic crisis of the Great Depression and posted regular end-of-year balances of $20 million. (California State Controller, Biennial Report, 1928–1942.)

spend too much. “Merely because we had the money,” Riley argued in 1935, California had spent an additional $15 million on its roads every two years.64 Looking back in 1939, the tax economist Marvel Stockwell agreed with OPSA and Riley, explaining that, in highly motorized California, highway taxes were “so productive that the highway fund has more money than it needs; not more than it can use, for good roads are unlimitedly greedy, but more than is necessary to supply an adequate arterial system. In fact, through the years of deficit . . . while there is an outcry against increased State taxes, the State Highway Commission has continued its program, in order to use the funds at hand.”65 But these critics’ views were lost in the political battle. The institutional and political strengths of user financing protected the surging stream of revenue and helped the highways proliferate throughout the Great Depression. A comparison of highway fund and general fund balances between 1928 and 1942 illustrates just how successfully motor vehicle advocates had isolated the highway program from the rest of the state budget. State highway funds posted average end-of-year surpluses of $20 million; meanwhile, the general budget varied radically with the economic cycles of the thirties.

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As with continuing political struggles over access to oil lands and over business regulation, the conflict over highway finance continued after the passage of the 1938 constitutional amendment. Freeway gridlock, smog, and continuing pressure to pay for mass transit and local transportation bonds brought new challenges in the 1950s. San Francisco Bay Area state senators tried repeatedly, but unsuccessfully, to revise the constitution to allow highway revenues to fund the construction of the Bay Area Rapid Transit system. State legislators also unsuccessfully sought to allow cities and counties to use highway money to replace local support for streets and roads. By the end of the 1960s, public attitudes toward highways had shifted substantially. The Sacramento Bee denounced earmarking as “outmoded and irresponsible.” The San Francisco Examiner printed a political cartoon that showed a “Highway Interests” prince sitting atop a pile of gas-tax gold while an impoverished “Mass Transit” looked on. Many critics pointed out that highway users were not paying for the societal costs of auto-caused problems like smog and congestion. Other Californians went beyond a narrow focus on costs and benefits to a deeper realization that, as the Sacramento Bee put it, “transportation is interrelated, and one part cannot be swollen to elephantine proportions without creating a need for a more balanced transportation system.” Citing the disastrous results of California’s proliferating urban freeways, the Bee declared, “These funds must be unlocked.”66 The state highway department, highway contractors, labor unions, oil companies, and automobile clubs fought to preserve dedicated highway funds. The Automobile Club of Southern California said California’s highways were “in desperate need of funds” and called highway taxes a “contractual arrangement between the taxpayer and the governmental agency.”67 But the benefit theory no longer packed the same punch. Former allies like the Los Angeles Times disparaged the “status quo” arguments offered by groups with a “vested interest in constructing state highways as fast as possible.”68 California voters finally pried open the constitutional lockbox protecting highway funds in 1974. They amended the California constitution to permit local jurisdictions, with voter approval, to use highway revenues for mass transit and the repayment of local street and highway bonds.69 Earmarking of the federal Highway Users Trust Fund also ended, in 1973, when a highway aid act made some federal highway taxes available for federal mass transit assistance.70 Yet the shift in emphasis came far too late. California had trapped itself in a landscape of freeways and highways, and a slight shift in

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transportation dollars toward mass transportation could do little to reverse the tide. The lobbying effort to sustain “firewalls” around gasoline taxes also continued at the state and federal level. Groups like the American Road and Transportation Builders Association organized the Alliance for Truth in Transportation Budgeting, which lobbies along with auto clubs, oil companies, and labor unions to maintain the benefit principle underlying modern highway finance.71

CONCLUSION

The Politics of Petroleum Prices

Kenneth R. Kingsbury, president of Standard Oil of California, wrote a private letter in 1925 to Secretary of the Interior Hubert Work regarding federal oil policy. Kingsbury argued that the United States should not fear shortages of crude oil, and that the federal government should not regulate the oil market further. Kingsbury assured Secretary Work that petroleum companies would discover new oil reserves if oil supplies declined. Similarly, consumers would use oil more efficiently. Refiners like Standard Oil could recover more high-value products from each barrel of oil. Automobile manufacturers also could “double the supply of gasoline” by doubling automobile mileage per gallon. Kingsbury warned, however, that further oil exploration and technological advance depended on the “economic stimulus of price.”1 Kingsbury urged Secretary Work to allow prices to rise naturally in order to spur exploration and innovation. Kingsbury accurately portrayed how prices, resource consumption, and technological development interact. Comparative market prices help society sort out the relative value of different economic pursuits. On the basis of price, defined more broadly than monetary cost to include convenience and other factors, producers and consumers choose whether to drill for oil or wait, or whether to travel by train, bicycle, plane, or automobile. Small price differences can influence these decisions, determining whether businesses survive and new technologies succeed. Rising petroleum prices, as in the 1970s, historically have 202

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sparked new oil exploration, increased efficiency in petroleum use, and prompted fresh consideration of alternate energy sources. Behind Kingsbury’s embrace of the “economic stimulus of price,” however, lurked an unsettling contradiction. On the one hand, Kingsbury invoked market prices as independent measures of scarcity and abundance, natural arbiters of resource use and technological change. If government refrained from economic interventions, he implied, then “true” efficient pricing of goods would properly channel natural resources and other commodities. On the other hand, Kingsbury’s advocacy to Secretary Work acknowledged how profoundly public choices and government policies influenced prices. Known oil supplies and existing technology only partly determined California oil prices. Public decisions about access to resources, business regulation, public investment, and taxation also deeply shaped market dynamics and thereby influenced prices. Given the historical deployment of these forces, even the inaction requested by Kingsbury constituted a public choice among various policy options. No idealized free market in oil had ever existed—nor, with a market’s foundation in property rights, taxation, and regulation, could one ever exist—untouched by the hand of government. Legal and political struggles over property rights, regulatory rules, and public investment defined the contours of the oil economy. Evolving in creative tension with each other, law and politics established an ever changing framework of market rules that oil producers and consumers relied upon to make economic decisions. These economic rules were renegotiated continually in legislatures, statewide referenda, and the courts. Changing economic conditions and political sentiment meant that fundamental questions about the basic structure of the oil economy were explicitly raised in public political settings. Who would control access to oil in the San Joaquin Valley or in the Huntington Beach offshore field? How would the state regulate petroleum output, if it did so at all, during the flush production of the 1930s? What public investment would California make in its highways, the key infrastructure for oil consumption? The oil market and price structure depended on the answers to these hotly contested policy questions. The link between public policy choices and price in the balancing of competing economic activities meant that California petroleum politics often circled around knotty questions of public finance. Controversial budget and policy issues had bottom-line implications for California oil producers and consumers. When the government distributed rights to

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property, for example, it determined which resources to keep for the public and the government. It also determined how to incorporate oil revenues into state and national fiscal systems. Hundreds of millions of dollars in industry profits or oil royalties turned on state and national struggles over leasing laws, naval oil reserves, and state tidelands. A broad, recurring public policy question was also at stake: What role would public oil lands and natural resources generally play in the public revenue mix? California’s efforts to stabilize oil prices by controlling petroleum production drew significant impetus from the desire to help the oil industry, a major employer and taxpayer and an energetic lobbying presence. At the same time, however, restrictions on production increased energy costs for consumers and redistributed oil production and profits among private firms. In a further twist, by cutting the quantity of oil produced, oil production controls undercut county per-barrel taxes on oil extraction. This drop in revenue spurred calls for higher county taxes on oil production and for a statewide tax on oil production in the 1930s. County taxes and the tax on production responded to the same financial issue raised by efforts to stabilize the oil market: How should the government and oil operators split profits (or rents) created by production controls? Government-sanctioned production controls sharply increased profits on each barrel of oil. Should oil operators capture that entire revenue stream? In the transportation sector, questions of public finance and transportation were synonymous. California’s entire highway infrastructure was publicly owned and developed, and in turn, highway expenditures dominated the state budget. With up to a third of public revenues dedicated to highway development—and thereby facilitating increased oil consumption—every aspect of state finance linked back to transportation and the oil economy. Petroleum industry lobbyists and motor vehicle advocates worked continually to isolate highway funds from the rest of the state budget—in essence to turn highways into the motorists’ private business. To prevent the diversion of highway funds to nonhighway uses and to block higher gasoline taxes or new taxes on oil production, petroleum and automobile interests also backed a general sales tax to stabilize California’s public finances. The sales tax was indeed “general,” covering virtually all consumer purchases, except gasoline. These struggles over public finance powerfully shaped the California oil market and linked the petroleum economy with seemingly disparate aspects of public life. State budget negotiations in Sacramento mixed

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gasoline and automobile taxes, tidelands oil royalties, revenue-sharing from federal oil lands, and a tax on oil production with efforts to reduce the sales tax, provide for education and unemployment relief, and institute an income tax. The stark balancing of competing public goals in the 1930s highlighted dramatically the complex political economy of petroleum. The oil industry and motor vehicle advocates protected privileged financial arrangements by fighting back progressives like Culbert Olson who wanted to alter the state’s revenue mix. The economic depression of the 1930s also complicated what it meant to be a progressive; widespread unemployment led many Democrats and labor leaders to support a robust highway program even though earmarking highway funds helped bring on a sales tax and undercut funding for other governmental initiatives. Except for the conflict over federal oil lands in the second decade of the twentieth century, these political struggles over the California oil economy mostly took place within California. State politicians wielded their power to regulate, tax, build, and distribute access to resources. In part, the relative absence of a well-defined national oil policy before 1940 made state policies particularly significant.2 But California’s independent role, as well as its dynamic relationship with the national government, persisted through the twentieth century, even after federal energy policy became more forceful. After World War II, state and local politicians made crucial political choices about offshore drilling, oil taxation, freeway construction, mass transit development, and the regulation of automobile emissions. These choices shaped California’s fate and, because California is the nation’s most populous state, that of the country. California’s story thus illuminates the continuing importance of state governments and state politics in twentieth-century United States political history. California’s petroleum and transportation policy distinguished it from other states. The distinctive clash between the extractive industry and coastal recreation and real estate in Southern California, for example, produced an unprecedented ban on coastal oil development in 1929. After a decade-long struggle between drilling proponents and opponents, fought in the state legislature and on the popular ballot, California finally reopened its coastal oil fields. The bargain that produced the State Lands Act introduced tighter financial oversight and dedicated royalties to building California’s extraordinary beach and park system. In this struggle over access to oil resources, as well as in the fight for oil production controls, California’s active use of the ballot

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referendum further differentiated it from other oil producing states like Texas and Oklahoma. Californians repeatedly voted against oil production control bills modeled on those of other states and, consequently, never established an oil commission to regulate state oil production. Only rising demand during World War II and the swift decline of California’s oil fields finally resolved its overproduction problem. Yet a paradox remains. While the state profoundly shaped its fate and distinguished itself from Texas, Oklahoma, and other oil-producing states, in its fundamental dependence on oil and the automobile California resembled the rest of the country. Why was this so? As a state operating within a federal system of government, California enjoyed significant latitude to influence patterns of economic development and environmental change. But national policy still framed the state’s options. At the most basic level, U.S. property laws granted subsurface oil rights to surface landowners. Virtually everywhere else in the world, national governments retained ownership over oil resources and developed large oil concessions. In the United States, by contrast, private competition for access to common oil pools resulted in frenzied drilling and extraction across the country. In addition, political struggles for access like those in California recurred countless times in other states. Wyoming’s Teapot Dome oil field gave the 1920s oil leasing scandal its name, even though California’s Elk Hills field contained more valuable oil lands. The federal government also provided tax incentives for oil drilling, encouraged state oil production controls, and protected state highway funds. A common interstate market for commodities like oil meant that restrictions on California production only marginally constrained national supply. In this fashion, national policies helped push oil producers and consumers in different states toward a common path. Common state-level political forces also brought convergence. All states shared the division of power among legislative, judicial, and executive branches of state government. The conflict over access to Huntington Beach oil illustrated how these multiple decision-making points, amplified by the layered federal system, tended to favor focused economic constituencies. Rapid oil development, rather than restraint, resulted from the accumulation of facts on the ground, favorable court rulings, administrative discretion, and legislative generosity. Broadly similar economic coalitions also worked through state and local politics to promote the new petroleum society. Other states shared California’s political battles over transportation development, for instance. For similar reasons—highway budget shortfalls and the ideology of benefit

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taxation—every state in the nation passed a gasoline tax for highway development between 1919 and 1929. By 1938, when California’s highway advocates rewrote the state constitution to require earmarking of highway user taxes, six other states had acted similarly to protect highway funds.3 Federal sanctions that penalized states for diverting highway funds bolstered advocacy by highway supporters. Each state’s politics differed in the details. Yet across the United States, state and national political developments shaped the oil economy’s market structure, distribution of profits, and burgeoning demand. The constant political struggles over petroleum policy profoundly influenced California and national politics before World War II. From Teapot Dome in the 1920s to the Huntington Beach scandal of the 1930s, from crushing electoral defeats of oil control bills to the longstanding contest over highway funds, oil stayed on center stage in state and national politics. Oil would play an equally prominent political role after World War II. Oil helped power the rise of Texas Democrats like Sam Rayburn and Lyndon Johnson, and they, in turn, defended its privileged place in American public finance. Republicans also rode oil to electoral success, as when Dwight Eisenhower helped clinch his 1952 presidential bid by promising Texas and California that he would return offshore oil lands that the U.S. Supreme Court and the Truman administration had claimed for the nation. In the 1960s and early 1970s, public outcry against Los Angeles smog, the Santa Barbara oil spill, and a proliferating freeway maze provoked a profound change in California and the nation’s political sentiments and alliances. A powerful environmental movement—sparked partly by these California oil politics—achieved sweeping institutional change, including the establishment of the Environmental Protection Agency and passage of the National Environmental Policy Act, the California Environmental Quality Act, and the Clean Air Act. Federal and state environmental agencies emerged with broadranging powers to shape economic development. At the same time, the oil embargo by the Organization of the Petroleum Exporting Countries and the sharp rise in energy prices dominated United States politics for the rest of the 1970s. In the early 1990s, American concerns about petroleum supplies brought the United States into a large-scale military conflict (the Persian Gulf War) for the first time since Vietnam. At the close of the century, two Texas oil men rode into the White House with the support of the oil industry. Security concerns exacerbated by the United States’ military

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presence in the Persian Gulf dominated national politics and ultimately led the United States to invade and occupy Iraq. Energy policy also became a centerpiece of President George W. Bush’s domestic economic and environmental agenda. Meanwhile, fossil-fuel-driven climate change casts a deepening shadow over the years ahead. These extraordinary twentieth-century United States petroleum politics followed a distinctive arc. First, the foundational period before World War II set in place the institutional mechanisms and policies examined in this book, which fostered the rapid development of oil resources and created an extraordinary highway network. Then came a postwar period of “cruise control,” when public land policies, tax policies, regulation, import policies, and highway investment etched our commitment to petroleum into the very physical landscape of the nation. Sharp increases in state and federal gasoline taxes and in the federal income tax sent investment in highways and tax-sheltered oil production soaring. Regulation of oil production, dominated by the Texas Railroad Commission and federal oil import controls, stabilized oil prices. With tight worldwide oil markets, a push for tax reform, and growing concern over pollution in the late 1960s, we entered the fitful transitional period that we remain in today. State and national politicians modified many of our energy and transportation policies to reduce the extent to which they promoted oil production and consumption. They reduced tax incentives for oil drilling, curtailed offshore oil development, shifted some transportation funds into mass transit, passed air pollution control laws and speed limits, lessened controls over petroleum production, invested in alternative fuel development, and promoted low-emission vehicles. Today, even our energy and automobile company executives agree that the United States and the world have begun to shift away from petroleum toward other fuels, perhaps to a hydrogen economy in which fuel cells power cars.4 Yet powerful economic interests tied to oil, and the entrenchment of the petroleum economy in the physical landscape of the nation, have made our transition to a new energy economy slow and difficult. The hotly contested political sticking points of the transitional economy appear in the newspaper almost daily: fuel economy standards, taxation of oil producers, speed limits, climate change policy, coastal oil drilling, human rights and environmental protection related to overseas oil development, air pollution controls, transportation investment, a carbon tax, and even war to protect access to petroleum. There are many

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contradictory tendencies in the transitional economy. For instance, in the past decade we have seen both the Honda Insight, which gets seventy miles per gallon on the highway, and the General Motors Hummer H2, which gets around ten. Interestingly, these vehicles are both products of politics in addition to technology—on the one hand, public support for fuel efficient vehicles, and on the other, a regulatory loophole that allowed sport utility vehicles to be classified as light trucks for fuel economy purposes. This book has sought to explain how the politics of access, regulation, competition, and public investment established the institutional framework for economic activity in a large and fast-growing state. State and federal politics stimulated oil production through public land laws and tax policies, restrained overproduction, and bolstered the consumer market through transportation development. The history of the California oil economy yields a basic insight and lesson: political decisions, as much as the consumption choices of our everyday lives, have greatly influenced our development as a petroleum society. Politics brought us here and keep us on the present path. Only politics and policy choices can lead us away.

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Notes

abbreviations BL

Bancroft Library

CSA

California State Archives

CSL

California State Library

GTWHP

Gerald T. White History Project

HL

Huntington Library

LAT

Los Angeles Times

SB

Sacramento Bee

SFC

San Francisco Chronicle

preface 1. “Gasoline to Dominate Motor Fuel Market for Decades, Citgo Exec Says,” Octane Week 15, no. 38 (25 September 2000).

introduction. structuring the oil market 1. Frederick Jackson Turner, “The Significance of the Frontier in American History,” Annual Report of the American Historical Association for the Year 1893 (Washington, D.C.: American Historical Association, 1894); David M. Potter, People of Plenty: Economic Abundance and the American Character 211

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(Chicago: University of Chicago Press, 1954); Gavin Wright, “The Origins of American Industrial Success,” American Economic Review 80, no. 4 (September 1990): 651–68. 2. John Ise, The United States Oil Policy (New Haven, Conn.: Yale University Press, 1926), 109. 3. For writing about governments and markets, see Peter Evans, Dietrich Rueschemeyer, and Evelyne Huber Stephens, introduction to States versus Markets in the World-System (London: Sage, 1985); Richard H.K. Vietor, Contrived Competition: Regulation and Deregulation in America (Cambridge: Harvard University Press, Belknap Press, 1994); Neil Fligstein, “Markets as Politics: A Political-Cultural Approach to Market Institutions,” American Sociological Review 61 (August 1996): 656–73. 4. Oscar Handlin and Mary Flug Handlin, Commonwealth: A Study of the Role of Government in the American Economy: Massachusetts, 1774–1861 (Cambridge: Harvard University Press, 1969); Louis Hartz, Economic Policy and Democratic Thought: Pennsylvania, 1776–1860 (Cambridge: Harvard University Press, 1948); Milton Heath, Constructive Liberalism: The Role of the State in the Economic Development of Georgia to 1860 (Cambridge: Harvard University Press, 1954); Carter Goodrich, Government Promotion of American Canals and Railroads, 1800–1890 (New York: Columbia University Press, 1960); Goodrich, ed., Canals and American Economic Development (New York: Columbia University Press, 1961); George Rogers Taylor, The Transportation Revolution, 1815–1860 (New York: Rinehart, 1951); Henry W. Broude, “The Role of the State in American Economic Development, 18201890,” in The State and Economic Growth, ed. Hugh G.J. Aitken (New York: Social Science Research Council, 1959), 4–25. See also Harry N. Scheiber, Ohio Canal Era: A Case Study of Government and the Economy, 1820–1861 (Athens: Ohio University Press, 1969); L. Ray Gunn, The Decline of Authority: Public Economic Policy and Political Development in New York State, 1800–1860 (Ithaca, N.Y.: Cornell University Press, 1988). Surprisingly, this fine tradition of scholarship has sparked little scholarly work on twentieth-century state governments. For one call for studies of state law and governance in the twentieth century, see Harry N. Scheiber, “Public Economic Policy and the American Legal System: Historical Perspectives,” Wisconsin Law Review 6 (1980): 1179. State-level studies that reach into the twentieth century include Lawrence M. Friedman, Contract Law in America: A Social and Economic Case Study (Madison: University of Wisconsin Press, 1965); Gerald D. Nash, State Government and Economic Development: A History of Administrative Policies in California, 1849–1933 (Berkeley: Institute of Governmental Studies, University of California, 1964); and Arthur McEvoy, The Fisherman’s Problem: Ecology and Law in the California Fisheries, 1850–1980 (New York: Cambridge University Press, 1986). See also work on the history of the state courts from 1870 to 1970 by Robert Kagan, Lawrence Friedman, Bliss Cartwright, and Stanton Wheeler: Kagan et al., “The Business of State Courts, 1870–1970,” Stanford Law Review 30 (November 1977): 121–56; Kagan et al., “The Evolution of State Courts,” Michigan Law Review 76 (May 1978): 961–1005; Friedman et al., “State Supreme Courts: A

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Century of Style and Citation,” Stanford Law Review 33 (May 1981): 773–818; and Wheeler et al., “Do the ‘Haves’ Come Out Ahead? Winning and Losing in State Supreme Courts, 1870–1970,” Law and Society Review 21, no. 3 (1987): 403–45. 5. Robert Lively, “The American System: A Review Article,” Business History Review 29 (1955): 81–96. See also Harry N. Scheiber, “Government and the Economy: Studies of the ‘Commonwealth’ Policy in Nineteenth-Century America,” Journal of Interdisciplinary History 3 (1972): 135–51. 6. James Willard Hurst, Law and Economic Growth: The Legal History of the Lumber Industry in Wisconsin, 1836–1915 (Cambridge: Harvard University Press, Belknap Press, 1964), 4–5. Hurst is better known for his other pioneering and less-imposing studies of American law: The Growth of American Law: The Law Makers (Boston: Little, Brown, 1950); Law and the Conditions of Freedom in the Nineteenth Century United States (Madison: University of Wisconsin Press, 1956); and Law and Social Process in United States History (Ann Arbor: University of Michigan Law School, 1960). For commentary on Hurst’s contributions to legal history, see Harry N. Scheiber, “At the Borderland of Law and Economic History: The Contributions of Willard Hurst,” American Historical Review 75 (1970): 744–56; Mark Tushnet, “Lumber and the Legal Process,” Wisconsin Law Review (1972): 114–32; Robert Gordon, “J. Willard Hurst and the Common Law Tradition in American Legal Historiography,” Law and Society Review 10, no. 1 (1975): 9–56; Sidney Harring and Barry Strutt, “Lumber, Law, and Social Change: The Legal History of Willard Hurst,” American Bar Foundation Research Journal 113, no. 1 (1985): 123–44. 7. Harold F. Williamson, Ralph L. Andreano, Arnold R. Daum, and Gilbert C. Close, The American Petroleum Industry: The Age of Energy, 1899–1959 (Evanston, Ill.: Northwestern University Press, 1963), chap. 11. 8. This literature is substantial. See, among other works, James E. Krier and Edmund Ursin, Pollution and Policy: A Case Essay on California and Federal Experience with Motor Vehicle Air Pollution, 1940–1975 (Berkeley: University of California Press, 1977); Robert M. Fogelson, The Fragmented Metropolis: Los Angeles, 1850–1930 (Berkeley: University of California Press, 1967); Mike Davis, City of Quartz: Excavating the Future in Los Angeles (New York: Vintage, 1992); Alfred Lewis, Clean the Air! Fighting Smoke, Smog, and Smaze across the Country (New York: McGraw Hill Book Company, 1965); Joel Garreau, Edge City: Life on the New Frontier (New York: Doubleday, 1991); James Howard Kunstler, The Geography of Nowhere: The Rise and Decline of America’s Man-Made Landscape (New York: Touchstone, 1993); Fred W. Viehe, “Black Gold Suburbs: The Influence of the Extractive Industry on the Suburbanization of Los Angeles, 1890–1930,” Journal of Urban History 8, no. 1 (November 1981): 3–26; A.E. Keir Nash et al., Oil Pollution and the Public Interest: A Study of the Santa Barbara Oil Spill (Berkeley: Institute of Governmental Studies, University of California, 1972); Robert Easton, Black Tide: The Santa Barbara Oil Spill and Its Consequences (New York: Delacorte Press, 1972); Nancy Quam-Wickham, “‘Cities Sacrificed on the Altar of Oil’: Popular Opposition to Oil Development in 1920s Los Angeles,” Environmental History 3, no. 2 (April 1998): 189–209; Joseph A. Pratt, “Letting the Grandchildren Do

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It: Environmental Planning during the Ascent of Oil as a Major Energy Source,” Public Historian 2, no. 4 (summer 1980): 28–61; Ise, United States Oil Policy. The story of global climate change has just begun to be told by scientists and journalists. For reviews of the scientific literature, see Tom M. L. Wigley, The Science of Climate Change: Global and U.S. Perspectives (Arlington, Va.: Pew Center on Global Climate Change, 1999) and R.T. Watson and the Core Writing Team, eds., Climate Change 2001: Synthesis Report. A Contribution of Working Groups I, II, and III to the Third Assessment Report of the Intergovernmental Panel on Climate Change (New York: Cambridge University Press, 2001). 9. See Raymond Williams’s critique of the “intellectual separation between economics and ecology” in “Ideas of Nature,” in Problems in Materialism and Culture: Selected Essays (London: Verso, 1980), 67–85. In current environmental politics, environmental groups increasingly recognize these connections and seek to shape international trade agreements, tax policy, international financial flows, and government subsidies for highways, dams, and natural resource industries. The programs of the World Resources Institute and Friends of the Earth exemplify these trends, although the organizations are not alone in such efforts. See www.wri.org and www.foe.org. 10. For a discussion of this shift, see Richard White, “American Environmental History: The Development of a New Historical Field,” Pacific Historical Review 54 (1985): 297–335. Two pioneering works representing the political and intellectual strains of the field are Samuel P. Hays, Conservation and the Gospel of Efficiency: The Progressive Conservation Movement, 1890–1920 (Cambridge: Harvard University Press, 1959), and Roderick Nash, Wilderness and the American Mind, 3d ed. (1967; reprint, New Haven, Conn.: Yale University Press, 1982). For representative works from the next generation of environmental history, see Richard White, Land Use, Environment, and Social Change: The Shaping of Island County, Washington (Seattle: University of Washington Press, 1980); William Cronon, Changes in the Land: Indians, Colonists, and the Ecology of New England (New York: Hill and Wang, 1983); Carolyn Merchant, Ecological Revolutions: Nature, Gender, and Science in New England (Chapel Hill: University of North Carolina Press, 1989); Donald Worster, Dust Bowl: The Southern Plains in the 1930s (New York: Oxford University Press, 1979). 11. White, “American Environmental History,” 316–17, 335. 12. Worster, Dust Bowl, 243. 13. Donald Worster, Rivers of Empire: Water, Aridity, and the Growth of the American West (New York: Pantheon, 1985). 14. William Cronon, Nature’s Metropolis: Chicago and the Great West (New York: Norton, 1991), 384. 15. As the historian Richard Vietor has written of the airline, telecommunications, and natural gas industries, “There are two related environments in which [a regulated firm] must operate effectively: the market and the political arena.” Contrived Competition, 21. 16. Two exceptions to this tendency to focus on federal policy are David F. Prindle, Petroleum Politics and the Texas Railroad Commission (Austin:

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University of Texas Press, 1981); and William R. Childs, “Texas, the Interstate Oil Compact Commission, and State Control of Oil Production: Regionalism, States’ Rights, and Federalism during World War II,” Pacific Historical Review 64 (1995): 567–98. 17. See Daniel Yergin, The Prize: The Epic Quest for Oil, Money, and Power (New York: Simon and Schuster, 1991); John G. Clark, Energy and the Federal Government: Fossil Fuel Policies, 1900–1946 (Urbana: University of Illinois, 1987); Richard H.K. Vietor, Energy Policy in America since 1945: A Study of Business-Government Relations (New York: Cambridge University Press, 1984); Anthony Sampson, The Seven Sisters: The Great Oil Companies and the World They Shaped (New York: Bantam Books, 1975); Gerald D. Nash, United States Oil Policy, 1890–1964: Business and Government in Twentieth Century America (Pittsburgh: University of Pittsburgh Press, 1968). For exceptions to this characterization of energy studies, see Joseph Pratt’s work on the Texas oil industry and the transition from coal to oil in the early twentieth century: The Growth of a Refining Region (Greenwich, Conn.: JAI Press, 1980); Pratt, “Growth or a Clean Environment? Responses to PetroleumRelated Pollution in the Gulf Coast Refining Region,” Business History Review 12, no. 1 (spring 1978): 1–29; Pratt, “Letting the Grandchildren Do It”; Pratt, “The Ascent of Oil: The Transition from Coal to Oil in Early Twentieth-Century America” in Energy Transitions: Long Term Perspectives, ed. Lewis Perelman, Gus Giebelhaus, and Michael Yokell (Boulder, Colo.: Westview Press, 1980). For a call for further study of regional oil development, see Gerald D. Nash, “Oil in the West: Reflections on the Historiography of an Unexplored Field,” Pacific Historical Review 39, no. 2 (May 1970): 193–204. 18. For the national story, see James J. Flink, The Automobile Age (Cambridge: MIT Press, 1988); Mark H. Rose, Interstate: Express Highway Politics, 1941–1956 (Lawrence: Regents Press of Kansas, 1979); Warren James Belasco, Americans on the Road: From Autocamp to Motel, 1910–1945 (Cambridge: MIT Press, 1979); Mark S. Foster, From Streetcar to Superhighway: American City Planners and Urban Transportation, 1900–1940 (Philadelphia: Temple University Press, 1981); Clay McShane, Down the Asphalt Path: The Automobile and the American City (New York: Columbia University Press, 1994); Kunstler, The Geography of Nowhere; Garreau, Edge City. Greater attention to state transportation policy can be found in Robert Caro, The Power Broker: Robert Moses and the Fall of New York (New York: Knopf, 1974); and in Hal S. Barron, “And the Crooked Shall Be Made Straight: Public Road Administration and the Decline of Localism in the Rural North, 1870–1930,” Journal of Social History 26, no. 1 (fall 1992): 81–103. Despite being viewed by many as the epicenter of American automobile culture, California still lacked a comprehensive survey of state highway and transportation development in the twentieth century. Two recent overviews are David W. Jones Jr., California’s Freeway Era in Historical Perspective (Berkeley: Institute of Transportation Studies, University of California, 1989); and Brian D. Taylor, “When Finance Leads Planning: The Influence of Public Finance on Transportation Planning and Policy in California” (Ph.D. diss., University of California, Los Angeles, 1992). Metropolitan studies are more common in the transportation

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field. See Fogelson, Fragmented Metropolis; Scott L. Bottles, Los Angeles and the Automobile: The Making of the Modern City (Berkeley: University of California Press, 1987); Joel A. Tarr, Transportation Innovation and Changing Spatial Patterns in Pittsburgh, 1850–1934 (Chicago: Chicago Public Works Historical Society, 1978).

chapter 1. the end of the old property regime 1. Harold F. Williamson and Arnold R. Daum, The American Petroleum Industry: The Age of Illumination, 1859–1899 (Evanston, Ill.: Northwestern University Press, 1959), appendix E. Contemporaries recognized the competitive problems resulting from the rule of capture, and late-nineteenth-century courts upheld unified operations in analogous water enterprises. For the classic statement of ownership through “capture,” espoused for the sake of “certainty, and preserving peace and order in society,” see Pierson v. Post, Supreme Court of New York, 3 Cai R 175, 2 Am. Dec. 264 (1805), an American wildlife case widely reprinted in law school property textbooks. 2. Robert Lively, “The American System: A Review Article,” Business History Review 29 (1955): 81–96; Harry N. Scheiber, “Government and the Economy: Studies of the ‘Commonwealth’ Policy in Nineteenth-Century America,” Journal of Interdisciplinary History 3 (1972): 135–51; Richard L. McCormick, The Party Period and Public Policy: American Politics from the Age of Jackson to the Progressive Era (New York: Oxford University Press, 1986), chap. 5. Some states went further to embrace “outright public enterprise,” establishing public agencies to build, finance, and operate costly transport facilities such as canals. See Harry N. Scheiber, Ohio Canal Era: A Case Study of Government and the Economy, 1820–1861 (Athens: Ohio University Press, 1969); McCormick, Party Period, 204. See also James Willard Hurst, Law and Economic Growth: The Legal History of the Lumber Industry in Wisconsin, 1836–1915 (Cambridge: Harvard University Press, Belknap Press, 1964); Lawrence M. Friedman, A History of American Law (New York: Simon and Schuster, 1973); Harry N. Scheiber, “Property Law, Expropriation, and Resource Allocation by Government: The United States, 1789–1910,” Journal of Economic History 33, no. 1–2 (1973): 232–95; Morton J. Horwitz, The Transformation of American Law, 1780–1860 (Cambridge: Harvard University Press, 1977), in addition to works cited in n. 4 of the introduction to the present volume; Paul W. Gates, “An Overview of American Land Policy,” Agricultural History 50, no. 1 (January 1976), 213–29. For recent reviews of the debate over land speculation in western settlement, see Jon Gjerde, “‘Roots of Maladjustment’ in the Land: Paul Wallace Gates,” Reviews in American History 19 (March 1991): 142–53; Stephen Aron, How the West Was Lost: The Transformation of Kentucky from Daniel Boone to Henry Clay (Baltimore: Johns Hopkins University Press, 1996). 3. See United States v. John P. Gratiot et al., Supreme Court of the United States, 39 U.S. 526 (9 March 1840), for the Supreme Court’s upholding of congressional leasing; see United States v. Hezekiah Gear, Supreme Court of the United States, 44 U.S. 120 (3 March 1845), for the Supreme Court’s holding of

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actionable trespass in case of mining without a government permit. For a survey of early mineral law, see Robert W. Swenson, “Legal Aspects of Mineral Resources Exploitation,” in History of Public Land Law Development, ed. Paul W. Gates (Washington, D.C.: Zenger Publishing, 1968), 702–6; and Hurst, Law and Economic Growth, 28. 4. Charles McCurdy, “Stephen J. Field and Public Land Law Development in California, 1850–1866: A Case Study of Judicial Resource Allocation in Nineteenth-Century America,” Law and Society Review 10 (1976): 235–66; Rodman W. Paul, California Gold: The Beginning of Mining in the Far West (Cambridge: Harvard University Press, 1947). On weak federal capacity, see Stephen Skowronek, Building a New American State: The Expansion of National Administrative Capacities, 1877–1920 (New York: Cambridge University Press, 1982). 5. Reginald Ragland, A History of the Naval Petroleum Reserves and of the Development of the Present National Policy Respecting Them (Los Angeles: privately printed, 1942), 5; Swenson, “Legal Aspects of Mineral Resources Exploitation,” 714–24. For recent efforts to repeal the 1872 mining law and curtail hard rock mining on public lands, see “Gore Outlines Plan for Environmental Spending,” Los Angeles Times (hereafter LAT), 15 November 1999, A12; “Presidential Candidate Targets Mining to Cut Federal Budget,” Mine Regulation Reporter, 10 January 2000, 13:1. 6. Samuel P. Hays, Conservation and the Gospel of Efficiency: The Progressive Conservation Movement, 1890–1920 (Cambridge: Harvard University Press, 1959), 47, 85; for a critique of the class and racial biases inherent in latenineteenth-century conservation initiatives, see Arthur McEvoy, The Fisherman’s Problem: Ecology and Law in the California Fisheries, 1850–1980 (New York: Cambridge University Press, 1986); Louis S. Warren, The Hunter’s Game: Poachers and Conservationists in Twentieth-Century America (New Haven, Conn.: Yale University Press, 1997); Karl Jacoby, Crimes against Nature: Squatters, Poachers, Thieves, and the Hidden History of American Conservation (Berkeley: University of California Press, 2001). 7. George Otis Smith to Secretary of the Interior, 24 February 1908, as reprinted in Max Ball, Petroleum Withdrawals and Restorations Affecting the Public Domain, United States Geological Survey Bulletin 623 (Washington, D.C.: U.S. Government Printing Office, 1917), 104–5. 8. David T. Day, A.C. Veatch, and Ralph Arnold to Director, U.S. Geological Survey, 11 November 1908, as reprinted in Max Ball, Petroleum Withdrawals, 117. 9. Ralph Arnold to George Otis Smith, 24 September 1908, as reprinted in Ball, Petroleum Withdrawals, 111–12; Edward Hamilton, “Who Will Put Johnson in Nomination,” San Francisco Examiner, 2 March 1920, 3:1. 10. R. A. Ballinger to President William H. Taft, 17 September 1909, as reprinted in Ball, Petroleum Withdrawals, 134–35. 11. United States v. Southern Pacific Company, Supreme Court of the United States, 251 U.S. 1, 8, 11 (17 November 1919). 12. “U.S. v. Southern Pacific Company et al.—Case No. 221 in Equity, Evidence Taken before Special Examiner,” United States District Court, Southern

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District of California, Northern Division, RG 21, National Archives, Pacific Sierra Region, 1747–1750; United States v. Southern Pacific Company, 1, 10–12. 13. “Southern Pacific Company et al. v. U.S.—Case No. 2958 Transcript of Record,” United States Ninth Circuit Court of Appeals, RG 276, National Archives, Pacific Sierra Region, 77. 14. Southern Pacific Company v. United States, Ninth Circuit Court of Appeals, 249 F. 785, 794, 797, 798, 804 (6 May 1918). 15. Ibid., 803–4. 16. “U.S. v. Southern Pacific Company et al.—Case No. 221 in Equity, Evidence Taken before Special Examiner,” 1747–1750; United States v. Southern Pacific Company, 1, 10–12. 17. United States v. Southern Pacific Company, United States District Court, 260 F. 511, 513–14, 516–17 (28 August 1919). Around the same time, Bledsoe similarly derailed the Department of Justice in a key California case involving agricultural cooperatives. Vicky Saker Woeste, The Farmer’s Benevolent Trust: Law and Agricultural Cooperation in Industrial America, 1865–1945 (Chapel Hill: University of North Carolina Press, 1998), 155–56. Bledsoe’s glowing praise of the Southern Pacific founders contrasts strikingly with contemporary agitation against the railroad company. See William Deverell, Railroad Crossing: Californians and the Railroad, 1850–1910 (Berkeley: University of California Press, 1994). 18. On Palmer’s probusiness agenda, see J. Leonard Bates, Origins of Teapot Dome: Progressives, Parties, and Petroleum, 1909–1921 (Urbana: University of Illinois Press, 1963), 172; Henry F. May, Coming to Terms: A Study in Memory and History (Berkeley: University of California Press, 1987), 158. 19. Bates, Origins of Teapot Dome, 177, 211. 20. Ragland, History of the Naval Petroleum Reserves, exhibit 2. 21. United States v. Midwest Oil Company, Supreme Court of the United States, 236 U.S. 459, 470 (23 February 1915); Bates, Origins of Teapot Dome, 55–59. 22. Thomas Gregory to Attorney General William D. Mitchell, 31 August 1929, as cited in Bates, Origins of Teapot Dome, 56. 23. United States v. Midwest Oil Company, 459; Gerald T. White, Formative Years in the Far West: A History of Standard Oil Company of California and Predecessors through 1919 (New York: Meredith Publishing, 1962), 437–44; Bates, Origins of Teapot Dome, 37–39. 24. Consolidated Mutual Oil Company v. United States, Ninth Circuit Court of Appeals, 245 F. 521, 523 (20 August 1917). Judge Ross reiterated this point in United States v. California Midway Oil Company, Ninth Circuit Court of Appeals, 279 F. 516 (20 February 1922), concurrence by Ross at 279 F. 521; United States v. California Midway Oil Company, United States District Court, 259 F. 343, 352 (23 June 1919). For similar sentiment in the larger Southern Pacific case, see United States v. Southern Pacific Company, 511, 514. 25. When Bledsoe sold his stock in the National Pacific Oil Company in order to remove the appearance of a conflict of interest, he recouped only $16.90. See In re Honolulu Consolidated Oil Company, Ninth Circuit Court of

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Appeals, 243 F. 348, 350–51, 5 July 1917. In the early 1920s, Bledsoe left the bench to join a law firm that handled several high-profile California oil cases of the 1930s: Alphonzo E. Bell Corporation v. Bell View Oil Syndicate et al., Court of Appeals of California, 24 Cal. App. 2d 587 (27 January 1938); E.G. Starr v. William J. Slaney, Court of Appeals of California, 11 Cal. App. 2d 311 (20 January 1936); Hartman Ranch Company v. Associated Oil Company, Supreme Court of California, 10 Cal. 2d 232 (26 November 1937); Alexander Anderson, Inc., v. Eastman Oil Well Survey Company, Ninth Circuit Court of Appeals, 94 F. 2d 1010 (7 February 1938). 26. John Ise, The United States Oil Policy (New Haven, Conn.: Yale University Press, 1926), 314–20. 27. See, for example, United States v. Record Oil Company; United States v. Consolidated Mutual Oil Company; United States v. Caribou Oil Mining Company, United States District Court, 242 F. 746, 749 (8 June 1917). 28. United States v. North American Consolidated, United States District Court, 242 F. 723, 728, 729 (8 June 1917); United States v. North American Oil Consolidated, Ninth Circuit Court of Appeals, 264 F. 336 (5 April 1920). 29. C. W. Hamel, “Memorandum for Mr. Justice,” Number 2, uncertain date, Department of Justice Records, United States Ninth Circuit Court of Appeals, RG 118, Box 21: 1, National Archives, Pacific Sierra Region; United States v. Thirty-Two Oil Company, United States District Court, 242 F. 730 (8 June 1917). 30. United States v. California Midway Oil Company, 343, 353, 354. Even the General Land Office director, Clay Tallman, who was generally sympathetic to the western claimants, thought that the McMurtry claims were clearly fraudulent. James N. Gillett to William Herrin, 25 June 1919, Gillett Papers, Box 1093:8, California State Library (hereafter CSL). The Standard Oil lawyer Oscar Sutro called the McMurtry claims “a desperate case.” Oscar Sutro to Henry Ach, 24 June 1919, Gerald T. White History Project, Carton 155072: Government Relations—World War I, Chevron Archives; and United States v. California Midway Oil Company, 516, 520. See also C. W. Hamel, “Memorandum for Mr. Justice,” Number 1, uncertain date, Department of Justice Records, United States Ninth Circuit Court of Appeals, Box 21: 1, National Archives, Pacific Sierra Region. 31. United States v. Midway Northern Oil Company (and five related cases), United States District Court, 232 F. 619, 633 (1 May 1916). See also United States v. Chanslor-Canfield Midway Oil Company, United States District Court, 266 F. 142 (10 September 1918); and Ise, United States Oil Policy, 314–20. 32. United States v. Thirty-two Oil Company, 730; United States v. Stockton Midway Oil Company, United States District Court, 240 F. 1006 (5 January 1917). 33. United States v. McCutchen, United States District Court, 238 F. 575, 595 (29 July 1916). 34. United States v. Midway Northern Oil Company (and five related cases), 619, 632–33. 35. Based on the district court’s sympathy for the oil operators, the Justice Department’s special assistant on the oil cases recommended that the government

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not pursue damages based on willful trespass. Henry F. May to the Attorney General, 24 December 1918, RG 118, Case 601, Box 1, Folder 2, National Archives, Pacific Sierra Region. 36. United States v. Midway Northern Oil Company (and five related cases), 619, 633. Judge Bledsoe similarly felt “impelled” to continue production, since an injunction would only “damage both parties.” United States v. Dominion Oil Company, United States District Court, 241 F. 425, 426 (5 March 1917). 37. “U.S. SHOULD REPAIR LAWS HAMPERING CALIFORNIA: State’s Enormous Production of Minerals and Its Vast Timber and Power Resources Demand Federal Encouragement,” San Francisco Chronicle (hereafter SFC), 17 January 1917, 13:1. 38. California Department of Conservation, Division of Oil, Gas, and Geothermal Resources, 1997 Annual Report of the State Oil and Gas Supervisor (Sacramento: California State Printing Office, 1998), 57; Bill Rintoul, “Midway Oil Field Steams Along,” Bakersfield Californian, 25 February 1996. The Elk Hills naval oil reserve generated revenues of $366 million in 1995 from the sale of crude oil; in 1997, the federal government sold its interest in the field to Occidental Petroleum for $3.5 billion. Martha Hamilton, “Federal Oil Reserve in Calif. up for Auction,” Washington Post, 22 May 1997, E3; Peter Zipf, “Oxy Plans Major Divestitures Next Year,” Platt’s Oilgram News, 21 November 1997, 75:227, 1. 39. “U.S. SHOULD REPAIR LAWS HAMPERING CALIFORNIA,” 13:1. 40. Alan L. Olmstead and Paul Rhode, “Rationing without Government: The West Coast Gas Famine of 1920,” American Economic Review 75, no. 6 (December 1985): 1046.

chapter 2. the politics of the 1920 mineral leasing act 1. Gerald T. White, Formative Years in the Far West: A History of Standard Oil Company of California and Predecessors through 1919 (New York: Meredith Publishing, 1962), 445; J. Leonard Bates, The Origins of Teapot Dome: Progressives, Parties, and Petroleum, 1909–1921 (Urbana: University of Illinois Press, 1963), 60. 2. Frank Short to James N. Gillett, 23 November 1916, Gillett Papers, Box 1092:22, CSL. 3. H. Brett Melendy and Benjamin F. Gilbert, The Governors of California: Peter H. Burnett to Edmund G. Brown (Georgetown, Calif.: Talisman Press, 1965), 288–304. 4. Honolulu Consolidated Oil Company to James N. Gillett, 20 July 1922, A. C. Diericx to Gillett, 20 July 1922, Honolulu Consolidated Oil Company to Gillett, 28 June 1922, Gillett Papers, Box 1092:11, CSL. 5. “Frank H. Short of Fresno Is in Washington in the Interest of Electric Companies,” San Francisco Call, 14 December 1906, 3; “Short’s Monopoly Message Unread,” San Francisco Call, 16 May 1908, 1; “Frank H. Short,” SFC, 16 January 1915, 57. 6. Francis B. Loomis (signed in code as “Grey”) to Oscar Sutro, 12 April 1916, James N. Gillett to Sutro, 21 March 1916, Frank Short to Sutro, 20 March 1916, Gerald T. White History Project (hereafter GTWHP), Carton

Notes to Pages 32–36

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155072: Government Relations—World War I, Chevron Archives; Gillett to Roy N. Bishop, 27 November 1916, Gillett Papers, Box 1093:1; Gillett to Charles A. Towne, 26 December 1916, Gillett Papers, Box 1093:2, CSL. 7. James N. Gillett to Messrs. Allen and Knapp, 29 January 1919, Gillett Papers, Box 1093:8, CSL. See also Bates, Origins of Teapot Dome, 131–32. 8. Roy N. Bishop to James N. Gillett, 1 March 1917, Gillett Papers, Box 1092:3; William F. Herrin to Gillett, 21 October 1918 and 2 June 1919, Gillett Papers, Box 1092:10, CSL; “Roy Nelson Bishop” SFC, 16 January 1915, 59; “California Oil Men Fight to Kill Oil Law, San Francisco Examiner, 24 October 1915, 87:2; “Roy N. Bishop: World Famous Oil Official Dies Unexpectedly,” SFC, 21 December 1938, 1. 9. George Hatton to James N. Gillett, 7 December 1916, Gillett Papers, Box 1093:1, CSL. See also Gillett to George C. Perkins, 25 November 1916, Gillett to Hatton, 25 November 1916, Gillett to Hatton, 6 December 1916, Gillett Papers, Box 1093:1, CSL. 10. Francis B. Loomis to Oscar Sutro, 18 December 1915, Loomis to Sutro, 6 January 1916, Loomis (signed in code as “Blue”) to Sutro, 8 January 1916, Loomis (signed in code as “Crimson”) to Sutro, 6 March 1916, Frank Short to Sutro, 6 March 1916, GTWHP, Carton 155072: Government Relations— World War I, Chevron Archives. 11. Roy N. Bishop to James N. Gillett, 30 December 1916, Gillett Papers, Box 1092:3, CSL. 12. Louis Titus to James N. Gillett, 16 December 1916, Gillett Papers, Box 1092:27, CSL. 13. Frank Short to Oscar Sutro, 4 February 1916, Short to A.L. Weil, 31 January 1916, James N. Gillett to Sutro, 19 February 1916, Gillett to Sutro, 21 March 1916, GTWHP, Carton 155072: Government Relations—World War I, Chevron Archives. 14. Oscar Sutro to Francis B. Loomis, 28 March 1916, GTWHP, Carton 155072: Government Relations—World War I, Chevron Archives. 15. James N. Gillett to Roy N. Bishop, 25 November 1916, Gillett Papers, Box 1093:1, CSL. 16. H.P. Wilson to Herbert Fleishacker, 13 April 1916, GTWHP, Carton 155072: Government Relations—World War I, Chevron Archives. 17. See, for example, James N. Gillett to George Hatton, 25 November 1916, Gillett Papers, Box 1093:1. CSL. 18. James N. Gillett to W.P. Thorn, 25 November 1916, Gillett Papers, Box 1093:1, CSL. 19. Harrison Gray Otis to James N. Gillett, 13 January 1917, Gillett Papers, Box 1092:15, CSL. 20. “The Oil Controversy: At Last It Seems Likely to Be Settled on an Equitable Basis,” SFC, 13 January 1916, 22:2. 21. “The Oil Lands Situation: It Is the Duty of Congress to Protect All Who in Good Faith Have Risked Their Money,” SFC, 6 March 1916, 14:1. See also “U.S. Should Repair Laws Hampering California,” 13:1. 22. Michael deYoung to James N. Gillett, 13 December 1916, Gillett Papers, Box 1092:7, CSL. Gillett demurred, believing it advisable to publicly

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Notes to Pages 36–39

express his views on the western land problem even as he lobbied a Democratic Congress. Gillett to San Francisco Chronicle, 21 December 1916, Gillett Papers, Box 1093:2, CSL. 23. “U.S. Should Repair Laws Hampering California,” 13:1. 24. “Oil Industry: Value of California’s Petroleum Production of 1916 Is More than $5,000,000 Over That of 1915 Output,” SFC, 17 January 1917, 21:1 extra edition. 25. “U.S. Should Repair Laws Hampering California,” 13:1. 26. “Oil Industry: Value of California’s Petroleum Production of 1916 Is More than $5,000,000 over That of 1915 Output,” 21:1. 27. “U.S. Should Repair Laws Hampering California,” 13:1. 28. A.J. Pollak to James N. Gillett, 13 August 1919, Gillett Papers, Box 1092:17, CSL. 29. James N. Gillett to William F. Herrin, 19 September 1919, Gillett to A. C. Diericx, 19 September 1919, Gillett Papers, Box 1093:9, CSL. In 1916, Gillett similarly sought to avoid public hearings to prevent the attorney general from introducing into the record information about fraud, dummy locations, and “everything else of that kind that might tend to prejudice the minds of Members of Congress.” Gillett to Oscar Sutro, 19 February 1916, GTWHP, Carton 155072: Government Relations—World War I, Chevron Archives. 30. James N. Gillett to Roy N. Bishop, 8 December 1916, Gillett Papers, Box 1093:1, CSL. See also Gillett to Editor, New York Times, 2 January 1916, and Gillett to Editor, Springfield Republican, 2 January 1916, Gillett Papers, Box 1093:3, CSL. 31. Bates, Origins of Teapot Dome, 139–41. 32. Ibid., chap. 7. 33. Ise, United States Oil Policy, 338, 497–504. 34. James N. Gillett to William F. Herrin, 14 September 1918, Gillett Papers, Box 1093:7, CSL. 35. James N. Gillett to A.C. McLaughlin, 19 November 1918, Gillett Papers, Box 1093:7, CSL. Bates oddly argues that the oil lobbyists were “disconcerted and weakened in 1919 by the change to Republican control of Congress.” Gillett’s correspondence suggests the exact opposite. Bates, Origins of Teapot Dome, 183. 36. A. J. Pollak to James N. Gillett, 20 May 1919, Gillett Papers, Box 1092:17, CSL. See also James M. Sheridan to Scott Ferris, 3 June 1918, Fall Papers, Box 61:1, Huntington Library (hereafter HL). 37. A. J. Pollak to James N. Gillett, 20 May 1919, Gillett Papers, Box 1092:17, CSL. 38. William F. Herrin to James N. Gillett, 13 September 1918, Herrin to Gillett, 21 October 1918, Herrin to Gillett, 2 June 1919, Herrin to Gillett, 3 June 1919, Box 1092:10, CSL. 39. James N. Gillett to George E. Whitaker, 10 February 1920, Gillett Papers, Box 1093:11, CSL. 40. James N. Gillett to A.J. Pollak, 7 February 1920, Gillett Papers, Box 1093:11; Pollak to Gillett, 4 June 1920, Gillett Papers, Box 1094:30, CSL. 41. James N. Gillett to Clay Tallman, 25 September 1920, Gillett Papers, Box 1093:12, CSL.

Notes to Pages 39–42

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42. Charles V. Safford to Stephen B. Davis, 31 July 1919, 16 August 1919, 5 September 1919, 24 October 1919, 3 November 1919, 11 February 1920, Davis to Safford, 12 February 1920, Safford to Davis, 25 February 1920, Safford to A. E. McGregor, 25 February 1920, Fall Papers, Box 48:11, HL. 43. Stephen B. Davis to Charles V. Safford, 10 March 1919, Fall Papers, Box 48:11, HL. 44. James N. Gillett to Fred B. Henderson, 26 September 1919, Gillett Papers, Box 1093:9, CSL. 45. James N. Gillett to William F. Herrin, 2 October 1919, Gillett Papers, Box 1093:10, CSL. 46. James N. Gillett to A. C. Diericx, 15 January 1920, Gillett to William F. Herrin, 7 February 1920, Gillett Papers, Box 1093:11, CSL. 47. James N. Gillett to A. J. Pollak, 7 February 1920, Gillett Papers, Box 1093:11, CSL. 48. Roy N. Bishop to James N. Gillett, 26 February 1920, Gillett Papers, Box 1092, Folder 3, CSL. 49. James N. Gillett to William F. Herrin, 16 October 1919, Gillett Papers, Box 1093:10, CSL. 50. James N. Gillett to L. L. Aitken, 15 January 1923, Gillett Papers, Box 1095:6; Aitken to Gillett, 18 January 1923, Gillett Papers, Box 1094:1, CSL. 51. James N. Gillett to John T. Barnett, 14 May 1923, Gillett to Barnett, 12 September 1923, Gillett Papers, Box 1095:6, CSL. 52. James N. Gillett to Alaska Pioneer Oil Company, 23 October 1919, Gillett Papers, Box 1093:10, CSL. See also A. J. Pollak to B. M. Howe, Trojan Oil Company, 4 June 1920, Gillett Papers, Box 1094:30; Gillett to Corporation Company of Delaware, 28 May 1920, Gillett to F. M. Phelps, 16 June 1920, and Gillett to Corporation Company of Delaware, 7 July 1920, Gillett Papers, Box 1093:12; F. G. Matson to Gillett, 26 January 1921, Gillett Papers, Box 1094:27, CSL. 53. James N. Gillett to W. L. McGuire, 27 January 1921, Gillett Papers, Box 1095:2, CSL. 54. James N. Gillett to William Spry, 5 April 1921, Gillett Papers, Box 1095:2; Gillett to Spry, 20 March 1922, Box 1095:5; Gillett to Spry, 21 June 1923, Gillett Papers, Box 1095:6, CSL. 55. “Oil Operators of California Organize to Fight Ruling,” SFC, 13 April 1929, 1:8. 56. James N. Gillett to Raymond Benjamin, 1 April 1926, Gillett Papers, Box 1095:9, CSL; Louis Titus to Oscar Sutro, 25 March 1926, Titus to Sutro, 26 March 1926, Titus to Sutro, 26 March 1926, Alexander Vogelsang to Sutro, 26 January 1927, GTWHP, Carton 155072, Box Government Lands—Government Relations, Chevron Archives. 57. Oscar Sutro to James N. Gillett, 12 February 1920, Gillett Papers, Box 1092:24, CSL. The section title is from “Patent Is Now Only a Memory,” California Oil World, 19 February 1920, 1. 58. Francis B. Loomis to Oscar Sutro, 3 March 1919, GTWHP, Carton 155072: Government Relations—World War I, Chevron Archives. 59. Oscar Sutro had conceded privately in 1916 that leases on reasonable terms would “constitute substantial relief.” But, as he wrote Frank Short in

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Notes to Pages 42–45

Washington, “to abandon the demand for patent would be to show the white feather.” By demanding full title to their claims, Standard and other oil companies toughened their negotiating position and held out for an even more lenient leasing regime. Sutro to Short, 29 February 1916, GTWHP, Carton 155072: Government Relations—World War I, Chevron Archives. 60. “Peace after Ten Years’ Strife,” Standard Oil Bulletin 8, no. 5 (September 1920): 2. 61. Bates, Origins of Teapot Dome, 196. 62. Mineral Leasing Act of 1920, 30 U.S.C., Sections 181–263, 25 February 1920; Bret Wallach, “The Geographic Consequences of Oil-Land Tenure at the Midway-Sunset Oil Field, California” (Ph.D. diss., University of California, Berkeley, 1969), 111. 63. “Peace after Ten Years’ Strife,” 2. 64. Wallach, “The Geographic Consequences of Oil-Land Tenure,” 107; James N. Gillett to Frank Short, 11 April 1916, GTWHP, Carton 155072: Government Relations—World War I, Chevron Archives. 65. “Peace after Ten Years’ Strife,” 1. 66. H. Foster Bain, Director, Bureau of Mines, Department of the Interior, to Albert B. Fall, Secretary, 25 October 1921; “Amendments to the Regulations Approved August 26, 1915, Governing Leasing of Lands in the Osage Reservation, Okla., for Oil and Gas Purposes,” 13 May 1919; F.B. Tough to A.W. Ambrose, 22 October 1921, Fall Papers, Box 60:30, HL. 67. Guy W. Finney and Charles V. Safford to Albert B. Fall, 19 September 1921, Fall Papers, Box 59:10, HL. 68. For a fuller account, see Nancy Quam-Wickham, “Petroleocrats and Proletarians: Work, Class, and Politics in the California Oil Industry, 1917–1925” (Ph.D. diss., University of California, Berkeley, 1994), chap. 5. 69. Guy W. Finney to Albert B. Fall, 15 September 1921, Fall Papers, Box 59:10, HL. 70. Albert B. Fall to Charles V. Safford, 18 September 1921, Fall to Safford, 14 September 1921, Fall to Guy W. Finney, 19 August 1921, Fall Papers, Box 59:10, HL. 71. Albert B. Fall to Guy W. Finney, 15 September 1921, Fall Papers, Box 59:10, HL. 72. Burl Noggle, Teapot Dome: Oil and Politics in the 1920’s (New York: W. W. Norton and Company, 1962), 209. 73. “Purpose of President’s Oil Policy Explained by Wilbur,” SFC, 13 April 1929, 2:3; “Dissipation of Resources Held Danger,” SFC, 13 April 1929, 2:1; “Oil Operators of California Organize to Fight Ruling,” 1:8; “Walsh Seeks Modification of Oil Policy: Montana Senator Tells Hoover Proposal Would Injure State,” SFC, 14 March 1929, 14:1. The District of Columbia Court invalidated Secretary of the Interior Wilbur’s rejection of applications for oil and gas prospecting permits. Wilbur persevered with an appeal to the Supreme Court. “Wilbur Insists on Oil Conservation,” SFC, 11 April 1930, 6:5. The Supreme Court upheld Wilbur’s actions in United States ex rel. McLennan v. Wilbur, Secretary of the Interior; United States ex rel. Simpson v. Wilbur; United States ex rel. Barton v. Wilbur; United States ex rel. Pyron v. Wilbur; Supreme Court of

Notes to Pages 45–48

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the United States, 283 U.S. 414 (18 May 1931); “Obstacles Many but the Oil Resources Must Be Conserved,” SFC, 11 April 1930, 22:1. 74. “Wilbur Details Oil Curb Steps,” LAT, 4 November 1931, 11. 75. C. Naramore to James N. Gillett, 22 March 1921, Gillett Papers, Box 1092:13, CSL. 76. Standard Oil of California, “Yearly Comparative Statements,” 1 January 1923, GTWHP, Carton 155033, Chevron Archives; Reginald Ragland, A History of the Naval Petroleum Reserves and of the Development of the Present National Policy Respecting Them (Los Angeles: privately printed, 1942), 120–23. 77. Wallach, “The Geographic Consequences of Oil-Land Tenure,” 121. Ragland, History of the Naval Petroleum Reserves, has the best details on and map of the leases granted within the Elk Hills. The push to consolidate and protect the Elk Hills naval oil reserve came before Congress as early as 1930, but no action was taken until 1938. “Oil Reserve Legislation Takes Shape,” SFC, 2 July 1930, 19:3. The litigation finally ended in 1964, when the U.S. Court of Claims exhaustively reviewed the case and determined that the United States did not owe compensation to the heirs of one claimant. Estate of Charles O. Fairbank v. the United States, United States Court of Claims, 164 Ct. Cl. 1 (24 January 1964). 78. Wesley Bagby, “The ‘Smoke-Filled Room,’ and the Nomination of Warren G. Harding,” Mississippi Valley Historical Review 41, no. 4 (March 1955): 671. 79. Fall similarly sought to liberalize laws “to get individual capital into Alaska,” rather than let it “rust.” “Interviews of Secretary Fall with Representatives of the Press,” 6 March 1922, Fall Papers, Box 49:10; Fall to Richard Ballinger, 23 March 1922, Fall Papers, Box 46:3; Fall to Charles F. Curry, 22 July 1921, Fall to Harry S. New, Chairman of Committee on Territories and Insular Possessions, U.S. Senate, 22 July 1921, Fall Papers, Box 48:2, HL; Bates, Origins of Teapot Dome, 226–28. 80. “This measure is a compromise one,” Charles V. Safford wrote on Fall’s behalf. Safford to J. W. Palmer, 4 September 1919, Fall Papers, Box 62:2, HL. The proposed mineral leasing act was still “not as liberal . . . as the Senator hoped to secure.” Safford to H. W. Loggins, 10 September 1919, Albert B. Fall to Constituents, 5 September 1919, Fall Papers, Box 62:2, HL. 81. Albert B. Fall to Commissioner of General Land Office, 23 April 1921, Fall Papers, Box 49:9, HL. 82. “Fall’s Decision Gives Navy Oil: Honolulu’s Leases Keep Up Reserve,” California Oil World, 1 December 1921, 1. The abrupt dismissal by Harry Daugherty, the new attorney general, of Henry May, special assistant to the attorney general, foreshadowed Fall’s actions. See Henry F. May, Coming to Terms: A Study in Memory and History (Berkeley: University of California Press, 1987), 157–63. 83. “President Is Final Judge of Honolulu Full Rights,” California Oil World, 1 December 1921, 2. 84. Ibid. By January 1, 1944, 300 million barrels of oil had been produced from the Buena Vista field. Ragland, History of the Naval Petroleum Reserves, 109.

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85. Congressional Record, 15 April 1922, 6071, in “Teapot Dome Government Materials,” April–May 1922, Fall Papers, Box 59:23, HL. In the same collection, see “So the People May Know,” Denver Post, 15 August 1922. See also Bates, Origins of Teapot Dome, 238. 86. Noggle, Teapot Dome, 75, 190, 211. 87. Ibid., 49–51. 88. See, for example, C.H. Goard to James N. Gillett, 22 November 1922, Gillett Papers, Box 1094:13, CSL. 89. Numerous prominent political figures joined Albert Fall in mixing public service with oil ventures. The list includes Judge Benjamin F. Bledsoe (who left the bench in the early 1920s to join Hill, Morgan, and Bledsoe, a California law firm that litigated a number of major oil cases); Oscar Lawler (who left the Interior Department, where he worked on the Taft withdrawal, and the U.S. Attorney’s Office, to begin a long career as Standard Oil of California’s chief lawyer in Los Angeles); Alexander Vogelsang (an assistant secretary of the interior under Wilson who left government employment to become an oil lobbyist and legal advisor to Standard Oil in its Elk Hills Section 36 case); Franklin Lane (Wilson’s secretary of the interior who left the government to take a $50,000-per-year position with the Doheny interests); Clay Tallman (a commissioner of the General Land Office under Wilson who went to work for the Midwest Oil Company); Joseph J. Cotter (Franklin Lane’s personal assistant at the Department of the Interior who left to become a vice president of Doheny’s Pan-American Petroleum Transport Company); Francis B. Loomis (an assistant secretary of state in the Roosevelt administration who became one of Standard Oil’s chief advocates in Washington and abroad); Judge Frank Feuille (a former attorney general of Puerto Rico who became Standard Oil’s chief negotiator in Latin America); Judge Frank Short (who became a prominent lobbyist for Standard Oil and for the California Oil and Gas Association); James N. Gillett (a former governor of California and congressman who became chief lobbyist for Honolulu Consolidated Oil Company in Washington and a leading negotiator for Standard Oil and California Oil and Gas Association); John Eshleman (a former lieutenant governor of California who became a lobbyist for Standard and other California oil companies); Charles Towne (who, upon leaving the Senate, used his Senate perquisites to lobby former colleagues on behalf of oil and potash interests); and Key Pittman (a senator from Nevada active in writing leasing legislation who was also an active investor in western oil lands, along with his brother and with the oil lobbyist James N. Gillett). See chapter text here or Bates, Origins of Teapot Dome, 197, 220. Others mentioned by Bates include J. H. G. Wolf (formerly an advisor to naval officer Irvin F. Landis), who went to work for a Honolulu company that sought lands in the Buena Vista Hills naval oil reserve; William G. McAdoo (a California politician linked to Doheny); George Creel (a prominent California politician who also worked for Doheny briefly and who lobbied to open the naval oil reserves); Van Manning (formerly the head of the U.S. Bureau of Mines, who became an industry spokesman for the American Petroleum Institute); and Mark L. Requa (a Petroleum War Board chief who became vice president of the Sinclair Consolidated Oil Company).

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chapter 3. beaches versus oil in southern california 1. Frank Short to John W. Weeks, 5 January 1917, Gillett Papers, Box 1092, Folder 22, CSL. 2. Ernest R. Bartley, The Tidelands Oil Controversy: A Legal and Historical Analysis (Austin: University of Texas Press, 1953), 67–68. 3. The U.S. government and Standard Oil fought over one school parcel for more than twenty years before courts determined that the nation retained title. The federal government annexed a second parcel when it expanded the naval oil reserve boundaries in 1942. Litigation over the first parcel within the reserve did not end conclusively until 1964. For the most important struggle over a school land grant in California, see Estate of Charles O. Fairbank by Charles Fairbank and Henry Fairbank, Trustees v. United States, United States Court of Claims, 164 Ct. Cl. 1 (24 January 1964). 4. California Department of Conservation, Division of Oil, Gas, and Geothermal Resources, 1997 Annual Report of the State Oil and Gas Supervisor (Sacramento: California State Printing Office, 1998), 55, 56, 57, 61. 5. Gerald Nash, United States Oil Policy, 1890–1964: Business and Government in Twentieth Century America (Pittsburgh: University of Pittsburgh Press, 1968), 192–94. 6. J. James Hollister v. W. S. Kingsbury, Court of Appeals of California, 129 Cal. App. 420, 423 (2 February 1933). For criticism of Kingsbury’s change of course, see Howard Kegley, “Wells Reveal State Loss,” LAT, 26 February 1928, pt. 1, 12:1; “Oil Drilling on Tidelands up in Court: Several Cases Reach High Tribunal; Ventura Case Is Test,” SFC, 7 December 1927, 7:3; “Oil Rush May Ruin Beaches,” SFC, 27 September 1928, 14:3. 7. See J.R. Kelley v. W.S. Kingsbury, Supreme Court of California, 210 Cal. 37 (18 July 1930), which upheld Kingsbury’s discretion to define the boundaries of the Ellwood field and thus reject petitioner’s permit application, and its companion case, T.G. Kennedy v. W.S. Kingsbury, Supreme Court of California, 210 Cal. 667 (18 July 1930); J.R. Kelley, “Petition for Writ of Mandate: J.R. Kelley vs. W. S. Kingsbury, Surveyor-General State of California, Ex-Officio Register of the State Land Office,” 28 January 1930, State Lands Commission—Correspondence 1930, California State Archives (hereafter CSA). The California Court of Appeals upheld Kingsbury’s broad definition of the Ellwood field in Leo I. Farry v. Lyman King, Court of Appeals of California, 120 Cal. App. 118 (22 January 1932). See also “Writ Refused in Tideland Oil Case,” SFC, 17 February 1929, 23:5, concerning oil and gas on state-owned tidelands inside Huntington Beach city limits. 8. Howard Kegley, “Wells Reveal State Loss,” LAT, 26 February 1928, pt. 1, 12:1; “Favor Drilling Tidelands,” LAT, 27 February 1928, pt. 1, 15:1. 9. “Oil Rush May Ruin Beaches,” SFC, 27 September 1928, 14:3. 10. People v. California Fish Company, Supreme Court of California, 166 Cal. 576 (20 December 1913); People v. Southern Pacific Railroad Company, Supreme Court of California, 169 Cal. 537 (5 March 1915). 11. “Webb Scores Oil Drilling in Tideland: Attorney Declares State Has Full Control over Ocean Beaches,” SFC, 24 January 1928, 9:3; U.S. Webb, “Brief of

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Notes to Pages 58–61

Respondent in Boone v. Kingsbury,” January 1928, Supreme Court of California Records, Box WPA 24291–24311, Folder: WPA 24310; Boone v. Kingsbury, S.F. No. 12707, 38, 43, 59, 70–71, CSA. 12. Secretary of the Interior Ray Lyman Wilbur simultaneously claimed discretion to refuse permits for federal oil lands under the 1920 mineral leasing law, a position ultimately upheld by the U.S. Supreme Court. See chap. 2, n. 73. 13. K.E. Boone v. William S. Kingsbury, Supreme Court of California, 206 Cal. 148, 165 (31 December 1928). 14. Ibid., 181–82. 15. “Tidelands Oil Hunt Approved,” SFC, 1 January 1929, 11:7; “Oil Well on Island of Steel,” LAT, 14 November 1932, pt. 1, 10:5. “Oil Drill Threat for Beaches Seen in Court Ruling,” San Francisco Examiner, 6 January 1929, 7:5; “Tideland Oil Decision Hit by Justice: Judge Shenk Dissents in Permit Granted Drilling Firm,” SFC, 6 January 1929, 4:8; “U.S. Will Rule on Oil Permits: State Surveyor-General to Carry Tideland Case to Supreme Court,” SFC, 5 April 1929, 7:3. The U.S. Supreme Court dismissed Kingsbury’s federal appeal for “want of a substantial federal question.” Workman v. Boone, Supreme Court of the United States, 280 U.S. 517 (28 October 1929). 16. “Oil Prospecting Pleas Rejected,” LAT, 23 December 1929, pt. 1, 12:7; “Oil Production Curb Discussed,” LAT, 23 December 1929, pt. 1, 12:5; “Decision on Oil Drilling Requested,” LAT, 7 March 1930, 9:3. 17. “Quick Curb Asked against Tideland Oil Prospectors,” San Francisco Examiner, 11 January 1929, 6:5; “Senate Passes Tideland Bill,” SFC, 18 January 1929, 2:4; “Young Signs Tideland Bill,” San Francisco Examiner, 18 January 29, 4:2; “Curb on Beach Drilling Urged,” San Francisco Examiner, 9 January 1929, 9:5; “Bill Will Save State Beaches: Governor Signs Measure Banning Drilling; Natural Gas Waste Stopped,” SFC, 29 May 1929, 13:5. 18. J. James Hollister v. W. S. Kingsbury, 420, 423, 429. 19. “Tidelands Promise to Become Big Oil Field,” SFC, 17 August 1929, 15:1. 20. “Gas Spouting Oil Well Still Balks Control,” SFC, 9 August 1929, 1:4; “Drillers Race to Strike Oil on Tidelands,” SFC, 6 September 1929, 17:2; “Third Well Planned at Santa Barbara,” SFC, 8 October 1929, 20:6; “Santa Barbara Oil Area Being Fully Tested,” SFC, 21 October 1929, 15:8; “Pacific Western Brings in Well,” SFC, 19 November 1929, 21:1; “Wildcat Well Comes In ‘Barefoot’; Proves Up New Santa Barbara Field,” SFC, 28 November 1929, 15:2. 21. See Spalding v. United States, United States District Court, 17 F. Supp. 957, 959 (16 January 1937). Caroline and Silsby Spalding, a married couple who owned state tidelands permits No. 92 and 93, unsuccessfully attempted to avoid federal income tax on more than $1 million in oil and gas income in 1930, claiming that they had generated the income on a “tax-exempt” state lease. For similar efforts at tax evasion, see also A.T. Jergins Trust v. Commissioner of Internal Revenue, United States Board of Tax Appeals, 22 B.T.A. 551 (5 March 1931); Burnet, Commissioner of Internal Revenue, v. A. T. Jergins Trust, Supreme Court of the United States, 288 U.S. 508 (13 March 1933). 22. “Tideland Development Ellwood Field Promises to Become Great Producer,” SFC, 16 February 1930, 11:6; “Barnsdall Oil Hits Producer in Ocean

Notes to Pages 61–66

229

Bed,” SFC, 6 September 1930, 13:8; Howard Kegley, “Ocean Oil Wells Bonanza,” LAT, 14 April 1930, 14:2. 23. “Barnsdall Oil Hits Producer in Ocean Bed,” 13:8. 24. “Survey Begun on Beach Uses: Oil Drilling and Industrial Exploitation Studied,” LAT, 19 July 1930, sec. 2, 3:5; “Meeting Will Launch Battle against Leasing,” LAT, 20 July 1930, sec. 2, 1:1; “Court Blocks Beach Drilling,” LAT, 20 July 1930, sec. 2, 1:1; “Webb Blocks L.A. Tide Land Leasing,” SFC, 22 August 1930, 4:5. 25. Lewis Stone v. City of Los Angeles, Court of Appeals of California, 114 Cal. App. 192 (18 May 1931); “City Plea Lost on Oil Leasing,” LAT, 19 July 1931, pt. 2, 8:1. 26. Lewis Stone v. City of Los Angeles, 192, 203–4. 27. “Beaches and Oil,” LAT, 9 October 1930, sec. 2, 4:2. 28. “Oil Royalty Paid from Tidelands,” SFC, 30 October 1929, 16:1; “Tidelands Promise to Become Big Oil Field,” SFC, 17 August 1929, 15:1; “Tideland Oil Field Active,” SFC, 23 August 1929, 23:3; “Motion Granted to Dismiss Road Case,” SFC, 2 December 1929, 16:3; “Ellwood Tidelands Settlement Made,” SFC, 7 March 1930, 20:1. 29. See Webb Shadle to Submarine Oil Company, 3 June 1930, 29 August 1930, State Lands Commission—Correspondence 1930, CSA. 30. For typical contractual arrangements that stipulated competitive production, see A. T. Jergins Trust v. Commissioner of Internal Revenue, 551, 553–54; “Banning Lease with T. F. Gessel,” 29 August 1930, Banning Papers, Box 20, Folder 2, 11; “Banning Lease with Superior Oil Company,” 1925, Banning Papers, Box 20, Folder 2, HL; “Oil Conservation Program Gets First Results from Price Cut in Signal Hill,” SFC, 23 October 1929, 21:1. 31. John Ise, The United States Oil Policy (New Haven, Conn.: Yale University Press, 1926), especially chap. 12; Jules Tygiel, The Great Los Angeles Swindle: Oil, Stocks, and Scandal during the Roaring Twenties (New York: Oxford University Press, 1994). 32. Ise, United States Oil Policy, 108, 211, 216. 33. “State Wins—If It Loses,” LAT, 30 June 1928, pt. 2, 6:5; “State Victor in Beach Fight,” LAT, 3 July 1928, pt. 2, 2:8. 34. “Our Huntington Beach Retaining Wall,” Standard Oil Bulletin (February 1927): 10. 35. “Court Forbids Ocean Drilling,” LAT, 10 February 1930, 15:8. 36. Ibid. 37. Arthur Carr v. W.S. Kingsbury, Court of Appeals of California, 111 Cal. App. 165, 169 (16 January 1931). See also Thomas A. Joyner v. W.S. Kingsbury, Court of Appeals of California, 97 Cal. App. 17 (16 February 1929); Roy Maggart v. W.S. Kingsbury, Court of Appeals of California, 111 Cal. App. 765 (16 January 1931); C. C. Cummings v. W.S. Kingsbury, Court of Appeals of California, 111 Cal. App. 763 (16 January 1931); F. L. Feisthamel v. W.S. Kingsbury, Court of Appeals of California, 111 Cal. App. 762 (16 January 1931); Thomas A. Joyner v. W. S. Kingsbury, Court of Appeals of California, 111 Cal. App. 764 (16 January 1931); “Supreme Court Upholds State Oil Land Law,” SFC, 20 October 1931, 3:8; “Oil Well Zone Review Denied,” LAT, 20 October 1931, pt. 2, 7:1.

230

Notes to Pages 66–69

38. “Groups Appeal to Rolph,” LAT, 27 May 1931, 14:7; “Supervisors Ask Rolph to Veto Tidelands Bill,” LAT, 2 June 1931, sec. 2, 2:2; “Governor, Senator Speak: Two Officials Side with Santa Barbara against Oil Drilling on Beaches,” LAT, 11 May 1931, sec. 2, 10:4. 39. Eustace Cullinan to William A. Smith, 22 May 1931, GTWHP, Carton 0155071: Government Relations; James E. Degnan to Felix T. Smith, 27 January 1931, GTWHP, Carton 0155081, Folder: Producing—Huntington Beach, Chevron Archives. 40. “The Tide Lands at Huntington Beach,” Newport News, 28 May 1931. 41. “Tidelands Oil Bill Vetoed,” LAT, 18 June 1931, pt. 2, 1:3. 42. Felix T. Smith to Oscar Lawler, 27 June 1931, Lawler to Vincent Butler, 7 July 1931, GTWHP, Carton 0155081, Folder: Producing—Huntington Beach, Chevron Archives. 43. Elson G. Conrad and L. W. Blodget, “Argument against Preventing Leasing of State-Owned Tide or Beach Lands for Mineral and Oil Production Referendum Measure,” in Referendum Measures, together with Arguments Respecting the Same (Sacramento: California State Printing Office, 3 May 1932), 5–6. 44. “Tidelands Oil Battle Opens,” LAT, 17 May 1932, pt. 1, 6:4; Roy Maggart v. W. S. Kingsbury, 765; Porter Flint, “Oil News,” LAT, 11 September 1932, pt. 1, 21:1. After the electorate rejected the November 1932 proposition, the Pacific Exploration Company’s lease option expired (because the company was unable to carry out the drilling terms). In July 1933, the Huntington Beach City Council, meeting in secret session, negotiated a new lease with the Southwest Exploration Oil Company, affiliated with the prominent Hancock Oil Company. Most likely, the city council switched lessees hoping that Hancock would have more political clout and persuade legislators to push through legislation in 1934 allocating oil rights to the city. “Renewal of Tidelands Oil Battle Looms as Huntington Beach Grants Lease,” LAT, 9 July 1933, pt. 1, 14:7. 45. Arthur Carr v. W.S. Kingsbury, 165, 169. 46. “Drilling Lease Made by City,” LAT, 13 August 1932, pt. 1, 13:1; “Friendly Suit Filed to Test Lease Validity,” LAT, 18 August 1932, pt. 1, 10:2; “Battle on Oil Will Be Bitter,” LAT, 12 December 1932, pt. 2, 8:1; “Six City Streets Leased for Oil Drilling by Huntington Beach City Council,” LAT, 27 May 1933, pt. 2, 6:8; Porter Flint, “Oil News,” LAT, 1 June 1933, pt. 1, 17:1. 47. “Drilling Lease Made by City,” pt. 1, 13:1; “Oil Lease Injunction Explained,” LAT, 4 November 1932, pt. 1, 11:3; “Tidelands Oil Battle Opens,” LAT, 17 May 1932, pt. 1, 6:4. For a related discussion of local struggles for control over oil and gas development, see Paul Sabin, “Voices from the Hydrocarbon Frontier: Canada’s Mackenzie Valley Pipeline Inquiry (1974–1977),” Environmental History Review 19, no. 1 (spring 1995): 17–48; Sabin, “Searching for Middle Ground: Native Communities and Oil Extraction in the Northern and Central Ecuadorian Amazon, 1967–1993,” Environmental History 3, no. 2 (April 1998): 144–68. 48. C.G. Ward, Chairman, Civic Betterment Committee, Huntington Beach Chamber of Commerce, and Willis H. Warner, Secretary and Treasurer, Beach Protective Association, Huntington Beach, California, “Argument against

Notes to Pages 69–72

231

Initiative Proposition No. 11,” in Proposed Amendments to Constitution and Proposed Statutes, with Arguments Respecting the Same, by Secretary of State, State of California (Sacramento: California State Printing Office, 8 November 1932); “Oil Drilling Move Opposed,” LAT, 14 October 1932, pt. 2, 1:2. 49. “Beach Oil Fight Pushed,” LAT, 27 September 1932, pt. 2, 6:4; “Rolph Raps Beach Oil Proposal,” LAT, 6 November 1932, pt. 1, 14:5; “Rolph Orders Oil Drill Quiz,” LAT, 29 October 1932, pt. 2, 1:3; “Realtors Battle Move to Drill on Tidelands: Beaches Belong to People, Must Not Be Ruined, Rolph Asserts,” SFC, 9 October 1932, 5:1. 50. L. A. Barrett, “Joint Report of Mineral Resources Section and Forestry Section,” Transactions of the Commonwealth Club of California 27: 5 (27 September 1932); “Rossi in Save Beaches Move: Mayor Works against Oil Proposal,” SFC, 14 October 1932, 5:2. 51. Ward and Warner, “Argument against Initiative Proposition No. 11”; “Vote on State Propositions,” LAT, 11 November 1932, pt. 1, 2:5. 52. For further political efforts, see “Tidelands Oil Wells Approved,” LAT, 19 July 1933, pt. 1, 10:3; “Huntington Beach Oil Leasing Wins in Assembly,” LAT, 22 July 1933, pt. 1, 2:6; “Beach Oil Drilling,” LAT, 25 July 1933, pt. 2, 4:2. 53. Howard Kegley, “Oil News,” LAT, 12 August 1931, pt. 1, 17:8; Howard Kegley, “Oil News,” LAT, 14 October 1931, pt. 1, 19:1; Howard Kegley, “Oil News,” LAT, 6 June 1932, pt. 1, 15:1; R. E. Allen to Members Central Proration Committee, 30 January 1933, Lloyd Collection, Box LCL 8(1), Folder: Central Proration Committee and Planning and Coordination Committee, Letters, etc., HL; Howard Kegley, “Oil News,” LAT, 11 July 1933, pt. 1, 14:8; Affidavit of C. M. Potter, 2 January 1934, People of the State of California v. Termo Oil Company, Orange County Superior Court, Case No. 31452 (8 August 1938); Howard Kegley, “Oil News,” LAT, 9 August 1933, pt. 1, 13:4; “Six City Streets Leased for Oil Drilling by Huntington Beach City Council,” LAT, 27 May 1933, pt. 2, 6:8. 54. Arthur Alexander, “Supplemental Expense Account,” 1 November 1934, Finance—State Lands—Los Angeles, CSA; Affidavit of Arthur H. Alexander, 25 October 1933, in People of the State of California v. H. John Eastman, Ltd., Orange County Superior Court, Case No. 31452 (20 July 1938); Affidavit of C. M. Potter, 2 January 1934, People of the State of California v. Termo Oil Company. 55. “Huge State Oil Loss in Beach Field Rumored: Official Reported Perturbed over Talk of Pilfering,” SFC, 6 September 1933, 4:1; “State to Restrain Illegal Oil Practice,” SFC, 14 September 1933, 3:2. See also “Huntington Beach Oil Leasing Wins in Assembly,” LAT, 22 July 1933, pt. 1, 2:6. 56. “Gas Tax Raid Proposed as Budget Aid,” SFC, 24 December 1932, 1:8; R. W. Jimerson, “State Legislators Extend Battle against Income Tax: Vandegrift Warning Points Out Perils to California,” San Francisco Examiner, 10 July 1933; “Vandegrift Estate Goes to Widow, Children, Father,” Sacramento Bee (hereafter SB), 23 December 1949, 3:1; “Vandegrift, Legislative Auditor, Dies,” SB, 17 December 1949, 1:6. 57. “State Will Press Fight in Oil Row,” LAT, 29 September 1933, 3:2; “State to Press Oil Well Suits,” LAT, 20 September 1933, 3:1.

232

Notes to Pages 72–75

58. “State Finance Head in Oil Row,” LAT, 19 October 1933, 8:2; “Dock Approved by Vandegrift,” LAT, 4 February 1934, 18:1. 59. “Tidelands Row Aired,” LAT, 2 November 1933, 1:1. 60. Anonymous to Culbert L. Olson, 9 July 1935, Olson Papers, MSS C-B 442, Box 3, Bancroft Library (hereafter BL); for details on Jefferson, see H.R. Philbrick, Legislative Investigative Report (Sacramento: Edwin N. Atherton and Associates, 1938), sec. IV-42, sec. II-18. 61. “State Revenue Increase Seen,” LAT, 2 January 1934, 12:2; “Governor Is Due to Hold Hearing on Tideland Oil,” SB, 10 July 1935, 1:7. 62. U.S. Webb to Dudley D. Sales, C.R. Smith, and William H. Cree, 3 October 1933, in the complaint of Utt in James B. Utt v. Rolland A. Vandegrift, Sacramento Superior Court, Case No. 49963 (9 December 1933). 63. James B. Utt v. Rolland A. Vandegrift. See J. James Hollister v. W.S. Kingsbury, 420 (reversing Glenn’s order that Kingsbury grant a prospecting permit to Hollister). 64. Floyd J. Healey, “Oil Royalties Plan Drawn Up,” LAT, 8 December 1933, 2:1. 65. “Restrainment of State Oil Suits Sought: Beach City Asserts Action Interfering with Valuations,” SFC, 5 January 1934, 25:7. The Department of Finance won a court judgment against the Termo Oil Company but then settled for royalties under an easement. People of the State of California v. Termo Oil Company, “Judgment and Decree.” 66. “Beach Oil Pool Heads Warned,” SFC, 24 March 1934, 7:7; “Vandegrift Will Submit Leases to Legislature,” LAT, 24 February 1934, 2:1. 67. “Restrainment of State Oil Suits Sought: Beach City Asserts Action Interfering with Valuations,” SFC, 5 January 1934, 25:7. 68. George Bush and Lewis Blodget, “Reply Memorandum on Behalf of Certain Defendant Property Owners,” April 1934, Olson Papers, Box 3, BL, from the case State of California v. Milroy Oil Company, Pacific Electric Railway Company v. Milroy Oil Company, Orange County Superior Court, 4–5 (April 1934). 69. “State Demands $400,000 from Oil Operators: Suits Filed in Attempt to Shut Down Beach Producers,” SFC, 31 January 1934, 20:8; “State’s Share on Oil Set High,” LAT, 24 January 1934, 3:1; “Beach City Accuses State in Oil Scheme: Municipality Says Group Promised Leniency to Large Firms,” SFC, 4 February 1934, 13:2. 70. “Tide Lands Oil Row Settled,” SFC, 16 December 1934, 8:1. 71. “Production Data Huntington Beach Field,” October–November 1936, Olson Papers, Box 3, BL. 72. “New Director Opens Probe of Oil Royalties: State Officials, Standard Oil Alleged Plot under Investigation,” SFC, 6 February 1934, 4:5; California Legislature, Special Committee on the Abstraction of Oil and Gas from Tidelands of the State of California, In the Matter of the Investigation by a Special Committee of the Senate of the State of California of the Abstraction of Oil and Gas from the Tidelands of the State of California: Reporter’s Transcript of the Proceedings (Sacramento: California State Printing Office, 1935–1937), 9 July 1935 and 10 July 1935, 8–15.

Notes to Pages 75–81

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73. R.E. Allen to Members Central Proration Committee, 14 August 1933, Lloyd Collection, Box LCL 8(1), Folder: Central Proration Committee and Planning and Coordination Committee, Letters, etc.; see also Emil Kluth to Ralph B. Lloyd, 26 October 1933, Lloyd Papers, Box LCL 8(1), Folder: Central Proration Committee, HL. 74. Union Oil Company of California v. Reconstruction Oil Company, Court of Appeals of California, 20 Cal. App. 2d 170 (2 April 1937); Union Oil Company of California v. Mutual Oil Company, Court of Appeals of California, 19 Cal. App. 2d 409 (3 March 1937); Union Oil Company of California v. Mutual Oil Company, Court of Appeals of California, 21 Cal. App. 2d 620 (30 June 1937); Pacific Western Oil Company v. Bern Oil Company, Ltd., Supreme Court of California, 13 Cal. 2d 60 (3 March 1939); People v. Bert Brunwin, Court of Appeals of California, 2 Cal. App. 2d 287 (19 November 1934); Bern Oil Company v. Superior Court, 5 Cal. App. 2d 21 (27 February 1935). 75. Nathan Newby to Culbert L. Olson, 22 April 1937, Olson Papers, Box 3, BL. 76. “Beach Oil Pool Heads Warned,” SFC, 24 March 1934, 7:7; “State Demands $400,000 from Oil Operators: Suits Filed in Attempt to Shut Down Beach Producers,” SFC, 31 January 1934, 20:8; “State Files New Claim in Oil Dispute: Damages of $500,000 Sought from Calif. Producers,” SFC, 1 February 1934, 21:4. 77. Ralph B. Lloyd to Harold Ickes, 18 September 1933, Lloyd Papers, Box LCL 8(1), Folder: Central Proration Committee and Planning and Coordination Committee, Letters, etc., HL. 78. In January 1934, Assemblyman Craig of Orange County asked Vandegrift to allow one hundred additional property owners in Huntington Beach to drill into the state pool on a royalty basis, but Vandegrift refused, declaring the Huntington Beach field overdrilled. “State’s Share on Oil Set High,” LAT, 24 January 1934, 3:1.

chapter 4. “the same unsavory smell of teapot dome” 1. The chapter title is from N. P. West, an Orange County supervisor, as quoted in “Oil Bill Veto Urged as Bribery Inquiries Loom,” SB, 19 June 1935, 1:6. 2. Upton Sinclair, Oil! (1926; reprint, Berkeley: University of California Press, 1997); Sinclair, The Jungle (1906; reprint, New York: Bantam, 1981); Greg Mitchell, The Campaign of the Century: Upton Sinclair’s Race for Governor of California and the Birth of Media Politics (New York: Random House, 1992); Upton Sinclair, I, Candidate for Governor, and How I Got Licked (Berkeley: University of California Press, 1994). 3. By the end of the 1935 legislative session, Olson already was seen as a potential gubernatorial candidate for the 1938 race. Herbert L. Phillips, “Hatfield, Olson Loom as Governor Candidates,” SB, 20 June 1935; “Epics [sic] and G.O.P Exchange Radio Raps on Budget,” SB, 30 May 1935, 11:4; William T. Goodman, “Culbert L. Olson and California Politics, 1933–1943” (Master’s thesis, University of California, Los Angeles, June, 1948).

234

Notes to Pages 81–84

4. “Runs for Office,” Belvedere Citizen, 10 May 1934, Olson Papers, MSS CB 442, Carton 8, Scrapbook 1934–5, BL; “Sen. Olson Looks at Legislature,” Independent Review, 7 February 1935; “Bourbons Seek Exemption Test on Lyon Bill,” SB, 12 March 1935, 10:7; “EPICS Take Tax Fight to Radio Public,” Sacramento Union, 25 May 1935; “Budget Again Defeated by 28 EPIC Votes,” Sacramento Union, 28 May 1935; “Epics [sic] Block Passage of State Budget,” SFC, 28 May, 1935, 1; Edward Dickson, “Close of Legislature Is Seen as $352,282,000 Budget Passes Assembly,” SB, 30 May 1935, 1:2; “Epics [sic] and G.O.P Exchange Radio Raps on Budget,” SB, 30 May 1935, 11:4; “Indigent Ban Is Beaten on 22 to 11 Vote,” SB, 12 June 1935, 3:2; “Gold Mining Industry Rallies Campaign for Severance Tax Defeat: Imposition of Levy Held Certain to Force Many Marginal Properties to Abandon Operations,” SFC, 27 September 1935, 27:2. 5. “House Acts to Probe Leases of State Oil Lands,” SB, 12 April 1935, 18:5; “Oil Tidelands Probe Ordered,” SFC, 4 January 1936, 4:8. 6. “State Will Net $9,000,000 from Tideland Leases,” SB, 23 April 1935, 6:1; “Solon Seeks Senate Quiz on Oil Operations,” SB, 9 April 1935, 5:5; “Olson Fails in Move to Rush Beach Oil Probe,” SB, 11 April 1935, 25:8; “House Acts to Probe Leases of State Oil Lands,” 18:5; “Committee Is Named for Tideland Probe,” SB, 15 April 1935, 11:5. 7. “House Acts to Probe Leases of State Oil Lands,” 18:5. 8. “State Beach Oil Drilling Is Asked,” SB, 24 April 1935, 6:5; William J. Kemnitzer, Rebirth of Monopoly: A Critical Analysis of Economic Conduct in the Petroleum Industry of the United States (New York: Harper and Brothers, 1938). 9. “Oil Committee Hits Drilling on State’s Beaches,” SB, 7 May 1935, 13:4. 10. “Competitive Bids for State Oil Are Given Approval,” SB, 21 May 1935, 10:4; “Well Drilling Bill Is Favored,” SB, 12 March 1935, 10:8; “Assembly Committee Rejects Tidelands Oil Pool Measure,” SB, 14 May 1935, 4:5; “Assembly Oil Group Tables Tideland Bill,” SB, 1 June 1935, 4:1. 11. “Bill Proposes Tidelands Oil Whipstocking,” SB, 11 May 1935, 4:1. 12. “Competitive Bids for State Oil Are Given Approval,” 10:4. 13. Assembly Journal, 4 June 1935, 4174–75. 14. “Bill Proposes Tidelands Oil Whipstocking,” 4:1; “Assembly Group Votes Burns Bill,” SFC, 12 May 1935, 13:1; “Huntington Production Probe Started: One Committee Swings into Action at Sacramento,” SFC, 10 July 1935, 19:4; “Competitive Bids for State Oil Are Given Approval,” 10:4; “Tidelands Oil Lease Bill Sent to Governor: Epics [sic] Lose Bitter Fight to Block Rental Plan; New Scandal Seen,” SFC, 5 June 1935, 4:4; “New Oil Bill Is Introduced,” SB, 11 June 1935, 6:2; Herbert L. Phillips, “Assembly’s Action Tangles Competitive Bid Oil Plan,” SB, 12 June 1935, 3:2. 15. Phillips, “Assembly’s Action Tangles Competitive Bid Oil Plan,” 3:2; “Oil Scandal Is Charged in Tideland Lease Bill,” SB, 4 June 1935, 1:1; Assembly Journal, 12 June 1935, 4553–54; “Governor Is Due to Hold Hearing on Tideland Oil,” SB, 10 July 1935, 1:7. 16. “Gilmore Tideland Bill Is Killed in Eleventh Hour,” SB, 15 June 1935, 11:3; “Oil Bill Veto Urged as Bribery Inquiries Loom,” SB, 19 June 1935, 1:6; “Federal Probe of Tideland Oil Deal Is Demanded,” SB, 20 June 1935, 2:4.

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17. “Recall Threat Hurled at Oil Bill Hearing: Merriam Defers Action in Old Controversy over Tideland Development,” SFC, 11 July 1935, 4:1. 18. “Huntington Production Probe Started: One Committee Swings into Action at Sacramento,” SFC, 10 July 1935, 19:4; “Governor Is Due to Hold Hearing on Tideland Oil,” SB, 10 July 1935, 1:7; “Tidelands Oil Measure Falls under Veto Ax,” SB, 22 July 1935, 4:1. 19. Stanley Mosk, interview by author, San Francisco, 16 June 1996; Robert E. Burke, Olson’s New Deal in California (Berkeley: University of California Press, 1953), 6–8; “Pages See Them Like This,” SB, 7 January 1937, 19:2. 20. “Standard, State Oil Pact Held Up,” SFC, 26 July 1935, 23:1; Culbert L. Olson, “Speech by Senator Culbert L. Olson, Los Angeles Trinity Auditorium,” 19 July 1935, radio, Olson Papers, Box 4, Folder: Olson Speeches, 1934–5, BL; Herbert Phillips, “Lack of Money Hits Treasury, Oil Well Probes,” SB, 22 October 1935, 1:3; “State Survey of Oil Tidelands Is to Be Pressed,” SB, 29 August 1935, 3:5; “Merriam Backs Further Expense in Oil Inquiry,” SB, 31 August 1935, 4:8; California Legislature, Special Committee on the Abstraction of Oil and Gas from Tidelands of the State of California, In the Matter of the Investigation by a Special Committee of the Senate of the State of California of the Abstraction of Oil and Gas from the Tidelands of the State of California: Reporter’s Transcript of the Proceedings (Sacramento: California State Printing Office, 1935–1937; hereafter Olson Committee, Proceedings), 28 August 1935, 35–37; Olson Committee, Proceedings, 21 October 1935, 119–66. 21. Olson Committee, Proceedings, 21 October 1935, 203–4, 215, 237, 245–46, 247; Olson Committee, Proceedings, 28 August 1935, 42–43, 65, 81–82; Culbert Olson to Anderson, Inc., 28 August 1935, Olson Committee, Proceedings, 21 October 1935, 147; “Explanation of the Treatment of WellSurvey Records by the California State Senate Oil Investigating Committee,” in Olson Committee, Proceedings, 21 October 1935, 118. 22. Olson Committee, Proceedings, 16 November 1936, 117. 23. Olson Committee, Proceedings, 28 August 1935, 66. In 1937, the state legislature revisited the question of state access to information when it considered the Philips bill, SB 158. The proposed law would have required that state oil and gas permittees file drilling logs with the Division of State Lands. The state would still keep records secret but could use them to enforce its rights under the permits. “Senate Measure Opens Oil Logs,” SB, 9 March 1937, 21:6. The problem of access to information returned again during the investigation of Carl Sturzenacker and Arthur Alexander, also discussed in this chapter. An October 1938 hearing on the issue was marked by the censure of Tracy Atherton, engineer for the State Lands Commission, for refusing to produce maps detailing drilling operations in the Huntington Beach pool. Only when threatened with outright dismissal did Atherton comply with the request to provide information. Webb Shadle opposed efforts to gain access to the maps, claiming that they were confidential and, if admitted to public view, might result in suits against the state for technical trespass. “Drop Charges Officials Plead,” SFC, 28 September 1938, 9:2. 24. Culbert L. Olson to Huntington Beach Operators, 14 December 1936, Olson Papers, Box 3, BL. One of Olson’s early acts as governor was to arrange

236

Notes to Pages 86–89

to pay William Kemnitzer and the geologists who had worked to determine the tidelands boundary. See Kemnitzer’s letter of thanks, recounting his memories of “those long hours of thankless work . . . standing alone behind you at hearings where everyone was against you.” William J. Kemnitzer to Culbert L. Olson, 4 March 1939, Olson Papers, Box 3, BL. 25. “Olson Charges Refusal to Aid in Tideland Probe,” SB, 27 May 1936, 4:1; “State to Collect $800,000 in Oil: Sum Estimated as Royalty from Standard,” SFC, 31 May 1936, 13:4; “State Expects $800,000 from Standard Oil,” SB, 30 May 1936, 2:1. 26. “Political Gossip by Behrens,” SFC, 25 May 1936, 6:1. 27. Oscar Sutro to William E. Colby, 16 June 193[4?], William E. Colby Papers, BANC MSS C-B 980, Box 2, BL. Colby was also close to Robert Searls, principal lobbyist for the mining companies. Robert Searls to William E. Colby, 11 April 1950, Colby Papers, BANC MSS C-B 980, Box 2, BL. For an earlier compromise in which Colby traded automobile access to the parks for the national auto club’s political support for park appropriations, see William Colby to G. Frederick Schwarz, 31 July 1913, William E. Colby Sierra Club Papers (BANC MSS 71/295 c Series 19), Box 38, Folder 3, BL. 28. “For Profit to the State,” SFC, 14 October 1936, 12:1; “Proposition 4 Endorsed by Papers, Clubs: Act Would Prohibit Oil Drilling on Land Not Already Leased,” SFC, 29 October 1936, 9:4. 29. “Ban on Proposition 4 Sought in Suit,” SFC, 29 October 1936, 20:1; Guy W. Finney to John Anson Ford, 21 August 1936, Ford Papers, Box 11, Folder 1j, HL; S. Z. Natcher to R. A. Broomfield Jr., 1 March 1933; Natcher to Broomfield, 17 March 1933, Lloyd Papers, Box LCL 8(3), Folder: OPSA—Legislation, etc., HL; “Suit on Oil Act Held Effort to Confuse Voters,” SFC, 30 October 1936, 6:5; “State Park Commission Head Favors Slant Oil Drilling Act,” SFC, 31 October 1936, 15:3; “Park Commission Head Urges Adoption of Financing Plan,” SFC, 1 November 1936, 5:4. 30. Olson Committee, Proceedings, 16 November 1936, 54–67. 31. Glanton Reah to John Anson Ford, 21 August 1936; Glanton Reah, “Warning! Our Beaches Threatened,” September 1936, Ford Papers, Box 11, Folder 1j, HL. 32. “Merriam Seeks Income on Oil: Governor Will Consider Drilling, Royalty Plans,” SFC, 24 November 1936, 3:3; Herbert Phillips, “Governor May Urge State to Go into Oil Trade,” SB, 23 November 1936, 1:3. 33. “Oil Group Plans Move to Allow Beach Drilling,” SB, 24 November 1936, 1:3. 34. “Governor Speeds Oil Drilling Bill,” SFC, 4 December 1936, 4:6. 35. Herbert L. Phillips, “Tideland Oil May Be Chief Issue before Solons,” SB, 2 January 1937. 36. Ibid. 37. “Assembly Gets Bill for State Oil Development,” SB, 7 January 1937, 19:4; “Senate Gets Bill on Tidelands Oil,” SB, 14 January 1937, 11:5. 38. Edward Dickson, “Progressives Are Blocked in Utility, Oil Probe Moves,” SB, 21 January 1937, 6:2; “Solon Says Company Is Trying to Halt Development of California Pools,” SB, 22 January 1937, 12:6.

Notes to Pages 90–91

237

39. Olson’s Report, Senate Daily Journal, 21 January 1937, 293. 40. Olson’s fellow committeemen filed a separate report in March, which endorsed California’s agreements with trespassing companies in the name of “good faith” and “fair dealing.” “State Drilling Not Urged in Report on Oil: Senate Survey Differs from Ideas of Olson and Merriam,” SFC, 5 March 1937, 4:3; “Report of Special Senate Committee to Investigate the Abstraction of Oil and Gas from State Lands,” Senate Daily Journal, 4 March 1937, 475–86. 41. “Production Data Huntington Beach Field,” October–November 1936, Olson Papers, Box 3, BL. 42. “Senator Olson Offers Bill for Leasing of State Oil Pool,” SB, 22 January 1937, 12:5; Herbert Phillips, “Tidelands Oil Drilling Is Ranked among Top Problems in Legislature,” SB, 16 February 1937, 1:6; “Two Beach Oil Revenue Bills before Senate,” SFC, 12 March 1937, 7:1. 43. “Swing Amends Oil Bill to Give 15 Per Cent Royalty,” SB, 5 March 1937, 15:2; “Swing Amends Oil Bill to Prevent Monopoly,” SFC, 5 March 1937, 4:3. W. P. Rich of Marysville was Merriam’s close ally, as Rich’s consideration for a state supreme court position indicated. “Behrens’ Political Gossip,” SFC, 2 September 1937, 8:2. 44. “Authors Predict Passage of Two Oil Proposals,” SB, 19 April 1937, 10:4; “Senate Approves Olson Oil Bill, Kills Swing Measure,” SB, 20 April 1937, 2:5; “Olson Oil Bill Is Scheduled for Monday Hearing,” SB, 24 April 1937, 11:1. 45. “Behrens’ Political Gossip,” SFC, 18 May 1937, 7:3; “Senate Demands Legal Support for Oil Pacts,” SB, 19 March 1937, 15:1; Phillips, “Tidelands Oil Drilling Is Ranked among Top Problems in Legislature,” 1:6. 46. Herbert Phillips, “Showdown Is Due in Senate on Tideland Oil Measures,” SB, 16 March 1937, 5:2. 47. “Lower House Passes Sales Tax Reduction,” SFC, 24 April 1937, 9:3. 48. “Behrens’ Gossip on State Politics,” SFC, 27 April 1937, 7:5; “Solon Moves to Force Vote on Oil Drilling,” SB, 26 April 1937, 10:7; Joseph Timmons, “Assembly O.K.s Olson Oil Bill,” Los Angeles Examiner, 29 April 1937. 49. “Swing Drops Minimum Oil Royalty Clause,” SB, 26 March 1937, 5:1; “Oil Bills Again Face Senate,” SFC, 27 March 1937, 10:4. 50. “Olson Amends Tidelands Oil Drilling Bill,” SB, 31 March 1937. 51. “Senate Grants State Right to Drill Oil Pool,” SFC, 20 April 1937, 4:4; “Olson Tideland Bill Is Passed by Senate 22–18,” National Oil Derrick, 23 April 1937. 52. Herbert Phillips, “Lower House Will Act on Olson Bill,” SB, 28 April 1937. 53. “Oil Bill Forced Out on Floor,” SFC, 28 April 1937, 12:8. 54. “Senate Finally Gives Approval of Olson Oil Bill,” SB, 30 April 1937, 14:1; “Assembly Approves the Olson Oil Measure,” SB, 30 April 1937, 14:1. 55. Joseph Timmons, “Assembly O.K.s Olson Oil Bill,” Los Angeles Examiner, 29 April 1937; “Assembly Passes Two Oil Proposals,” SFC, 29 April 1937, 12:3. 56. Earl C. Behrens, “Olson Beach Drilling Bill Signed into Law,” SFC, 16 May 1937, 6:1.

238

Notes to Pages 92–93

57. Joseph Timmons, “Assembly O.K.s Olson Oil Bill”; “Behrens’ Political Gossip,” SFC, 5 May 1937, 5:2. 58. “Sardine, Oil Debates Rile Legislators,” SFC, 15 May 1937, 6:2; Earl C. Behrens, “Olson Beach Drilling Bill Signed into Law,” 6:1; “Senate Votes to Ratify Pact with Oil Firm,” SFC, 21 May 1937, 6:4; “Senate Adopts Urgent Clause in Olson Oil Bill,” SFC, 1 May 1937, 4:4; “Olson Calls upon Governor to Veto O’Donnell Bill,” SB, 15 June 1937, 17:1; “O’Donnell Tidelands Oil Bill Is Criticized by Senator Olson,” SB, 5 July 1937, 3:4; “Olson Scores Oil Tidelands Drilling Bill,” SFC, 4 July 1937, 8:6; “Governor Hints Favorable Action on O’Donnell Bill,” SB, 19 June 1937, 3:3; “Move Is Made to Lease State Drilling Rights,” SB, 24 June 1937, 14:5. 59. “Webb Believes Senate Hunting[ton] Beach Oil Measures Are Invalid,” SB, 5 April 1937; “Changes Follow Legal Opinion on Oil Measure,” SB, 7 April 1937, 17:1; Fred Wood to Culbert L. Olson, 9 April 1937, Olson Papers, Box 3, BL; “Merriam Plans Court Fight on Oil Referendum,” SB, 26 August 1937, 1:4; Culbert L. Olson, “Address by Senator Culbert L. Olson at Annual Convention of California Federation of Democratic Women’s Study Clubs, at Long Beach, California,” 17 August 1937, Olson Papers, Box 4, Folder: Olson Speeches, 1936–1937, BL; Culbert L. Olson, “Statement by Senator Culbert L. Olson,” 9 August 1937, Olson Papers, Box 3, BL; “State Files Suit to Halt Olson Bill Referendum,” SB, 1 September 1937, 7:2; “Court Order Stops Opening of Bids on State Oil Drilling,” SB, 8 September 1937, 5:2; “New Tideland Oil Suit Filed,” SFC, 11 September 1937, 24:3; “Senator Olson to Argue against Referendum on His Oil Bill,” SFC, 5 October 1937, 5:5; “Time to File on Referendum Briefs Granted,” SFC, 6 October 1937, 14:5. 60. “Senator and Webb Differ on Oil Bill Constitutionality,” SB, 6 April 1937; “Webb Declares Oil Pool Bill Is Subject to Vote,” SB, 9 August 1937, 1:2; Culbert L. Olson, “Statement by Senator Culbert L. Olson,” 9 August 1937, Olson Papers, Box 3, BL. 61. Herbert Phillips, “Solon Moves to Speed Oil Drilling Law,” SB, 4 March 1937, 1:8; Herbert Phillips, “Action Starts on Oil Lease and Public Drilling Bills,” SB, 11 March 1937, 18:2. 62. “Senate Demands Legal Support for Oil Pacts,” SB, 19 March 1937, 15:1; “Swing Drops Minimum Oil Royalty Clause,” SB, 26 March 1937, 5:1; “State Official Denies Lobbying Charge by Olson,” SB, 28 May 1937. 63. “Legislators Puzzle over Oil Easements,” SB, 27 March 1937, 5:1; “Olson Tideland Bill Is Passed by Senate 22–18,” National Oil Derrick, 23 April 1937; “Bill Ratifying Oil Agreements Is Approved,” SB, 21 April 1937, 5:5; “Tidelands Oil Collections Put State in Dilemma,” SB, 13 July 1937, 2:2; “Behrens’ Political Gossip,” SFC, 14 July 1937, 5:3. 64. “$5,000,000 Gift Declares Senator,” SFC, 12 October 1937, 13:3; “State Finishes $518,628 Pact with Oil Firms,” SFC, 12 October 1937, 13:3; “Counter Charges Made in Oil Pool,” SFC, 14 October 1937, 7:4. See also “Move to Sue Oil Companies Is Defeated,” SB, 10 March 1938, 12:5. 65. “Officials Seek to Guard State Rights in Oil,” SB, 29 July 1937, 26:2; “Extra Session May Be Called on Oil Issue,” SB, 19 July 1937, 1:1.

Notes to Pages 93–95

239

66. “State Board Sifts Tidelands Oil Snarl,” SFC, 21 January 1938, 5:8; Earl C. Behrens, “Referendum on Tideland Oil Ordered,” SFC, 15 February 1938, 30:1; “Olson Oil Bill Is Held Subject to Referendum,” SB, 14 February 1938, 1:7; “Oil Ruling Paves Way for Action on Extra Session,” SB, 15 February 1938, 4:5; “State Acts to Guard Interest in Oil Property,” SB, 1 February 1938, 4:4. 67. “Court Order Stops Opening of Bids on State Oil Drilling,” SB, 8 September 1937, 5:2. 68. “Cities Receive State Warning upon Tidelands,” SB, 21 September 1937, 5:1; “Four Tideland Oil Well Suits Filed by State,” SFC, 5 February 1938, 10:7; “State Denies Tideland Oil Rights to L.A.,” SFC, 23 January 1938, 7:2. 69. William S. Neal, “U.S. Navy Moves for Control of State Tidelands,” SB, 22 February 1938, 1:2; “Stockburger Says Navy Oil Reserve Is a Subterfuge,” SB, 28 February 1938, 1:6; “Merriam Is Hit on Plan to Take Over Oil Lands,” SB, 24 February 1938, 1:7. 70. “Stockburger Says Navy Oil Reserve Is a Subterfuge,” 1:6. Petroleum politics predominated at the session, as the other main issue concerned highway finance and the Bay Bridge. San Francisco area legislators sought to use gasoline taxes to finance Bay Bridge bonds if bridge tolls proved insufficient. Herbert Phillips, “Move to Divert Taxes on Gasoline to Assist Span Finance Is Hit,” SB, 8 March 1938, 1:7. 71. “Oil Legislation Termed Vital in State Fight,” SFC, 2 February 1938, 14:8; Herbert Phillips, “Battle Looms over Oil Legislation as Solons Convene Extra Session,” SB, 7 March 1938, 1:7; Phillips, “Move to Divert Taxes on Gasoline to Assist Span Finance Is Hit,” 1:7. 72. Phillips, “Move to Divert Taxes on Gasoline to Assist Span Finance Is Hit,” 1:7. 73. “Tideland Oil Vote Due Today,” SFC, 12 March 1938, 11:2; Phillips, “Solons Pass Oil Measure, End Session,” SB, 14 March 1938, 1:4; “Merriam Aids Are Scored in Bill Debate,” SB, 12 March 1938, 1:1; “Drilling Permit Sought,” SB, 28 February 1938, 4:6; Herbert Phillips, “Battle Looms over Oil Legislation as Solons Convene Extra Session,” SB, 7 March 1938, 1:7; Herbert Phillips, “Tideland Oil Drilling Measures Face Action by Solons Tomorrow,” SB, 10 March 1938, 1:7; “Tidelands Oil Bill Presented to Legislature,” SFC, 11 March 1938, 4:5. 74. “State Lands Act of 1938,” Stats. Ex. Sess. 1938, chap. 5, p. 23. 75. California State Parks Commission, 1940 Annual Report (Sacramento: California State Printing Office, 1941). 76. William Colby to Frank F. Merriam, 1 April 1933, Merriam Papers, MSS C-B 577, Box 5, BL. 77. John M. Peirce, “Financing State Parks: Should State Parks Be Self-Supporting?” Tax Digest (June 1933): 194–96. 78. As quoted in Culbert Olson to William Colby, 15 October 1936, Olson Papers, Box 3, BL. See also “State Park Commission Head Favors Slant Oil Drilling Act,” SFC, 31 October 1936, 15:3; “Suit on Oil Act Held Effort to Confuse Voters,” SFC, 30 October 1936, 6:5; “Park Commission Head Urges Adoption of Financing Plan,” SFC, 1 November 1936, 5:4.

240

Notes to Pages 95–97

79. Olson Committee, Proceedings, 16 November 1936, 62–63. 80. Despite the rapid growth in properties, the number of park employees had increased by only 53 percent, and the budget by a meager 10 percent. The park system averaged less than one field employee per park unit. California State Parks Commission, 1938 Annual Report (Sacramento: California State Printing Office, 1938); George D. Nordenholt, “Report to Governor Frank F. Merriam on the Department of Natural Resources, 1935–1938 Inclusive,” 1939, Institute of Governmental Studies Collections, University of California, Berkeley. 81. “Oil Group Plans Move to Allow Beach Drilling,” SB, 24 November 1936, 1:3. 82. Letter from the Shoreline Planning Association to the Los Angeles City Council, 28 January 1938, in Minutes of the Los Angeles City Council, 269: 574, file #518, archive of the Los Angeles City Clerk’s Office. 83. “Division of Parks: Proposed Biennial Budget—91st and 92nd Fiscal Years,” December 1938, Institute of Governmental Studies Collections, University of California, Berkeley. 84. Division of Budgets and Accounts of the Department of Finance, State of California, “Report on Examination of the Books and Records of Account of the Department of Natural Resources for the Period January 1, 1942–December 31, 1943,” 20 July 1944, Finance-Audits, Series AC 91–04–19, Box Audit Nos. 418–523, Audit 503, 84–85, CSA. 85. Herbert Phillips, “Olson Predicts Referendum on Oil Legislation,” SB, 18 March 1938, 2:4; “Referendum Is Sought against New Oil Act,” SB, 24 March 1938, 3:1; “State’s Oil Lease Bill Now a Law,” SFC, 12 June 1938, 8:4; “Merriam Signs Oil Leasing Bill,” SFC, 25 March 1938, 14:3; Herbert Phillips, “Tideland Oil Bill Is Signed by Governor,” SB, 25 March 1938, 1:6; Phillips, “Solons Pass Oil Measure, End Session,” 1:4. See the familiar themes of revenue generation for the state versus beach protection in the ballot arguments. Secretary of State, State of California, Proposed Amendments to Constitution: Propositions and Proposed Laws (Sacramento: California State Printing Office, 8 November 1938); “Proposition 10: Beaches Periled by Oil Drilling,” SFC, 24 October 1938, 5:4. On ballot votes more generally, see V. O. Key Jr. and Winston W. Crouch, The Initiative and the Referendum in California (Berkeley: University of California, 1939); David B. Magleby, Direct Legislation: Voting on Ballot Propositions in the United States (Baltimore: Johns Hopkins Press, 1984); Peter Schrag, Paradise Lost: California’s Experience, America’s Future (Berkeley: University of California Press, 1999); Harry N. Scheiber, “The Direct Ballot and State Constitutionalism,” Rutgers Law Journal 28 (summer 1997): 787–823. 86. “State Loses Another Round in Oil Fight,” SB, 15 April 1938, 25:4. 87. Olson Report, Senate Daily Journal, 21 January 1937, 286–87; Majority Report, Senate Committee, Senate Daily Journal, 4 March 1937, 477–78; “Legislator Will Urge Action on Tide Line Bill,” SB, 15 March 1937, 12:7; “State Refuses to Intervene in Beach Oil Suit: Supreme Court to Rule Later in Action over Tideland Rights,” SFC, 11 February 1937, 10:5; Bolsa Land Company v. Vaqueros Major Oil Company, Court of Appeals of California, 25 Cal. App. 2d 75, 77, 81 (15 February 1938).

Notes to Pages 97–99

241

88. “State Acts to Get Ruling on Rights to Oil,” SB, 23 March 1938, 21:1; “Court Backs Long Beach on Oil Lands,” SFC, 29 July 1938, 16:1. 89. The court distinguished between oil leases proposed for Venice and the direct municipal drilling contemplated by Long Beach. The court further noted that the California legislature had recently approved a municipal charter for Long Beach that expressly authorized oil drilling and extraction. City of Long Beach v. D.A. Marshall, Supreme Court of California, 11 Cal. 2d 609, 620–21 (28 July 1938). 90. H.R. Philbrick, Legislative Investigative Report (Sacramento: Edwin N. Atherton and Associates, 28 December 1938), sec. III-2–6, 16. 91. Ibid., sec. IV-33. 92. Earl C. Behrens, “Merriam Challenges Samish in Graft Quiz,” SFC, 18 June 1938, 1:6. 93. “Samish Gives Up; Merriam Staff Probe Is Asked,” SFC, 17 June 1938, 1:4; Earl C. Behrens, “Oil, Legislative Probes Will Be Speeded Today,” SFC, 20 June 1938, 15:1. 94. Harry Lerner, “State Land Chief and Aid Quit to Bar Oil Charges,” SFC, 12 August 1938, 1:2; “Two State Aids Resign in Oil Land Plot Quiz,” SB, 12 August 1938, 1:4; “Investigator Hits Statement of Samish Aid,” SFC, 21 June 1938, 12:1; “Webb Delays Oil Land Action,” SFC, 21 June 1938, 12:1; “$1,000,000 State Oil Scandal Revealed; High Official, Others Accused,” SFC, 18 June 1938, 1:8; Harry Lerner, “State Land Chief and Aid Quit to Bar Oil Charges,” SFC, 12 August 1938, 1:2. 95. “Land Chief Denies Charges,” SFC, 30 June 1938, 6:8. 96. “Oil Land Charges Held Unfounded,” SFC, 2 July 1938, 2:7; “Webb Delays Oil Land Action,” SFC, 21 June 1938, 12:1; “Second Inquiry Looms in State Oil Lease Scandal,” SFC, 22 June 1938, 16:2; “Action on State Oil Plot Due,” SFC, 7 July 1938, 14:3; Harry Lerner, “State Land Chief and Aid Quit to Bar Oil Charges,” SFC, 12 August 1938, 1:2. 97. “Two State Aids Resign in Oil Land Plot Quiz,” SB, 12 August 1938, 1:4; Harry Lerner, “State to File Oil Fraud Case against Officials Despite Resignations,” SFC, 13 August 1938, 1:8; “Wood Declines Personal Responsibility for Report,” SB, 12 August 1938, 11:6; “Resignation Deal Double Cross Seen by Sturzenacker,” SFC, 16 August 1938, 1:2. 98. Harry Lerner, “TWO OFFICIALS CHARGED WITH VAST TIDELANDS OIL FRAUD!” SFC, 14 August 1938, 1:8. 99. “Oil Quiz Links Alexander,” SFC, 20 October 1938, 12:1 100. Lerner, “TWO OFFICIALS CHARGED”; “Complaints Are Filed against State Aids in Oil Land Investigation,” SB, 13 August 1938, 1:7. 101. Lerner, “TWO OFFICIALS CHARGED”; “Alteration of Records Cited,” SFC, 29 September 1938, 3:5. 102. “Sturzenacker Oil Deal Told Board,” SFC, 18 October 1938, 5:1; “Bonelli’s Fee Stirs Hearing,” SFC, 19 October 1938, 7:1. 103. Lerner, “TWO OFFICIALS CHARGED”; “Complaints Are Filed against State Aids in Oil Land Investigation,” 1:7; “State Oil Inspector Testifies at Probe,” SFC, 30 October 1938, 6:5; “Alteration of Records Cited,” 3:5. 104. Lerner, “TWO OFFICIALS CHARGED”; Harry Lerner, “Check Held as Evidence of Oil Fraud,” SFC, 15 August 1938, 1:5.

242

Notes to Pages 99–101

105. “Wood Declines Personal Responsibility for Report,” 11:6; “Complaints Are Filed against State Aids in Oil Land Investigation,” 1:7. 106. Harry Lerner, “Burke Hits Merriam in Oil Charges,” SFC, 17 August 1938, 1:6; “Resignation Deal Double Cross Seen by Sturzenacker,” 1:2; “Ousted Officials May Face Oil Prosecution,” SFC, 26 August 1938, 5:1; “Criminal Action in Case Seen,” SFC, 27 August 1938, 3:4. A departmental investigation ordered by Stockburger in 1935 or 1936 uncovered corruption. Stockburger temporarily reassigned Sturzenacker and Alexander, but Sturzenacker soon reassumed general supervision of the Huntington Beach tidelands. 107. “Oil Probe Labeled Hatfield Politics,” SFC, 17 August 1938, 7:4. 108. “Sturzenacker Files Affidavit,” SFC, 27 September 1938, 10:5. 109. Edward Dickson, “State Suspends Sturzenacker and Alexander,” SB, 23 August 1938, 1:8. 110. “Neylan Suggests Board to Protect State Oil Lands,” SFC, 18 August 1938, 4:2; “Resignation Deal Double Cross Seen by Sturzenacker,” 1:2; “Neylan Statement Hits State Oil Administration,” SFC, 16 August 1938, 9:2. 111. “Hatfield Wins New Backers,” SFC, 24 August 1938, 12:3; Edward Dickson, “State Suspends Sturzenacker and Alexander,” 1:8. 112. “Sturzenacker and Alexander Are Dismissed,” SB, 7 April 1939, 1:1; “Sturzenacker Case Is Halted by Court Order,” SFC, 10 December 1938, 4:5. 113. Anticipation of an Olson-Merriam showdown in 1938 began as early as 1935. See, for example, Herbert L. Phillips, “Hatfield, Olson Loom as Governor Candidates,” SB, 20 June 1935; and “Farewell to EPIC,” San Francisco News, 14 February 1936. Olson originally wanted to enter the Senate race to confront his longtime enemy William G. McAdoo. Burke, Olson’s New Deal in California, 10. The section title is from Olson for Governor, “If Olson Is Nominated,” 1938, Behrens Collection, RG 3981, Folder 50, California State Historical Society. 114. “Platform of the Democratic Party of California,” 15 September 1938, Behrens Collection, RG 3981, Folder 43, California State Historical Society, 2. 115. “Culbert Olson Our Next Governor,” 22 August 1938, Olson Papers, Carton 7, Folder: August 1938, BL; “Republicans Blind to Phony Stock Deals, Charges Olson,” Democratic Leader, 26 August 1938, 2. A 1938 campaign document listing Olson’s career highlights put his introduction of the Olson oil bill in 1937 first and said its passage was “the first time in California history in which the oil interests lost their grip in the legislature.” “Highlights in Political Record of Culbert Olson, Democratic Candidate for Governor of California 1938,” 1938, Behrens Collection, RG 3981, Folder 50, California State Historical Society. 116. “Radio Speech by Senator Culbert L. Olson,” October 13, 1938, Behrens Collection, RG 3981, Folder 50, California State Historical Society. 117. Northern California Merriam-Franklin Campaign Committee, “Let’s Stop Telling Ghost Stories,” campaign pamphlet from 1938, Behrens Collection, RG 3981, Folder 50, California State Historical Society. 118. Division of Budgets and Accounts of the Department of Finance, State of California, “Report on Examination of the Books and Records of Account of the Division of State Lands, Department of Finance for the Period November 1,

Notes to Pages 101–4

243

1934 to June 30, 1940,” 8 December 1941, Finance-Audits, Series AC 91–04–19, Box Audit Nos. 82–130, 5, CSA. 119. Michael Harris, “Our 19th-Century State Lands Commission,” Cry California: The Journal of California Tomorrow 4 (fall 1969): 18–40. 120. Division of Budgets and Accounts of the Department of Finance, State of California, “Report on Examination of the Books and Records of Account of the Division of State Lands, Department of Finance for the Period November 1, 1934 to June 30, 1940,” 8 December 1941, Finance-Audits, Series AC 91–04–19, Box Audit Nos. 82–130, 3, CSA. State auditors under Earl Warren expressed similar dissatisfaction with the operations of the State Lands Commission. They wrote in 1944, “The obscure legal history of the execution of many leases, the rulings in the past years which apparently have been based on expediency rather than on sound statutory authority, and the acceptance over long periods of time of practices not strictly in consonance with law or contracts militate against satisfactory audit performance. There exist legal questions of magnitude which have a direct bearing on major sources of revenue.” Division of Budgets and Accounts of the Department of Finance, State of California, “Report on Examination of the Books and Records of Account of the State Lands Commission for the Period July 1, 1940 to June 30, 1943,” 27 January 1944, Finance-Audits, Series AC 91–04–19, Box Audit Nos. 1–81, 3, CSA. 121. Division of Budgets and Accounts of the Department of Finance, “Special Report in Connection with Our Current Audit of Records and Accounts of the State Lands Commission Division of State Lands Department of Finance” (Sacramento: California State Printing Office, 16 May 1941), 23–24, Exhibit F: “Statement Showing Horizontal Displacement of Bottom Hole Locations of Wells Redrilled Prior to Promulgation of Uniform Redrill Regulations by State Lands Commission”; Division of Budgets and Accounts of the Department of Finance, State of California, “Report on Examination of the Books and Records of Account of the Division of State Lands, Department of Finance for the Period November 1, 1934 to June 30, 1940,” 8 December 1941, Finance-Audits, Series AC 91–04–19, Box Audit Nos. 82–130, 42–44, CSA. 122. Division of Budgets and Accounts of the Department of Finance, “Audit of the State Lands Commission,” 16 May 1941, 23–24; Division of Budgets and Accounts of the Department of Finance, State of California, “Report on Examination of the Books and Records of Account of the Division of State Lands, Department of Finance for the Period November 1, 1934 to June 30, 1940,” 8 December 1941, Finance-Audits, Series AC 91–04–19, Box Audit Nos. 82–130, 4, CSA. 123. A 1944 shoreline planning study financed by the Greater Los Angeles Citizens Committee, a private association, warned that the region’s heritage—“a varied coastline of picturesque beauty,” “rugged cliffs and jutting headlands,” “clear water coves teeming with marine life,” and “miles of wide beaches of clean white sand”—was being despoiled. The report urged a prohibition on oil drilling “in any area within a minimum of 2500 feet of the shoreline” and recommended an initiative measure to secure such a ban. Carl C. McElvy, “Shoreline Development Study: Playa Del Rey to Palos Verdes, a Portion of a Proposed Master Recreation Plan for the Greater Los Angeles Region,” April 1944, Ford

244

Notes to Pages 104–7

Papers, Box 17, Folder 3e, 34, HL. Three years later, the Shoreline Planning Association organized a discussion group that focused on oil drilling, as part of its search for ways to make the oil industry more compatible with the coast’s recreational uses. Shoreline Planning Association of California, “Agenda (Advance Copy),” 21 April 1947, Ford Papers, Box 70, Folder 3o, HL. 124. See, for example, Department of Natural Resources, Division of Beaches and Parks, “1956–57 Budget,” December 1955, Ford Papers, Box 69, Folder 3e, HL; “Legislature Plans to Curtail Bills in 1948 Session,” SB, 14 November 1947, 4: 6 (reporting that “loss of TIDELAND oil royalties under the recent United States Supreme Court decision threatens continuation of California’s beach and park program”). 125. For a thorough account of the woes of the Olson administration, see Burke, Olson’s New Deal in California. 126. Olson had pressed unsuccessfully for a severance tax in 1935: Herbert L. Phillips, “Fight Begins to Bring the Severance Tax Bill to Vote,” SB, 20 May 1935, 6:5; “Oil Severance Tax Bill Passes Assembly 68 to 9,” SB, 14 June 1935, 1:5. For the severance tax debate in 1939, see “A Tax to Cripple Industry and Employment,” SFC, 11 January 1939, 14:1; Earl C. Behrens, “Large and Small Oil Companies Join in Protest against Severance Tax Measure,” SFC, 23 February 1939, 9:3; Earl C. Behrens, “Severance Taxes Will Be Defended,” SFC, 27 February 1939, 10:1; “Motorists Would Pay Severance Tax,” SFC, 24 February 1939, 16:2; “Sharp Fight Opens on Severance Tax,” SFC, 4 March 1939, 5:3; “Look at Severance Tax on Petroleum Industry,” SFC, 19 March 1935, 12:2; “Severance Tax Held Calamity to Oil Mart: Producer Left ‘High and Dry’ by New Expense, Says Anderson,” SFC, 15 June 1935, 19:7; Grace M. Kneedler, “Severance Taxation,” Legislative Problems 1939 (10 April 1939): 1; Culbert Olson, “Radio Address,” 4 June 1939, Olson Papers, Carton 9, BL; Earl C. Behrens, “Oil Control Bill Wins in Assembly after 34-Hr. Fight,” SFC, 16 June 1939, 1:2. For discussion of the state oil depletion allowance, see California Legislature, Partial Report of Senate and Assembly Joint Committee on Revenue and Taxation, Hearing Concerning Assembly Bills 2647, 2648, 2649, 2650, 2651, and 2652, March 1, 1939 (Sacramento: California State Printing Office, 1939). For Huey Long’s push for extending Louisiana’s severance tax, see T. Harry Williams, Huey Long (New York: Knopf, 1969), 140–45, 307–9. For Olson’s efforts with the oil commission, see the discussion of the Atkinson bill in chap. 7 of this volume. 127. In December 1947, the Supreme Court rebuffed an effort by Long Beach to transfer 25 percent of the harbor fund to a public improvement fund that could be used outside the harbor. City of Long Beach v. H. C. Morse, Supreme Court of California, 31 Cal. 2d 254, 30 (30 December 1947). 128. “Long Beach Plans Postwar Port Development,” The Log, July 1944. 129. Ernest R. Bartley, The Tidelands Oil Controversy: A Legal and Historical Analysis (Austin: University of Texas Press, 1953). 130. Notably, the federal government alone, and not the state administration, reopened federal oil lands off California’s shores during the 1970s energy shocks. Pressure from state politicians then resulted in a two-decades-long moratorium on federal offshore oil development in California. First imposed by

Notes to Pages 112–13

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President George H.W. Bush, the moratorium was extended for a second ten years by President Bill Clinton in 1998. On federal-state relations in California offshore oil development, see Daniel S. Miller, “Offshore Federalism: Evolving Federal-State Relations in Offshore Oil and Gas Development,” Ecology Law Quarterly 11 (1984): 401–50; Biliana Cicin-Sain, “Offshore Oil Development in California: Challenges to Governments and to the Private Interest,” Public Affairs Report 27, no. 1 and 2 (1986): 1–15; A. E. Keir Nash et al., Oil Pollution and the Public Interest (Berkeley: Institute of Governmental Studies, University of California, 1972).

chapter 5. the struggle to control california oil production 1. On vertical integration and the Standard Oil Trust, see Alfred D. Chandler Jr., The Visible Hand: The Managerial Revolution in American Business (Cambridge: Harvard University Press, 1977); Daniel Yergin, The Prize: The Epic Quest for Oil, Money, and Power (New York: Simon and Schuster, 1991); Harold F. Williamson and Arnold R. Daum, The American Petroleum Industry: The Age of Illumination, 1859–1899 (Evanston, Ill.: Northwestern University Press, 1959); Ronald Chernow, Titan: The Life of John D. Rockefeller, Sr. (New York: Random House, 1998); Allan Nevins, John D. Rockefeller: The Heroic Age of American Enterprise (New York: Charles Scribner’s Sons, 1940); Gerald T. White, Formative Years in the Far West: A History of Standard Oil Company of California and Predecessors through 1919 (New York: Meredith Publishing, 1962). 2. Mansel G. Blackford, The Politics of Business in California (Columbus: Ohio State University Press, 1977), 41. 3. “State’s Oil Supply Should Be Conserved,” LAT, 21 April 1915, pt. 2, 4; Western Engineering 13 (March 1915): 361–62; “To Prevent Overproduction,” Oil and Gas Journal 13 (25 June 1914): pt. 1, 4. 4. Blackford, Politics of Business in California, 46–48; John G. Clark, Energy and the Federal Government: Fossil Fuel Policies, 1900–1946 (Urbana: University of Illinois, 1987), 152; “The Law’s Limitations,” Standard Oil Bulletin 3 (June 1915): 3. See also Western Engineering 13 (June 1915): 491. At the urging of mining engineers employed by the state and by major oil companies, California began to monitor oil well drilling, particularly to ensure that oil operators abandoned wells properly to prevent water intrusion into the oil strata. In 1915, the state legislature created the oil and gas supervisor’s office to serve the industry by collecting information and enforcing proper drilling techniques. White, Formative Years in the Far West, 428; R.B. Bartlett, “H.M. Shappell Interview,” 7 January 1952, GTWHP, Carton 155070, Box: Conservation, Chevron Archives; California State Mining Bureau, Second Annual Report of the State Oil and Gas Supervisor, bulletin no. 82 (Sacramento: California State Printing Office, 1918), 7; R.P. McLaughlin, “California Conservation Methods,” Oil and Gas Journal 19 (30 April 1920): 70; Western Engineering 13 (March 1915): 361–62. 5. Alan L. Olmstead and Paul Rhode, “The Farm Energy Crisis of 1920,” Agricultural History 62, no. 1 (1988): 48–60; Olmstead and Rhode, “Rationing

246

Notes to Pages 113–16

without Government: The West Coast Gas Famine of 1920,” American Economic Review 75, no. 6 (December 1985): 1044–55. “Navy Must Pay Fair Prices—Judge Bledsoe,” California Oil World, 24 June 1920, p. 1; “Standard Raises Crude 12 Cts.; Fuel to $2,” California Oil World, 15 July 1920, p. 1; “Navy Is Refused Diesel Oil Demanded,” California Oil World, 15 July 1920, p. 1; “Payne Asks Royalty Oil for Ships,” California Oil World, 19 February 1920, p. 1. 6. “The Nation’s Oil Industry,” Standard Oil Bulletin 9 (July 1921): 1. 7. California State Mining Bureau, Summary of Operations, California Oil Fields (Sacramento: California State Printing Office, 1921), 11. The Elk Hills field was not even listed in the California State Mining Bureau’s Sixth Annual Report, Summary of Operations (Sacramento: California State Printing Office, 1920), 6–7. 8. “Review of the Year 1923,” Standard Oil Bulletin 11 (February 1924): 10. 9. Clark, Energy and the Federal Government, 160. 10. “Annual Statement—1923,” Standard Oil Bulletin 12 (May 1924): 1. 11. “Our Million-Barrel Concrete-Lined Reservoir,” Standard Oil Bulletin 10 (May 1922): 2; “Oil Reservoirs at El Segundo,” Standard Oil Bulletin 11 (November 1923): 5–7; “The Crude-Oil Situation,” Standard Oil Bulletin 11 (June 1923): 1. 12. “The Crude-Oil Situation,” Standard Oil Bulletin 12 (June 1924): 1. 13. John Ise, United States Oil Policy (New Haven, Conn.: Yale University Press, 1926), 111–18; Joe S. Bain, The Economics of the Pacific Coast Petroleum Industry, Part II: Price Behavior and Competition (Berkeley: University of California Press, 1945), 62–64. 14. Ise, United States Oil Policy, 109. See also Mark L. Requa, untitled statement on California oil production, 1923, GTWHP, Carton 155070, Box: Conservation, Chevron Archives. 15. Gerald D. Nash, United States Oil Policy, 1890–1964: Business and Government in Twentieth Century America (Pittsburgh: University of Pittsburgh Press, 1968), 81–85. 16. “Cut-Throat Oil Production Is Our National Disgrace,” San Francisco Examiner, 14 August 1928, 28:1. 17. Clark, Energy and the Federal Government, 156–58. 18. Ibid., 159–60; Ise, United States Oil Policy, 148. 19. “Annual Statement—1923,” Standard Oil Bulletin 12 (May 1924): 2; “The Crude-Oil Situation,” Standard Oil Bulletin 12 (June 1924): 1. 20. In an exchange of internal memos, Standard Oil of California’s director, H.M. Storey, requested legal advice from Oscar Sutro, the company’s chief legal advisor. The Federal Oil Conservation Board, Storey wrote, sought information to answer the following question: “What is the future of the electric driven car and truck, and the return of the horse, and the reduction of gasoline consumption?” Sutro replied that “the future of the electric driven car and truck . . . has been exclusively reserved for long-legged crooks with curly hair.” Continuing in this vein, he noted that gasoline consumption would fall “with the consumption

Notes to Pages 116–20

247

of booze.” H.M. Storey to Oscar Sutro, 27 February 1925, Sutro to Storey, 27 February 1925, GTWHP, Carton 155070, Box: Conservation, Chevron Archives. 21. “Pres. of A.P.I. Rejects Doherty Plan, No Cure for Any Existing Evil,” 11 December 1924, 1; “State Inefficiency,” California Oil World, 11 September 1924, p. 3. 22. Clark, Energy and the Federal Government, 149; “The Future Supply of Oil,” Standard Oil Bulletin 13 (August 1925): 1–2. 23. Kenneth R. Kingsbury to Hubert Work, 9 March 1925, GTWHP, Carton 155070, Box: Conservation, Chevron Archives. 24. “The Future Supply of Oil,” Standard Oil Bulletin 14 (July 1926): 1; Clark, Energy and the Federal Government, 162–63. See also Francis B. Loomis to Hubert Work, 11 April 1925, GTWHP, Carton 155070, Box: Conservation, Chevron Archives. 25. “Petroleum Demand Exceeds Supply,” Standard Oil Bulletin 14 (February 1927): 1. For an example of the rapid demise of a town-lot field, see “Another Town-Lot Area,” Standard Oil Bulletin 15 (May 1927): 1; “Town-Lot Drilling at Alamitos Heights,” Standard Oil Bulletin 15 (July 1927), 1; J. Paul Getty, My Life and Fortunes (New York: Duell, Sloan, and Pearce, 1963), 90–94. 26. “Annual Statement—1926,” Standard Oil Bulletin 14 (March 1927): 1. 27. “The Oil Supply,” Standard Oil Bulletin 14 (April 1927): 1. 28. “Annual Statement—1927,” Standard Oil Bulletin 15 (March 1928): 1–7. 29. Francis B. Loomis[?], Statement on Overproduction, 1927, GTWHP, Carton 155070, Box: Conservation (unsigned, untitled statement in file— labeled “Loomis” by GTWHP; if it is not by Loomis, then it is by another Standard Oil lawyer), Chevron Archives. 30. Ibid. 31. Earl W. Wagy to Kenneth R. Kingsbury, 30 September 1927, GTWHP, Carton 155070, Box: Conservation, Chevron Archives. 32. “Annual Statement—1928,” Standard Oil Bulletin 16 (March 1929): 1–7. 33. “Committee of Nine Urges Legislation to Conserve Oil,” U.S. Daily, 6 February 1928. For Hoover’s broader philosophy of business-government cooperation, see Ellis W. Hawley, “Herbert Hoover, the Commerce Secretariat, and the Vision of an ‘Associative State,’ 1921–1928,” Journal of American History 61 (June 1974): 116–40. 34. “Committee of Nine Urges Legislation to Conserve Oil.” 35. “Dissipation of Resources Held Danger,” SFC, 13 April 1929, 2:1; “Purpose of President’s Oil Policy Explained by Wilbur,” SFC, 13 April 1929, 2:3 (reprinting text of Wilbur’s letter); “Wilbur Insists on Oil Conservation,” SFC, 11 April 1930, 6:5; “Obstacles Many but the Oil Resources Must Be Conserved,” SFC, 11 April 1930, 22:1. See also chap. 2, n. 73, on suits over Wilbur’s permit restrictions. 36. “Oil Conservation Committee Is Making the Best Haste It Can,” SFC, 13 March 1928, 28:1. 37. Oscar Sutro to A.L. Weil, 17 February 1928, GTWHP, Carton 155070, Box: Conservation, Chevron Archives.

248

Notes to Pages 120–23

38. “Oil Conservation Committee Is Making the Best Haste It Can,” 28:1. 39. For an attack on the “old line oil concerns” that “refuse to accept the Government supervision,” see “Cut-Throat Oil Production Is Our National Disgrace,” 28:1. 40. Carl C. Wakefield, “Success of Gas Conservation Law Is Declared of Vital Importance by Standard Oil,” SFC, 1 August 1929, 19:2; “New Oil, Gas Law Is Signed by Governor,” SFC, 30 May 1929, 13:1; “$2,500,000 Gas Line Planned,” SFC, 6 October 1929, 15:6; People v. Associated Oil Company et al., Supreme Court of California, 211 Cal. 93, 95 (3 December 1930). 41. Department of Water and Power, Thirty-second Annual Report: Board of Water and Power Commissioners of the City of Los Angeles, California, Fiscal Year Ending June 30, 1933 (Los Angeles: City of Los Angeles, 1933), 77. 42. “State Bill to Curb Wastage in Oil Fields,” SFC, 4 April 1929, 2:4; “New Oil, Gas Law Is Signed by Governor,” 13:1. 43. “New Oil, Gas Law Is Signed by Governor,” 13:1; “Oil and Gas Division Created,” SFC, 4 June 1929, 3:3. 44. “Gas Waste in California,” Standard Oil Bulletin 17:3 (July 1929): 1; see also “Conservation Act Expected to Cut Output,” SFC, 16 August 1929, 17:4. 45. “Oil Industry Crisis Declared ‘Bogey’: California Law Held Key to Situation,” SFC, 16 August 1929, 17:2. Reeser clearly did not anticipate the east Texas boom. 46. “Independent Oil Operators Organized,” SFC, 4 October 1929, 19:1. 47. “Cut in Price of Crude Oil Held Unlikely,” SFC, 6 October 1929, 15:4. 48. “Conservation Act Expected to Cut Output,” 17:4; “Bush Plan of Conservation Is Outlined,” SFC, 22 August 1929, 19:4; “Cut in Price of Crude Oil Held Unlikely,” 15:4; “Independent Oil Operators Organized,” 19:1. 49. People v. Associated Oil, 93, 96; “Gas Cut Order Opposed,” SFC, 4 October 1929, 19:6; “Cut in Price of Crude Oil Held Unlikely,” 15:4; “Ventura Producers Fight State Gas Waste Ban: Conservation Act Facing Court Test on Legality,” SFC, 7 October 1929, 1:5; “Land Owners in Gas Fight,” SFC, 6 October 1929, 15:2. 50. “Gas Cut Order Opposed,” 19:6; “New State Gas Law Assailed by Attorneys,” SFC, 4 February 1930, 15:8; “Oil Injunction Suit Continued,” SFC, 11 February 1930, 17:2; “Oil Conservation Brings $320,000 Suit,” SFC, 17 May 1930, 22:1. 51. People v. Associated Oil, 93, 98. 52. “Appeals Court Upholds Oil Conservation,” SFC, 30 November 1930, 1:7. 53. “Oil Industry Tensely Awaits Decision on Conservation Act,” SFC, 13 October 1930, 18:1. 54. “State Oil, Gas Act Upheld by Highest Court,” SFC, 4 December 1930, 6:5. 55. People v. Associated Oil, 93, 100, 106–7; “California Gas Ruling Upheld by U.S. Court,” SFC, 24 November 1931, 3:1. 56. A.L. Weil to Roland Rich Woolley, 4 March 1931, Lloyd, Box LCL 6(2), Folder I, HL. 57. Kenneth R. Kingsbury to Ray Lyman Wilbur, 8 October 1931, GTWHP, Carton 155083, Box: Conservation, Chevron Archives.

Notes to Pages 123–26

249

58. Ray Lyman Wilbur to Kenneth R. Kingsbury, 21 October 1931, M.E. Lombardi to Kingsbury, 27 October 1931, GTWHP, Carton 155070, Box: Conservation, Chevron Archives. 59. “South State Oil Men Back Drilling Curb: Kettleman Operators Indorse Conservation in Principle,” SFC, 20 April 1929, 15:6; “Reiter Calls Meeting for Kettleman Hills,” SFC, 25 April 1929, 19:7. 60. “Curtailment of Kettleman Oil Discussed,” SFC, 30 April 1929, 14:5. 61. “Six Oil Firms Agree to Quit Drilling in Kettleman Hills,” SFC, 6 June 1929, 17:4. 62. “Wilbur Seeking Definite Plan to Conserve Kettleman Hills Oil,” SFC, 25 June 1929, 12:4; “Kettleman Hills Agreement Nears,” SFC, 7 July 1929, 20:7. 63. “New Kettleman Drilling Looms,” SFC, 3 May 1929, 21:7. 64. “May Reach New Conservation Program at Kettleman,” SFC, 30 May 1929, 13:3. 65. Following a deadlocked meeting in mid-July, resistant operators like Ellsworth McGowan, representing the Kettleman Oil Corporation, finally agreed to accept a share of the oil from the four wells offsetting Elliott No. 1, in exchange for not drilling additional wells. To placate holdouts like McGowan, the Kettleman Hills North Dome conservation committee increased the share of production given to operators whose property would be drained through offsets to Elliott No. 1. “Kettleman Hills Meeting Deadlocked,” SFC, 18 July 1929, 20:1; “Kettleman Oil Conservation Plan Adopted,” SFC, 20 July 1929, 13:3; “Kettleman Hills Awaits Oil Halt,” SFC, 22 July 1929, 13:3. 66. “Bay Region’s Industrial Chance Hangs on Kettleman Agreement” SFC, 22 July 1929, 22:1; “Oil Men Act to Curb Flow,” SFC, 2 August 1929, 4:2; “Oil Curbing Plans Near Completion,” SFC, 5 August 1929, 5:7; “Oil Men Agree on Kettleman Conservation,” SFC, 6 August 1929, 4:2; “Kettleman Oil Field Drilling Coming to Halt,” SFC, 14 September 1929, 15:4; “Oil Men Agree to Cease Output at Kettleman Hills,” SFC, 24 September 1929, 1:7. 67. “Kettleman Field Meeting Called,” SFC, 4 February 1930, 17:5; “Wilbur’s Oil Conservation Plea Indorsed” SFC, 26 January 1930, 5:1; “Wilbur Urges Conservation at Kettleman,” SFC, 29 January 1930, 7:6; “Wilbur in S.F. Tells of Oil Conservation,” SFC, 19 January 1930, 14:4. 68. “Oil Operators at Kettleman Oppose Plan,” SFC, 12 November 1929, 19:3; “Kettleman Oil Men Vote for Unit Plan” SFC, 12 December 1929, 20:1. 69. “State Files Suit to Stop Waste of Gas,” SFC, 23 January 1930, 15:3; “Judge Grants Continuance of State Suit against Kettleman Oil Firms,” SFC, 3 June 1930, 16:6. 70. “Oil Injunction Suit Continued,” SFC, 11 February 1930, 17:2; “Agreement to End Gas Waste Near by Continuance of State Injunction,” SFC, 3 April 1930, 17:6. 71. “Wilbur’s Oil Conservation Plea Indorsed,” 5:1. 72. “This Watch Dog Cannot Tell Household Friend from Tramp,” SFC, 11 July 1930, 24:1. 73. “Hoover Signs New Oil Bill,” SFC, 10 July 1930, 6:8; “Wilbur Coming West to Curb Oil Output,” SFC, 12 July 1930, 5:5. 74. “Wilbur Hopeful for Unit Plan,” SFC, 26 September 1930, 15:4.

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Notes to Pages 126–28

75. “Kettleman Oil Curtailment in Limelight,” SFC, 14 October 1930, 15:1. 76. “Gas Wastage Case in Hanford Court,” SFC, 7 October 1930, 15:7; “Gas Conservation Hearing Continues,” SFC, 8 October 1930, 17:3; “State Scores in Gas Suit,” SFC, 10 October 1930, 17:6; “State Gas Law Legality Held,” SFC, 1 November 1930, 13:7; “State Defendants Win Point in Gas Waste Suit,” SFC, 17 December 1930, 16:7; “Court Acts to Cut Oil Field Waste,” SFC, 10 April 1931, 17:1. 77. “Operators at Kettleman File Output Agreement,” SFC, 31 January 1931, 15:6. 78. “Kettleman Oil and Gas Producers Form Ass’n,” SFC, 31 December 1930, 13:2; “Kettleman Oil Control Plan Nears Accord,” SFC, 18 October 1930, 4:1; “Kettleman Hills Companies Join to Conserve Oil, Gas,” SFC, 17 October 1930, 1:7. For the complex corporate maneuvering behind the KNDA agreement, see J. Paul Getty’s account of how he ensured that his company was included within the KNDA unit. My Life and Fortunes, 130–32. 79. “Unit Plan Approved by Wilbur,” SFC, 1 February 1931, 12:8; “Kettleman Plan Goes to Congress,” SFC, 16 January 1931, 13:4; “Jones Asks State to Block Kettleman Hills Unit Plan,” SFC, 17 January 1931, 13:6; Oil Unit Plan Agreed Upon in Kettleman,” SFC, 13 January 1931, 7:1; “Operators at Kettleman File Output Agreement,” 15:6; “Wilbur Considers Kettleman Leases,” SFC, 22 January 1931, 20:6. 80. F.S. Bryant to Richard H. Morrison, 24 July 1931, Bryant to Morrison, 22 May 1931, Kenneth R. Kingsbury to Walter Teagle, 12 June 1931, GTWHP, Carton 155083, Box: Conservation, Chevron Archives. 81. Bain, The Economics of the Pacific Coast Petroleum Industry, Part II: Price Behavior and Competition, 69–70. 82. S.E. Belither to Kenneth R. Kingsbury, 28 May 1936, GTWHP, Carton 155083, Box: Conservation, Chevron Archives. The statewide oil industry committee fixed the umpire’s salary and supervised the umpire’s actions. Industry leaders displayed their authority whenever they scrutinized the oil umpire’s office expenditures and demanded greater efficiency. See Paul N. Boggs to Neal H. Anderson and H.P. Grimm, 28 April 1931, Lloyd Corporation Papers, Box LCL 6(1), Folder B, HL; California Oil and Gas Association, “Minutes of the Meeting of the Oil Operators’ General Committee, 28 July 1931, Lloyd Papers, Box LCL 6(1), Folder: California Oil and Gas Curtailment Committee, HL; R. A. Sperry to Paul N. Boggs, 25 August 1931, Lloyd Papers, Box LCL 6(1), Folder: California Oil and Gas Curtailment Committee, HL. As Standard Oil’s William H. Berg wrote in 1936 during a controversy over the oil umpire’s unauthorized release of statistics to the Board of Equalization, the oil umpire’s office was “a creation of the oil industry.” The umpire had no right to distribute information “without the consent of the producers,” particularly not information that might lead to revised and higher tax assessments on oil companies. Berg to Kingsbury, 2 June 1936, GTWHP, Carton 155083, Box: Conservation, Chevron Archives; Belither to A.L. Weil, 3 June 1936, Belither to Weil, 3 June 1936, Belither to Kingsbury, 28 May 1936, L.P. St. Clair to Belither, 5 June 1936, Kingsbury to Belither, 10 June 1936, Berg to Kingsbury, 2 June 1936, GTWHP, Carton 155083, Box: Conservation, Chevron Archives.

Notes to Pages 128–31

251

83. “Independent Oil Men Ask Import Check,” SFC, 28 April 1930, 15:3; “Oil Industry to Cut Down Field Output: Standard Head Says Reduced Crude Will Cure Ills, Correct Prices,” SFC, 8 February 1930, 4:4. 84. “Curtailment of Oil Output Called Off,” SFC, 23 June 1929, 16:5. 85. “Producers Confer on Curtailment,” SFC, 8 February 1930, 4:4; “State Oil Committee Says Output Will Be Cut to 611,000 Barrels Daily,” SFC, 22 February 1930, 13:2; “State Effects Curtailment in Oil Output,” SFC, 27 February 1930, 15:3. 86. “New Oil Curb Program Goes into Effect,” SFC, 2 March 1930, 12:1. 87. “Oil Curtailment Plans Progressing,” SFC, 7 March 1930, 18:3; “California Oil Output Cut within 3.2 Per Cent of 609,000-Bbl Quota,” SFC, 15 March 1930, 17:2. 88. “State’s Crude Curtailment Plan in Peril,” SFC, 12 May 1930, 15:1. 89. “Oil Producers Agree to New Curtailment,” SFC, 15 May 1930, 19:4. Similarly, see complaints about Standard Oil’s coercion of operators at Santa Fe Springs. H. C. Greenlee to William D. Mitchell, 4 June 1930, GTWHP, Carton 155070, Box: Conservation, Chevron Archives; Kenneth R. Kingsbury to Mitchell, 13 June 1930, GTWHP, Carton 155070, Box: Conservation (draft letter by Sutro), Chevron Archives. 90. “Plan to Cut Oil Output Perfected,” SFC, 9 January 1931, 13:6. 91. “Curtailment Plan Winning,” SFC, 20 May 1930, 15:7; “Oil Producers Agree to New Curtailment,” 19:4. 92. Howard Kegley, “Oil News,” LAT, 29 November 1930, 13:1. 93. “Curtailment Will Continue,” SFC, 1 July 1930, 17:4; “Stocks of Crude Oil Drop as Result of Decline in California Production,” SFC, 20 September 1930, 13:2; “State Plans Further Curtailment of Oil Output as Potential Flow Gains,” SFC, 17 August 1930, 14:7; “Crude Output Cut Accepted,” SFC, 20 September 1930, 13:5. 94. “Boost Sought in Retail Cost of Gasoline,” SFC, 10 September 1930, 1:1; “Others Join Gasoline Rise,” LAT, 14 September 1930: pt. 2, 1:4; “Gasoline to Be Boosted Cent Today,” LAT, 15 September 1930, 1:4; “Four Concerns Raise Prices to 21 Cents,” SFC, 14 September 1930, 1:5; “Major Firms Will Follow Standard Lead,” SFC, 13 September 1930, 1:1; “Autoists Rush for ‘Cheap’ Gas,” SFC, 15 September 1930, 9:4; “Oil Situation Affects Returns: Integrated Companies Win Benefit,” SFC, 18 September 1930, 24:4. 95. “Gasoline Price Jump Ordered,” LAT, 13 September 1930, pt. 2, 1:7; “Major Firms Will Follow Standard Lead,” 1:1. 96. “Oil Operators’ Committee Agrees to Cut Production,” SFC, 18 December 1930, 15:6; Carl C. Wakefield, “California Oil Chiefs Meet to Plan Further Production Curtailment,” SFC, 8 January 1931, 15:4. 97. William J. Kemnitzer, Rebirth of Monopoly: A Critical Analysis of Economic Conduct in the Petroleum Industry of the United States (New York: Harper and Brothers Publishers, 1938), 112. 98. During the early 1930s, frustrated oil operators repeatedly blamed receivers for undermining the curtailment program. The courts sometimes ordered companies that were in receivership to disregard voluntary curtailment orders. Minutes of Meeting of Board of Directors of OPSA, 5 August 1931,

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Notes to Pages 131–35

Minutes of Meeting of Board of Directors of OPSA, 8 July 1931, “Minutes of the Special Meeting of the Board of Directors of OPSA,” 23 May 1932, Lloyd Papers, Box LCL 6(3), Folder: OPSA—minutes, HL. Proponents of stronger state regulation hoped that it would allow courts to force receivers to comply with curtailment. See E. B. Reeser to James Rolph Jr., 10 February 1932, Lloyd Papers, Box LCL 7(4), Folder: OPSA; Frederick Kincaid to Ralph B. Lloyd, 22 September 1933, Lloyd Papers, Box LCL 8(1), Folder: Central Proration Committee, HL. 99. Ralph B. Lloyd to Hartman Ranch Company, 4 April 1931, Lloyd Corporation Papers, Box LCL 6(2), Folder H, HL. See also Lloyd to Alfred S. McGonigle, 4 April 1931, Lloyd Corporation Papers, Box LCL 6(3), Folder M1931; Lloyd to Neal Anderson, 22 April 1931, Lloyd Papers, Box LCL 6(3), Folder: OPSA, HL; “Oil Conservation Brings $320,000 Suit,” SFC, 17 May 1930, 22:1. 100. J.A. Brown to William Reinhardt, W. C. McDuffie, Ralph B. Lloyd, and Paul N. Boggs, 6 February 1931, Lloyd Papers, Box LCL 6(1), Folder: California Oil and Gas Curtailment Committee, HL. See also W. N. Craddock to R. R. Templeton, “Discussion of the Proposed Sliding Scale Proration Plan,” 25 April 1931, Lloyd Papers, Box LCL 6(1), Folder: California Oil and Gas Curtailment Committee, HL. 101. Frederick Kincaid to Ralph B. Lloyd and Robert L. Smith, 9 February 1931, Lloyd Papers, Box LCL 6(1), Folder: California Oil and Gas Curtailment Committee, HL; Lloyd to William F. Humphrey, 17 August 1933, Lloyd Corporation Papers, Box LCL Letter 1933 (A–C), Folder: Associated Oil Company, HL; Lloyd to Associated Oil Company, 28 September 1933, Lloyd Corporation Papers, Box LCL Letter 1933 (A–C), Folder: Associated Oil Company, HL. 102. Carl C. Wakefield, “Leading Oil Stocks Drawing Attention of Investors as Industry Regains Stability,” SFC, 3 April 1930, 1:6; “California Oil Stocks Rise as Reports Indicate Steady Curtailment of Production: Standard Hits New High for Year on Heavy Turnover,” SFC, 2 April 1930, 18:2; Harold W. Anderson, “Betterment in California Oil Situation Promises Increased Profits for Large Producers,” SFC, 11 June 1930, 18:2. 103. “Oil Revival Seen by State Curtailment,” SFC, 26 February 1930, 19:4.

chapter 6. federalism and the unruly california oil market 1. Mark L. Requa to Ralph B. Lloyd, 13 May 1931, 18 May 1931, Lloyd Papers, Box LCL 6(1), Folder: California Oil and Gas Curtailment Committee, HL. 2. Harry N. Scheiber, “Federalism and the American Economic Order, 1789–1910,” Law and Society Review 10 (1975): 57–118; Scheiber, “American Federalism and the Diffusion of Power: Historical and Contemporary Perspectives,” University of Toledo Law Review 9 (1978): 619–80. 3. David F. Prindle, Petroleum Politics and the Texas Railroad Commission (Austin: University of Texas Press, 1981). 4. “Meet Called to Discuss Oil Industry,” SFC, 5 January 1931, 29:6; “Rolph Appoints Oil Conferees,” SFC, 11 January 1931, 4:1.

Notes to Pages 135–37

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5. “Governor of Kansas Asks Hoover’s Aid,” SFC, 29 January 1931, 15:3. 6. “Governors’ Oil Relief Conference Maps Drive to Aid Independent Firms: Crude Import Embargo, Ban on Refined to Be Proposed to Congress,” SFC, 17 January 1931, 13:1. 7. “Governors’ Oil Relief Conference Maps Drive to Aid Independent Firms,” 13:1. 8. “Wilbur Prefers Sales to Tariff for Oil Relief,” SFC, 8 January 1931, 15:4. 9. “Governors’ Oil Relief Conference Maps Drive to Aid Independent Firms,” 13:1; “Wilbur Says Oil Problem up to States,” SFC, 11 April 1931, 12:6. 10. Ray Lyman Wilbur to Francis B. Loomis, 12 May 1931, GTWHP, Carton 155070, Box: Conservation, Chevron Archives; “Wilbur Says Oil Problem up to States,” 12:6. 11. “Oil Men Believe Several States Will Enact Legislation to Conserve Gas,” SFC, 9 February 1930, 13:6. 12. J. A. Bermingham to J. A. Brown, 12 January 1931, including attached letter from Charles C. Stanley to C. E. Olmsted suggesting revisions to proposed law; Stanley to Olmsted, “Regulation of Production of Petroleum,” 9 January 1931, Lloyd Corporation Papers, Box LCL 6(1), Folder: California Oil and Gas Curtailment Committee, HL. 13. James Rolph to Members of the State Assembly, 2 March 1931, C. R. Stevens to A. L. Weil, Charles C. Stanley, Paul M. Gregg, F. F. Thomas, Felix T. Smith, Edwin Higgins, and A. R. Bradley, 3 March 1931, GTWHP, Carton 155070, Box Conservation, Chevron Archives. 14. C. R. Stevens to A. L. Weil, Charles C. Stanley, Paul M. Gregg, F. F. Thomas, Felix T. Smith, Edwin Higgins, and A. R. Bradley, 3 March 1931, Weil to Smith, 13 March 1931, GTWHP, Carton 155070, Box: Conservation, Chevron Archives. 15. Felix T. Smith to William R. Sharkey, 19 March 1931, Sharkey to Smith, 23 March 1931, GTWHP, Carton 155070, Box Conservation, Chevron Archives. 16. Although the major companies shared common interests and collaborated on their 1931 legislative agenda by means of the California Oil and Gas Association, they occasionally worked at cross-purposes. For example, Standard Oil apparently maneuvered behind the scenes to ensure that another Weilauthored measure introduced by Senator Sharkey would not become law. The measure would have eliminated the use of gas-oil ratios as the basis for enforcing the Oil and Gas Conservation Act. Weil’s amendments would have eviscerated the 1929 provisions, since the ability to link oil and gas production had enabled state gas enforcement. A. L. Weil to Roland Rich Woolley, 4 March 1931, Lloyd Corporation Papers, Box LCL 6(2), Folder I, HL; James E. Degnan to Felix T. Smith, 9 March 1931, C. R. Stevens to Weil, Charles C. Stanley, Paul M. Gregg, F. F. Thomas, Smith, Edwin Higgins, and A. R. Bradley, 10 March 1931, James S. Bennett to William R. Sharkey, 6 March 1931, GTWHP, Carton 155070, Box: Conservation, Chevron Archives. 17. “New State Oil Conservation Laws Will Become Effective on August 15,” SFC, 7 June 1931, 12:1; Secretary of State, State of California, “Proposition

254

Notes to Pages 137–40

1: Oil Control,” in Referendum Measures, together with Arguments Respecting the Same (Sacramento: California State Printing Office, 3 May 1932). 18. A. T. Jergins to “Dear Sir,” 28 March 1931, GTWHP, Carton 155070, Box: Conservation, Chevron Archives. 19. “Minutes of the Meeting of the Oil Operators’ General Committee,” [of the California Oil and Gas Association?], 27 May 1931; Minutes of Meeting of Board of Directors of OPSA, 29 May 1931; “Minutes of Meeting of Board of Directors of OPSA,” 24 June 1931, Lloyd Papers, Box LCL 6(3), Folder: OPSA—minutes, HL. 20. James S. Bennett to William R. Sharkey, 20 March 1931, GTWHP, Carton 155070, Box: Conservation, Chevron Archives. 21. “Petroleum Stocks Gain on Prospects of Early Rise in Gasoline Prices,” SFC, 7 June 1931, 12:4. 22. Kenneth R. Kingsbury to Walter Teagle, 12 June 1931, GTWHP, Carton 155083, Box: Conservation, Chevron Archives. 23. Earl C. Behrens, “Referendum Blocks Gas Saving Law,” SFC, 15 July 1931, 1:1. 24. Neal H. Anderson to Ralph B. Lloyd, 6 June 1931, Lloyd Papers, Box LCL 6(3), Folder: OPSA, HL. 25. Ralph B. Lloyd to Hartman Ranch Company, 4 April 1931, Lloyd Corporation Papers, Box LCL 6(2), Folder H, HL. Lloyd and a few others whom he recruited financed the establishment of the Lloyd Corporation. This corporation carried many of OPSA’s initial operating expenses, and Lloyd and other sponsors, including George F. Getty, Pacific Western, and Superior Oil Company, each contributed five hundred dollars. Lloyd to R. R. Templeton, Secretary Treasurer, OPSA, 17 April 1931, Lloyd Papers, Box LCL 6(3), Folder: OPSA, HL. See also Templeton to Getty, Superior Oil Company, Pacific Western Oil Company, and Lloyd, 10 April 1931, Lloyd Papers, Box LCL 6(3), Folder: OPSA, HL. 26. Rush M. Blodget, “Report of General Manager for Calendar Month of August, 1931,” September 1931, Lloyd Papers, Box LCL 6(3), Folder: OPSA, HL; “Oil Price Boosted as Troops Complete Shutdown in Texas,” SFC, 19 August 1931, 1:3. 27. Ralph B. Lloyd to E. S. Rochester, 16 February 1932, Lloyd Papers, Box LCL 7(2), Folder F, HL. See also “The Anti-Trust Laws,” Standard Oil Bulletin 19 (November 1931): 1. 28. Untitled draft statement, March 1931[?], Lloyd Papers, Box LCL 6(3), Folder: OPSA; “Oil and Gas Meeting,” 20 March 1931, Lloyd Papers, Box LCL 6(3), Folder: OPSA—minutes; Ralph B. Lloyd to G. Legh-Jones, 16 October 1931, Lloyd Papers, Box LCL 6(5), Folder: Shell Oil Co.—Letters, etc., HL. See also Vicky Saker Woeste, The Farmer’s Benevolent Trust: Law and Agricultural Cooperation in Industrial America, 1865–1945 (Chapel Hill: University of North Carolina, 1998). 29. Ralph B. Lloyd to the Producers of Crude Petroleum Products, 23 April 1931, Lloyd Papers, Box LCL 6(3), Folder: OPSA, HL. 30. Ralph B. Lloyd to the Producers of Crude Petroleum Products, 23 April 1931, Lloyd Papers, Box LCL 6(3), Folder: OPSA, HL.

Notes to Pages 140–42

255

31. OPSA, “Draft Letter to Oil Producers,” March 1931; Untitled draft statement, March 1931[?], Lloyd Papers, Box LCL 6(3), Folder: OPSA, HL. 32. “Oil and Gas Meeting,” 20 March 1931, Lloyd Papers, Box LCL 6(3), Folder: OPSA—minutes, HL. 33. Ralph B. Lloyd, “Draft Statement of the President,” September 1931; Rush M. Blodget, “Annual Report of the General Manager,” 5 April 1932, Lloyd Papers, Box LCL 6(3), Folder: OPSA, HL. 34. William Hazlett to Ralph B. Lloyd, 29 May 1931, Lloyd Papers, Box LCL 6(3), Folder: OPSA, HL. 35. Ralph B. Lloyd, Press Statement, June 1931; “An Interview with Ralph B. Lloyd,” June 1931, Lloyd Papers, Box LCL 6(3), Folder: OPSA, HL. 36. C. R. Stevens to Theodore Roche, 12 January 1932, GTWHP, Carton 155070, Box: Conservation, Chevron Archives. 37. Ibid. 38. Earl C. Behrens, “Rolph Calls Conference on Oil Industry,” SFC, 24 January 1932, 7:1; Behrens, “Expert Chosen to Study State Oil Problems,” SFC, 28 January 1932, 17:2. 39. E. B. Reeser to James Rolph, 10 February 1932, Lloyd Papers, Box LCL 7(4), Folder: OPSA, HL. 40. Fred G. Stevenot to Felix T. Smith, 17 February 1932, Stevenot to Walter P. Jones, 16 February 1932, GTWHP, Carton 155070, Box: Conservation, Chevron Archives. 41. “Sharkey Bill’s Support Asked,” SFC, 23 April 1932, 3:4; “Closing Drives Launched on Sharkey Bill,” SFC, 26 April 1932, 3:2; “Three State Executives in Oil Bill Plea,” SFC, 20 April 1932, 4:1. 42. Rush M. Blodget to Members, OPSA, 18 February 1932, Lloyd Papers, Box LCL 7(4), Folder: OPSA; Blodget to Members, OPSA, 10 February 1932, Blodget to Members, OPSA, 13 February 1932, Blodget to Members, OPSA, 4 February 1932, Blodget to Members, OPSA, 22 December 1931, Lloyd Papers, Box LCL 6(3), Folder: OPSA; “Minutes of the Regular Meeting of the Executive Committee of the OPSA,” 6 January 1932, Lloyd Papers, Box LCL 7(4), Folder: OPSA—Minutes of Meetings, HL. 43. “Minutes of the Regular Meeting of the Executive Committee of the OPSA,” 27 April 1932, Lloyd Papers, Box LCL 7(4), Folder: OPSA—Minutes of Meetings; Rush M. Blodget to All Members of OPSA, 28 April 1932, Lloyd Papers, Box LCL 7(4), Folder: OPSA, HL. 44. OPSA, “Memorandum for the Press,” 22 April 1932, Lloyd Papers, Box LCL 7(4), Folder: OPSA, HL. 45. Rush M. Blodget to All Members of OPSA, 15 February 1932, Lloyd Papers, Box LCL 7(4), Folder: OPSA; “Minutes of the Regular Meeting of the Executive Committee of the OPSA,” 16 March 1932; “Minutes of the Special Meeting of the Board of Directors of the OPSA,” 25 April 1932, Lloyd Papers, Box LCL 7(4), Folder: OPSA—Minutes of Meetings; Ralph B. Lloyd and Frederick D. Anderson, “Memorandum for the Press,” 25 April 1932, Lloyd Papers, Box LCL 7(4), Folder: OPSA, HL. 46. L. C. Kelly to Independent Petroleum Association, 25 April 1932, Lloyd Papers, Box LCL 7(3), Folder K, HL.

256

Notes to Pages 142–44

47. “Closing Stages of Sharkey Bill Battle Started,” SFC, 25 April 1932, 20:5. 48. “Attorney F. E. Borton Declares Sharkey Bill Is Dangerous Measure,” Bakersfield Californian, 20 April 1932, 9. Borton handled Bakersfield-area cases for the Standard Oil Company of California, which urged passage of the bill. Standard Oil’s chief lawyer, Oscar Sutro, soon wrote Borton to pressure him to keep his opinions to himself. Sutro said that Borton’s “definite and hostile” public attitude toward the Sharkey bill had been “a matter of great surprise to me and to my associates.” He concluded, “One is prepared for hostility emanating from those who are ignorant and from the camp of the enemy. One does not expect it to come from the house of a friend—and certainly not without fair notice.” Sutro to Borton, 2 May 1932, GTWHP, Carton 155070, Box: Conservation, Chevron Archives. Borton replied scathingly, “When it comes to the matter of my personal views as a citizen, I wish you to understand that I do not give them away like a pound of tea as a premium with the purchase of my legal services.” Borton requested instructions on how he should dispose of the two cases that he was handling for the company. Borton to Sutro, 3 May 1932, GTWHP, Carton 155070, Box: Conservation, Chevron Archives. 49. Alfred Marsten to Ohio Oil Company, 14 February 1932, Lloyd Papers, Box LCL 7(4), Folder: OPSA, HL. 50. A. Wardman to Rush M. Blodget, 11 February 1932, Lloyd Papers, Box LCL 7(4), Folder: OPSA, HL. 51. H. A. Bardeen and A. Wardman to Members, OPSA, 18 February 1932, Lloyd Papers, Box LCL 7(4), Folder: OPSA, HL. See also Bardeen to Los Angeles Chamber of Commerce, 14 March 1932, Robert Bromberg to Los Angeles Chamber of Commerce, 8 March 1932, Lloyd Papers, Box LCL 7(2), Folder H, HL. 52. A. Wardman to Rush M. Blodget, 11 February 1932, Lloyd Papers, Box LCL 7(4), Folder: OPSA, HL. 53. “Voters Decide Tomorrow on Sharkey Bill,” SFC, 2 May 1932, 2:1. 54. Earl C. Behrens, “Sharkey Oil Bill Defeated,” SFC, 4 May 1932, 1:1; “$41,000 Sharkey Bill Drive Expense Listed,” SFC, 4 June 1932, 1:4. 55. “Order of Business for Special Meeting,” 16 May 1932, Lloyd Papers, Box LCL 7(4), Folder: OPSA—Minutes of Meetings, HL. 56. “Minutes of the Regular Meeting of the Executive Committee of OPSA,” 11 May 1932, Lloyd Papers, Box LCL 7(4), Folder: OPSA Minutes, HL. 57. Ralph B. Lloyd, “Thrown Back upon Ourselves,” article prepared for May 1932 Stabilizer, Lloyd Papers, Box LCL 7(4), Folder: OPSA, HL. 58. Ibid.; Ralph B. Lloyd to Rush M. Blodget and George M. Swindell, 6 June 1932, Lloyd Papers, Box LCL 7(1), Folder B, HL. 59. California Oil and Gas Association, “Yearly Report of the Managing Director,” 30 June 1932, Lloyd Papers, Box LCL 7(1), Folder: California Oil and Gas Association—Letters, Minutes of Meetings, etc., HL. 60. “Minutes of the Special Meeting of the Board of Directors of the OPSA,” 16 May 1932, Lloyd Papers, Box LCL 7(4), Folder: OPSA—Minutes of Meetings, HL. After the passage of the National Industrial Recovery Act, in 1933, this committee dissolved, to be replaced by the Central Proration Committee. OPSA, “Minutes of the Meeting of the Board of Directors of OPSA,” 19

Notes to Pages 144–46

257

April 1933, Box LCL 8(4), Folder: OPSA—Meetings, HL; “Oil Men Form Committee for Curtailment,” SFC, 22 May 1932, 12:8; Neal H. Anderson to All Operators, 13 June 1932, Lloyd Papers, Box LCL 7(1), Folder: California Oil Curtailment—Letters, etc., HL. 61. Kenneth R. Kingsbury to William M. Keck, Chairman of Executive Committee for Equitable Curtailment of the Oil Industry in California, 11 June 1932, Lloyd Papers, Box LCL 7(1), Folder: California Oil Curtailment—Letters, etc., HL. 62. Neal H. Anderson to Members Executive Committee, Central Proration Committee, 11 June 1932, Lloyd Papers, Box LCL 7(1), Folder: California Oil Curtailment—Letters, etc., HL. 63. Neal H. Anderson, “Daily Oil Production Report” 20 June 1932, Ralph B. Lloyd to Executive Committee for Equitable Curtailment of the Oil Industry in California, 13 June 1932, Lloyd Papers, Box LCL 7(1), Folder: California Oil Curtailment—Letters, etc., HL; “Oil Restriction Plan Expected to End War,” SFC, 27 June 1932, 7:6. 64. Executive Committee for Equitable Curtailment of the Oil Industry in California to Kenneth R. Kingsbury, 22 June 1932, Lloyd Papers, Box LCL 7(1), Folder: California Oil Curtailment—Letters, etc., HL. 65. Neal H. Anderson, “Daily Oil Production Report,” 28 June–6 July 1932, Lloyd Papers, Box LCL 7(1), Folder: California Oil Curtailment—Letters, etc., HL. 66. Neal H. Anderson to All Oil Operators, 11 July 1932, Lloyd Papers, Box LCL 7(1), Folder: California Oil Curtailment—Letters, etc., HL. 67. Howard Kegley, “Oil News,” LAT, 11 January 1933, pt. 1, 17:1; “Oil Production Gain Explained,” LAT, 21 January 1933, pt. 2, 12:1. 68. Rush M. Blodget to Ralph B. Lloyd, 26 May 1933, Lloyd Papers, Box LCL 8(3), Folder: OPSA—Letters, etc., HL. 69. Ralph B. Lloyd and R.E. Allen to Franklin D. Roosevelt, Harold Ickes, and Hugh Johnson, 21 August 1933, Lloyd Papers, Box LCL 8(1), Folder: Central Proration Committee and Planning and Coordination Committee, Letters, etc., HL. 70. Central Proration Committee to Harold Ickes, 4 September 1933, Lloyd Papers, Box LCL 8(1), Folder: Central Proration Committee and Planning and Coordination Committee, Letters, etc., HL; J. H. Ward to Central Committee of California Oil Producers, 24 August 1933, Lloyd Papers, Box LCL 8(1), Folder: Central Proration Committee and Planning and Coordination Committee, Letters, etc., HL. 71. Central Committee of California Oil Producers to Harold Ickes, 12 September 1933, Lloyd Papers, Box LCL 8(1), Folder: Central Proration Committee and Planning and Coordination Committee, Letters, etc., HL. 72. Harold Ickes to Ralph B. Lloyd, 16 September 1933, Lloyd Papers, Box LCL 8(1), Folder: Central Proration Committee and Planning and Coordination Committee, Letters, etc., HL. 73. Ralph B. Lloyd and J. R. Pemberton to Harold Ickes, 18 September 1933, Lloyd Papers, Box LCL 8(1), Folder: Central Proration Committee and Planning and Coordination Committee, Letters, etc., HL.

258

Notes to Pages 146–49

74. Kenneth R. Kingsbury to Amos L. Beaty, 4 May 1934, GTWHP, Carton 155083, Box NRA, Chevron Archives. 75. Rush M. Blodget to A. L. Weil and Paul M. Gregg, 5 December 1933, Lloyd Papers, Box LCL 8(3), Folder: OPSA—Letters, etc., HL. 76. Ralph B. Lloyd to George W. Holland, 29 September 1933, Lloyd Papers, Box LCL 8(1), Folder: Central Proration Committee and Planning and Coordination Committee, Letters, etc., HL; Lloyd and J. R. Pemberton to Harold Ickes, 18 September 1933, Lloyd Papers, Box LCL 8(1), Folder: Central Proration Committee and Planning and Coordination Committee, Letters, etc., HL. 77. OPSA to Harold Ickes, 26 October 1933, Lloyd Papers, Box LCL 8(3), Folder: OPSA—Letters, etc., HL. 78. Howard Kegley, “Oil News,” LAT, 2 December 1933, pt. 1, 9:6; “Minutes of Special Meeting of the Central Committee of California Oil Producers and Protestants to the Supplemental Code,” 20 November 1933, Lloyd Papers, Box LCL 8(1), Folder: Central Committee of California Oil Producers—Minutes of Meetings, HL. 79. Ralph B. Lloyd et al. to Associated Oil Company, 26 September 1933, Lloyd Corporation Papers, Box LCL, Letter 1933 (A–C), Folder: Associated Oil Company, HL. 80. Ralph B. Lloyd, President, Lloyd Corporation, Ltd., and Louis Dabney, President, South Basin Oil Company, to Associated Oil Company, 13 November 1933, Lloyd to William F. Humphrey, 13 July 1933, Associated Oil Company to Lloyd Corporation, South Basin Oil Company, and Ventura Land and Water Company, 6 October 1933, Lloyd Corporation Papers, Box LCL, Letter 1933 (A–C), Folder: Associated Oil Company, HL. 81. Howard Kegley, “Oil News,” LAT, 16 November 1933, pt. 1, 13:7. 82. “Oil Curb Asked of Court,” LAT, 15 December 1933, pt. 2, 1:3. 83. Schechter Poultry Corporation v. United States, Supreme Court of the United States, 295 U.S. 495 (27 May 1935); and Panama Refining Company v. Ryan, Supreme Court of the United States, 293 U.S. 388 (7 January 1935). 84. Rush M. Blodget, “Press Release,” 27 May 1935, Blodget to Members OPSA, 29 May 1935, Lloyd Corporation Papers, Box RBL 5(2), Folder: OPSA—Letters, HL. 85. “Assembly Votes Sharp Protest to Congress Scoring Oil Measure,” SFC, 26 April 1935, 25:7. 86. See John G. Clark, Energy and the Federal Government: Fossil Fuel Policies, 1900–1946 (Urbana: University of Illinois, 1987), chap. 9; and Ellis Hawley, The New Deal and the Problem of Monopoly: A Study in Economic Ambivalence (Princeton: Princeton University Press, 1966), 212–20, for an overview of New Deal federal oil legislation. 87. “Oil Control Act Is Defeated by Committee Vote,” SB, 15 May 1935, 20:5; “Bill to Control Oil Industry Is under Scrutiny,” SB, 24 May 1935, 18:3; Steve Kyle, “New Oil Bill Is Denounced as Attempt at Monopoly,” SB, 25 May 1935, 1:8; “Committee Kills Oil Control Bill Following Fight,” SB, 30 May 1935, 1:3. 88. “Elliott Charges Monopoly[,] Will Ask New Oil Bill,” SB, 20 May 1935, 6:5. See also “New Oil Prorate Act Proposal Is Scored as Unfair,” SB, 27 May

Notes to Pages 149–51

259

1935, 4:1; “Committee Kills Oil Control Bill Following Fight,” SB, 30 May 1935, 1:3. 89. “Committee Kills Oil Control Bill Following Fight,” 1:3; “Metzger Denounces His Own Oil Prorate Bill,” SB, 31 May 1935, 14:6. 90. “Oil Industry Voluntarily Curbs Output,” SFC, 29 May 1935, 6:3. 91. Committee of Seven to All Operators, 2 August 1935, Lloyd Corporation Papers, Box RBL 5(2), Folder: OPSA—Letters, HL; Standard Oil Company of California, “Statement to the Press,” 28 August 1935, GTWHP, Carton 155083, Box: Conservation, Chevron Archives; “Standard Drops Price for Purchasing Oil,” SB, 29 August 1935, 3:5. 92. For an example of Standard Oil’s position as enforcer and price setter, see the correspondence between the Hallmark Oil Company and Standard over the Lakeview pool. Charles H. Forward to Kenneth R. Kingsbury, 28 February 1936, J. H. Tuttle to Forward, 28 February 1936, GTWHP, Carton 155083, Box: Conservation, Chevron Archives. 93. Ralph B. Lloyd to Kenneth R. Kingsbury, 11 September 1935; Standard Oil Company of California, “Statement to the Press,” 5 September 1935, GTWHP, Carton 155083, Box: Conservation, Chevron Archives. 94. Standard Oil Company of California, “Statement to the Press,” 31 October 1935, GTWHP, Carton 155083, Box: Conservation, Chevron Archives. 95. William F. Humphrey, A. L. Weil, W. C. McDuffie, S. E. Belither, Kenneth R. Kingsbury, C.E. Olmsted, and L. P. St. Clair to Lawrence Van der Leck, 16 January 1936, GTWHP, Carton 155083, Box: Conservation, Chevron Archives. 96. R. E. Allen to Kenneth R. Kingsbury, 17 January 1936, Kingsbury to Our Lessors and Producers from Whom We Purchase Crude Oil, 18 January 1936, GTWHP, Carton 155083, Box: Conservation, Chevron Archives. 97. Standard Oil Company of California, Statement for the Press, 25 February 1936, R. K. Davies to Kenneth R. Kingsbury, 1936, GTWHP, Carton 155083, Box: Conservation, Chevron Archives. 98. S. E. Belither to A. L. Weil, 27 November 1936, M. E. Lombardi to Kenneth R. Kingsbury, 29 January 1936, William H. Berg to Kingsbury, 3 February 1936, Lombardi to Kingsbury, 25 November 1936, GTWHP, Carton 155083, Box: Conservation, Chevron Archives. 99. Warner Clark to Kenneth R. Kingsbury, 8 April 1937, Clark to Kingsbury, 9 April 1937, GTWHP, Carton 155083, Box: Conservation, Chevron Archives. 100. Kenneth R. Kingsbury to A. L. Weil, C. S. Jones, L. P. St. Clair, C. E. Olmsted, S. E. Belither, and William F. Humphrey, 27 September 1937, Olmsted to Kingsbury, 29 September 1937, Weil to Kingsbury, 30 September 1937, GTWHP, Carton 155083, Box: Conservation, Chevron Archives. 101. See, for example, Standard’s efforts to position itself to gain access to Union Pacific oil from Wilmington. M. E. Lombardi to Kenneth R. Kingsbury, 23 June 1937, GTWHP, Carton 155083, Box: Conservation, Chevron Archives. 102. “Proration: Oil Collapse Is Pictured,” SFC, 22 March 1939, 10:7; “Olson Signs Oil Bill: Repeal Threatened,” SFC, 23 June 1939, 4:1; Robert E. Burke, Olson’s New Deal for California (Berkeley: University of California Press, 1953), 116–18.

260

Notes to Pages 151–59

103. “Yes on 5” Committee of Citizens for Conservation and National Defense, “An Economic and Scientific Analysis of the Oil and Gas Control Act of 1939,” 1939, copy in the possession of the author. 104. “Thumbs Down on Oil Bill,” SFC, 17 May 1939, 12:2. 105. As quoted in Burke, Olson’s New Deal, 117. 106. Earl C. Behrens, “Oil Control Bill Wins in Assembly after 34-Hr. Fight,” SFC, 16 June 1939, 1:2, quoting Assemblywoman Jeanette Daley from San Diego; Behrens, “Oil Control: Senate O.K.’s Bill, Sends It to Olson,” SFC, 20 June 1939, 1:5; Burke, Olson’s New Deal, 118. 107. “Oil Prorate: Independents Attack Bill,” SFC, 5 April 1939, 4:1. 108. “November Ballot Measures: 5. Oil and Gas Control (Referendum of Legislative Act),” Transactions of the Commonwealth Club of California 34 (24 October 1939): 115; “Large Controversy over Oil Bill,” SFC, 17 June 1939, 16:5. 109. Secretary of State, State of California, “Proposition 5: Oil and Gas Control,” in Proposed Amendments to Constitution: Referendum Measures and Proposed Law (Sacramento: California State Printing Office, 7 November 1939), 11. 110. “Oil Control Act Should Have Its Chance,” SFC, 21 June 1939, 20:2. 111. William S. Neal, “Navy Starts Drive to Claim Deposits of Under Sea Oil,” SB, 3 May 1938, 4:5. 112. “Proration: Oil Collapse Is Pictured,” 10:7; “November Ballot Measures: 5. Oil and Gas Control (Referendum of Legislative Act),” 106–7. 113. Harold C. Morton, Los Angeles Attorney and Independent Oil Producer, in “November Ballot Measures: 5. Oil and Gas Control (Referendum of Legislative Act),” Transactions of the Commonwealth Club of California 34 (24 October 1939): 107. 114. J. B. Wells, “Oil Curtailment and New Drilling,” SFC, 16 May 1938, 8:4. 115. See Alfred E. Kahn, “The Combined Effects of Prorationing, the Depletion Allowance, and Import Quotas on the Cost of Producing Crude Oil in the United States,” Natural Resources Journal 10 (January 1970): 54. 116. See Joseph Jensen, “A Maximum and Minimum Method of Curtailment,” 4 February 1935, Lloyd Corporation Papers, Box RBL 5(1), Folder: Central Committee of California Oil Producers—J. R. Pemberton, Oil Umpire—Letters, etc., HL. 117. Joe. S. Bain, The Economics of the Pacific Coast Petroleum Industry, Part II: Price Behavior and Competition (Berkeley: University of California Press, 1945), 86–87.

chapter 7. “transportation by taxation” 1. According to a 1960 study by the organization Resources for the Future, 89 percent of gasoline went to highway use, and 44.4 percent of oil was used for gasoline—yielding 40 percent for gasoline on highways. Sam Schurr and Bruce C. Netschert, with Vera Eliasberg, Joseph Lerner, and Hans Landsberg, Energy in the American Economy, 1850–1975: An Economic Study of Its History and Prospects (Baltimore: Johns Hopkins Press, 1960), 119, 122.

Notes to Pages 160–61

261

2. Warren James Belasco, Americans on the Road: From Autocamp to Motel, 1910–1945 (Cambridge: MIT Press, 1979); James J. Flink, The Automobile Age (Cambridge: MIT Press, 1988); Virginia Scharff, Taking the Wheel: Women and the Coming of the Motor Age (New York: Free Press, 1991); Scott L. Bottles, Los Angeles and the Automobile: The Making of the Modern City (Berkeley: University of California Press, 1987). 3. George Rogers Taylor, The Transportation Revolution, 1815–1860 (New York: Rinehart, 1951). 4. William Deverell, Railroad Crossing: Californians and the Railroad, 1850–1910 (Berkeley: University of California Press, 1994); George Mowry, The California Progressives (1951; reprint, Chicago: Quadrangle Paperback, 1963); Spencer Olin Jr., California’s Prodigal Sons: Hiram Johnson and the Progressives, 1911–1917 (Berkeley: University of California Press, 1968). More generally on the relationship of law to transportation development, see Lawrence M. Friedman, A History of American Law (New York: Simon and Schuster, 1973); Morton J. Horwitz, The Transformation of American Law, 1780–1860 (Cambridge: Harvard University Press, 1977); Wex S. Malone, “The Formative Era of Contributory Negligence,” Illinois Law Review 41 (1946); Harry N. Scheiber, “Property Law, Expropriation, and Resource Allocation by Government: The United States, 1789–1910,” Journal of Economic History 33, no. 1–2 (1973): 232–95; Gary T. Schwartz, “Tort Law and the Economy in Nineteenth-Century America: A Reinterpretation,” Yale Law Journal 90, no. 8 (July 1981): 1717–75. 5. See, for example, Bottles, Los Angeles and the Automobile, 29–34. 6. Kenneth Jackson, Crabgrass Frontier: The Suburbanization of the United States (New York: Oxford University Press, 1985); Paul Barrett, The Automobile and Urban Transit: The Formation of Public Policy in Chicago, 1900–1930 (Philadelphia: Temple University Press, 1983). Direct subsidies include money spent on highway costs not covered by user fees, while indirect assistance encompasses externalities borne by the entire public, such as air and water pollution, personal injury costs, and opportunity costs of land. For one estimate of public subsidies, see Mark E. Hanson, “Automobile Subsidies and Land Use: Estimates and Policy Responses,” Journal of the American Planning Association 58, no. 1 (winter 1992): 60–71. 7. Richard M. Zettel, An Analysis of Taxation for Highway Purposes in California, 1895–1946: Submitted to the Joint Fact-Finding Committee on Highways, Streets, and Bridges (Sacramento: California State Printing Office, 1946), 113–14 (table): “Adjusted Statement of Highway User and General Tax Revenues Expended for Highway and Street Purposes by the State, Counties, and Cities of California, 1920–1945.” Included in Zettel’s calculation are $36 million in transportation license taxes that I believe should have been credited to the general fund. They were taxes on commercial activity comparable to the gross receipts taxes paid into the general fund by the public utilities, like railroads and streetcars. To make the calculations easier, however, I have not altered Zettel’s figures. 8. For a discussion of the rapid rise of the gasoline tax generally, see John Chynoweth Burnham, “The Gasoline Tax and the Automobile Revolution,” Mississippi Valley Historical Review 48 (December 1961): 435–59.

262

Notes to Pages 162–64

9. California Bureau of Highways, Biennial Report, 1896, 8, as quoted in Zettel, An Analysis of Taxation for Highway Purposes, 6. 10. On Los Angeles, see Robert M. Fogelson, The Fragmented Metropolis: Los Angeles, 1850–1930 (Berkeley: University of California Press, 1967), 94; Taylor, Transportation Revolution; Hal S. Barron, “And the Crooked Shall Be Made Straight: Public Road Administration and the Decline of Localism in the Rural North, 1870–1930,” Journal of Social History 26, no. 1 (fall 1992): 81–103. 11. See Bruce E. Seely, Building the American Highway System: Engineers as Policy Makers (Philadelphia: Temple University Press, 1987). 12. Zettel, An Analysis of Taxation for Highway Purposes, 17–18. “A committee of twenty-one representing the State Highway Commission, the automobile clubs, and other interested groups” carried out the campaign for the third bond issue, for $40 million. V. O. Key Jr. and Winston W. Crouch, The Initiative and the Referendum in California (Berkeley: University of California Press, 1939), 464. 13. “Extending the Highway Mileage,” Standard Oil Bulletin 7 (August 1919): 5. 14. “Supervisors Will Ask for Highway,” SFC, 24 January 1912, 8:4; “Two Main Roads Only Now Planned,” SFC, 23 February 1912, 3:3; “Big Bond Issue Insufficient for Great Highway Scheme in Contemplation in This State,” SFC, 27 January 1912, 12:5; “State Must Cease Work on Highway,” San Francisco Examiner, 10 November 1915, 4:1; “Our State Highways,” SFC, 11 November 1915, 16:1. 15. Edwin R.A. Seligman, “Progressive Taxation in Theory and Practice,” American Economic Association Quarterly 9, no. 4 (1908): 150. By the early twentieth century, American governments had begun to move away from a benefit calculation toward tax assignment based on an individual’s ability to pay (or the equality of sacrifice on the part of each individual). Yet motor vehicle taxes still came to be viewed through a “benefit” framework, seen as user fee payments for special privileges provided by the government. For the movement away from the benefit theory, see Edwin R.A. Seligman, Essays in Taxation, 10th ed. (Boston: Macmillan, 1928), 336. Seligman defines a fee as a “payment for a service or privilege from which a special measurable benefit is derived”; by contrast, a “tax is a payment where the special benefit is merged in the common benefit or is converted into a burden” (412). Highway levies fit somewhere between user fees and taxes; they paid for a special privilege, but in the form of such a broad and extensive program of government investment that it went far beyond the “specific measurable benefit” of a user fee. 16. L. D. Gifford, “What Value Highways?” Tax Digest 12 (November 1934): 367. Judge William Raymond Green’s complimentary remarks on the gasoline tax in 1938 highlighted the theoretical underpinnings of the userfinancing system as it functioned throughout the nation: “It is doubtful whether there is any tax as to which there are so few objections from a scientific standpoint and so few complaints from the taxpayers. . . . The tax finds its justification in the fact that it is largely expended for the direct benefit for those who principally pay it, namely the owners of motor vehicles.” The Theory and

Notes to Pages 165–67

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Practice of Modern Taxation. 2d ed. (New York: Commerce Clearing House, 1938), 186. 17. Robin L. Einhorn, Property Rules: Political Economy in Chicago, 1833–1872 (Chicago: University of Chicago Press, 1991). 18. See, for example, Touring Topics 21 (October 1929). 19. Many recent studies on consumer culture address this question of class defined through consumption. See, for example, Richard Wightman Fox and T. J. Jackson Lears, eds., The Culture of Consumption: Critical Essays in American History, 1880–1980 (New York: Pantheon, 1983); and Fox and Jackson Lears, eds., The Power of Culture: Critical Essays in American History (Chicago: University of Chicago Press, 1993). I take the term class from the newspapers and auto clubs themselves, which referred to “class taxation,” “class legislation,” and a “class of property-owners.” See, for example, “Owners Pay Big Portion of Sales Tax,” SFC, March 3, 1935, 9:8; “Federal Gas Tax under fire,” Motorland 36 (June 1935): 1; SFC, 26 March 1933; 8:1; “Pyramiding Motor Taxes,” Motorland 38 (January–February 1936): 1. It might also be possible to see the self-consciousness of this class as being produced, or at least articulated, by its taxpayer status. 20. For typical support of contractors, see D.H. Hill to Arthur H. Breed Sr., 4 April 1925, Breed Papers, MSS C-B 499, BL. Writing as secretary of the San Fernando Valley Better Roads Association (“An Association Composed of Material Dealers and Contractors for the Furtherance of Good Roads”), Hill reported his group’s resolution endorsing Breed’s bill to increase the gas tax by two cents per gallon for road construction. For Standard Oil’s vision of automobile tourism, see the description of Pinnacles National Monument in “The Pinnacles’ Spires and Caves,” Standard Oil Bulletin 22 (May 1934): 5–6. For the mixture of Standard’s products and the new automobile tourism, see also “Yosemite by Tunnel Approach,” Standard Oil Bulletin 20 (August 1932): 3–7; “Winter Sports in California,” Standard Oil Bulletin 16 (December 1928): 2–11. 21. Bureau of Research, Statistics, and Traffic Safety, California Motor Vehicle Statistics (Sacramento: Division of Motor Vehicles and California Highway Patrol, April 1, 1931), 4. 22. Flink, The Automobile Age, 143. 23. Railroad Commission of the State of California, Annual Report, July 1, 1930, to June 30, 1931 (Sacramento: California State Printing Office, 1932), 377, table 4-A. I have excluded free transfer passengers, totaling 160 million, from this measurement of total passengers carried. 24. J.G. Hunter, Effect of Fare Changes on Street Railway Operations in California (San Francisco: California Railroad Commission Engineering Department, Transportation Division, 18 October 1929), 21. 25. California Highway Commission, California’s Highways: A Discussion of State Highway Problems and Policies. Introduction to First Biennial Report of the Division of Highways (Sacramento: Department of Public Works of the State of California, 1922), 14, 58–59. 26. Ibid., 2. 27. California State Board of Equalization, Biennial Report, 1922, 8–10, as quoted in Zettel, An Analysis of Taxation for Highway Purposes, 23. See also

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the chapter titled “The Classification of Public Revenues,” in Seligman, Essays in Taxation. Ray Riley correctly pointed out how the turn to special taxes reflected the increasing difficulty of gaining approval for outlays from the general fund. Consequently, interested groups arranged a private financing mechanism via the state government: “As state expenses mounted and taxation increased[,] a tendency developed to raise revenue by special methods and apply it to special purposes. An example of this is the present motor vehicle and gasoline tax. This is collected directly from a certain part of the community and is applied to a use that is particularly for that part of the community.” Ray L. Riley, “Press Release,” November 1924[?], Breed Papers, MSS C-B 499, BL. 28. Zettel, An Analysis of Taxation for Highway Purposes, 23–24. 29. California Highway and Public Works 2 (January 1925): 1, 10. See also California Highway and Public Works 2 (February 1925): 13, and California Highway and Public Works 2 (March 1925): 9. 30. See, for example, “Reconstruction and Maintenance Income for 1924, $8,825,101.67,” California Highway and Public Works 1 (December 1924): 5. 31. “Gas Tax Popular Because Painless,” California Highway and Public Works 1 (October 1924): 15. 32. See Burnham, “Gasoline Tax and the Automobile Revolution,” 446–47, which describes one 1922 Nevada survey of highway officials nationwide that found little protest to the new tax. 33. California Highway Commission, Fourth Biennial Report of the Division of Highways (Sacramento: California State Printing Office, 1924), 25. 34. R. M. Morton, “Report of the State Highway Engineer,” in Fourth Biennial Report of the Division of Highways, by California Highway Commission (Sacramento: California State Printing Office, 1924), 44. 35. California Highway Commission, Fifth Biennial Report of the Division of Highways (Sacramento: California State Printing Office, 1926), 170; Zettel, Analysis of Taxation for Highway Purposes, 72. 36. Ralph Bull, “State Highways—Past, Present, Future,” California Highway and Public Works 4 (November 1927): 6; Key and Crouch, The Initiative and the Referendum in California, 455. 37. “1928 Road Program in Preparation; Involves $23,500,000 Expenditure,” California Highway and Public Works 4 (November 1927): 24. 38. Marvel Stockwell, Studies in California Taxation (Berkeley: University of California Press, 1939), 95. 39. Gerald D. Nash, State Government and Economic Development: A History of Administrative Policies in California, 1849–1933 (Berkeley: Institute of Governmental Studies, University of California, 1964), 333. 40. E. Roy Higgins, Chief Accountant, Department of Public Works, “Keeping Books on the Highway Budget,” California Highway and Public Works 5 (May–June 1928): 11. 41. B.B. Meek, “A Report on State Highways,” California Highway and Public Works 7 (July–August 1930): 1. 42. C.H. Purcell, State Highway Engineer, “Building Roads under Budget Plan Has Materially Reduced Overhead Costs,” California Highway and Public Works 9 (October 1932): 1.

Notes to Pages 172–73

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43. This data is drawn from Zettel, Analysis of Taxation for Highway Purposes, 70: table 18: “Sources and Amounts of Revenue Expended by the State for Highway Purposes, 1920–1945.” Between 1920 and 1926, the highway commission spent the $42.6 million remaining from the state highway bonds. I have excluded repayment of the highway bonds since that investment was approved prior to 1920 and thus does not indicate continuing financial participation by the legislature. The bond expenditures are added to the general fund appropriations in figure 18 of the present volume. In the chapter text, I discuss the conflict over how to repay the bonds. 44. Division of Highways, State of California, California Highways and Public Works: Centennial Edition, September 9, 1850–September 9, 1950 (Sacramento: Department of Public Works, State of California, 1950), 80–84. In 1925, the legislature approved provisions that simplified the process for condemning land for rights-of-way, and that gave the highway commission the power to acquire an additional parallel right-of-way for the preservation of timber. California Highway Commission, Fifth Biennial Report, 23. 45. G.T. McCoy, “Our State Highways,” Tax Digest 12 (September 1934): 294, 312–14. 46. B.B. Meek, “The Distribution of State Highway Moneys” Tax Digest 6 (August 1928): 264–66. See, for example, the percentages used for allocation in Governor James Rolph’s budget in 1933. State of California, Budget of the State of California for the 85th and 86th Fiscal Years July 1, 1933, to June 30, 1935 (Sacramento: California State Board of Control and Budget, 1935), 437. 47. The cities finally obtained a portion of the gasoline tax in 1933, after complaining that urban highway taxes went primarily to rural areas. For a disgruntled analysis of payments of highway taxes and expenditures of highway dollars in Los Angeles, see Bureau of Budget and Efficiency, Gasoline and Motor Vehicle License Taxation and Tax Distribution in Los Angeles County (Los Angeles: Bureau of Budget and Efficiency, City of Los Angeles, November, 1935). Using the benefit rationale of the gasoline tax, the cities argued that their residents paid far more in gasoline taxes than they received back from the state. In particular, they complained that they were subsidizing rural roads: “The retention of 69 per cent of state apportionment to counties for expenditures on county roads upon which only 10.91 per cent of the daily vehicle mileage occurs amounts to a subsidy by the cities for rural county roads that is out of proportion to benefits received by cities from these roads.” League of Municipalities, Streets and Highways Committee, Sub-committee on Research, “Streets and Highways Financing in California, 1931–32 to 1936–37, Preliminary Report,” August 1938, p. 13, California Department of Public Works—Administration Correspondence, 1938, CSA. For a discussion of conflicts between rural and urban interests in northern states, see Barron, “And the Crooked Shall Be Made Straight.” The north-south allocation in California constantly changed; it initially favored the north (55 to 45 percent) with the north’s greater road mileage, but gradually shifted toward the growing southern counties. 48. “Count the Advantages of the Gasoline Tax,” San Francisco Examiner, 7 October 1926, 34:1. See also General A.J. Gooch to Arthur H. Breed Sr., 22 April 1925, Breed Papers, MSS C-B 499, BL: “The main thing is to provide the

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funds[,] and once that is accomplished there need be no feelings of jealousy over allotments for certain highways for we will have enough to build them all and everybody will be happy.” 49. See Terrence J. McDonald, The Parameters of Urban Fiscal Policy: Socioeconomic Change and Political Culture in San Francisco, 1860–1906 (Berkeley: University of California Press, 1986). 50. Paul Barrett offers a fine example from Chicago of how even taxes intended for reinvestment did not serve streetcar expansion. Beginning in 1907, transit companies in Chicago paid approximately $2 million per year into a “traction fund” that was stockpiled until it was finally used to begin a centralbusiness-district subway in 1938. The traction fund and city and federal taxes absorbed nearly $37 million of Chicago transit-users money, yet the funds were not reinvested in the transit system in the concerted manner of highway user taxes. Automobile and Urban Transit, 123, 127. 51. Fogelson, Fragmented Metropolis, 169. 52. Hunter, Effect of Fare Changes on Street Railway Operations in California. 53. Fogelson, Fragmented Metropolis, 172–78, 180. 54. Railroad Commission of the State of California, Annual Report (Sacramento: California State Printing Office, 1931), 366–72. 55. Secretary of State, State of California, Proposed Amendments to Constitution and Proposed Statutes, with Arguments Respecting the Same (Sacramento: California State Printing Office, 4 November 1930). Citing the 1929 California Tax Commission report, Snyder and Noyes emphasized that electric railways “are paying 53.06 per cent of their net revenue in State and local direct and indirect taxes.” The streetcars potentially covered by the amendment included interurban electric railways and gasoline propelled railways. 56. Secretary of State, State of California, Proposed Amendments to Constitution and Proposed Statutes, with Arguments Respecting the Same, 4 November 1930, 25. Proposition 4 passed with 65 percent approval. 57. C. S. Duncan, “Railways and Highways: Finance, Taxation, and Subsidy,” Annals of the American Academy of Political and Social Science 187 (September 1936): 74. 58. Ibid., 75. 59. Ibid., 75–76. 60. Association of American Railroads, Inequality of Taxation among the Several Forms of Transportation: A Report by the Subcommittee on Taxation of the Railroad Committee for the Study of Transportation (Washington, D.C.: Association of American Railroads, December 1946), 6, emphasis in the original. 61. Board of Investigation and Research, Carrier Taxation (Washington, D.C.: Government Printing Office, 1945), 185. Charles Dearing discusses briefly some of these competitive inequalities in American Highway Policy (Washington, D.C.: Brookings Institution, 1942), 189–200. 62. State tax assistance as a percentage of the $532 million spent on California highways between 1933 and 1945 includes highway bond payments of $49,760,000, sales tax exemption of $72,571,000, and property tax equivalent (estimated at $2.5 million per year) of $30,000,000. These estimates do not

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include general or highway user tax expenditures at the county or city level. Zettel, An Analysis of Taxation for Highway Purposes, 70, 72, 111; Board of Investigation and Research, Carrier Taxation, 185. 63. Wilfred Owen, “Transportation and Public Promotional Policy,” National Resources Planning Board Report, May 1942, 257–64, reprinted in Association of American Railroads, “Inequality of Taxation among the Several Forms of Transportation,” 26. 64. Duncan, “Railways and Highways,” 75. 65. See Dearing, American Highway Policy, 199–200. 66. Duncan, “Railways and Highways,” 75. 67. James A. Dunn Jr. Miles to Go: European and American Transportation Policies (Cambridge: MIT Press, 1981), 117. 68. Flink, Automobile Age, 175–76. 69. Ibid., 176. 70. Board of Investigation and Research, Carrier Taxation, 165. 71. Bureau of Public Roads, Annual Reports of the Department of Agriculture (Washington, D.C.: U.S. Public Roads Administration, Federal Works Agency, 1939), 5. 72. Dunn, Miles to Go, 119. 73. See Hanson, “Automobile Subsidies and Land Use.” 74. For example, Marvel Stockwell proposed in 1939 that “either the special highway taxes should bear the entire burden of highway costs, thus relieving other taxes for other purposes, or the special highway taxes should be reduced.” Stockwell, Studies in California Taxation, 111. The report on carrier taxation also made the point that there was no state “in which the total cost of rural roads and urban streets does not exceed total highway user revenues (including Federal Aid). Until such an excess does exist, any so-called diversion is merely an accounting fiction by which money is transferred from one pocket to another.” Board of Investigation and Research, Carrier Taxation, 215. 75. William H. Anderson, Taxation and the American Economy: An Economic, Legal, and Administrative Analysis (New York: Prentice-Hall, 1951), 435.

chapter 8. defending the user-financing system 1. J. Allen Davis, Raids on the Gas Tax (Los Angeles: Automobile Club of Southern California, 1960), 23, 25. 2. “Highway Legislation,” Touring Topics 23 (February 1931): 11. 3. “Hands Off the Gas Tax,” Motorland 32 (February 1933): 1. 4. “Legislators Start Move to Cut Huge State Costs,” SB, 24 November 1932, 1:1; “Riley Warns Registering of Warrants Is Impending,” SB, 26 November 1932, 1:8. 5. “Riley Predicts Ad Valorem Tax,” SB, 1 December 1932, 5:5. 6. “Gas Tax Raid Proposed as Budget Aid,” SFC, 24 December 1932, 1:8. 7. Ibid. Vandegrift’s strategy corresponded to his analysis of new budget procedures in California, which included all expenditures and resulted in better

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preparation and efficiency. As with Stanley Surrey’s struggle against tax expenditures in the 1960s, Vandegrift’s effort to expose the “complete expenditure program of the State” represented an effort to institute greater executive control over fixed expenditures. Where Surrey wanted to achieve clearer policy and greater equity, it appears that Vandegrift sought to unveil the fixed charges in order that greater savings might be achieved. Vandegrift, “Control of State Expenditures through Budgeting and Budgetary Procedure,” Speech Delivered at the Meeting of the Western States Taxpayers Conference, Reno, Nevada, 4 September 1931, 8, 12, Institute of Governmental Studies Collections, University of California, Berkeley; Stanley S. Surrey, “Tax Incentives as a Device for Implementing Government Policy: A Comparison with Direct Government Expenditures,” Harvard Law Review 83: 4 (February 1970): 705–38; Surrey, “Federal Income Tax Reform: The Varied Approaches Necessary to Replace Tax Expenditures with Direct Governmental Assistance,” Harvard Law Review 84 (1970): 352–408. 8. Marvel Stockwell, Studies in California Taxation (Berkeley: University of California Press, 1939), 111. 9. Rolland A. Vandegrift, “Taxes Must Be Reduced: Governor’s Plan to Balance State Budget,” Tax Digest 11 (April 1933): 119–20;“New Gas Tax Raid to Meet Deficit Seen,” SFC, 29 December 1932, 1:2; “Autoists Will Battle Plan to Raid Gas Tax,” SFC, 5 January 1933, 4:1; “They Do Not Pass,” SFC, 26 January 1933, 8:2. 10. Secretary of State, State of California, Proposed Amendments to Constitution and Proposed Statutes, with Arguments Respecting the Same (Sacramento: California State Printing Office, 27 June 1933). These ballot propositions and the arguments are searchable online at the Hastings Law Library Website, accessible in 2003 at http://holmes.uchastings.edu:80/Welcome.html. 11. “Report of Joint Legislative Tax Committee,” Tax Digest 11 (June 1933): 187. 12. Secretary of State, State of California, Proposed Amendments to Constitution and Proposed Statutes, with Arguments Respecting the Same, 27 June 1933. 13. Ibid.; “Bill Drafted to Halt Gas Tax Refunds,” SFC, 22 January 1933, 1:3. Federal money for highway projects often mandated “pick and shovel” work over heavy equipment as a way to boost employment. “State Highway Budget Faces Drastic Cuts,” SFC, 21 June 1935, 30:6. 14. “Gasoline Tax Diversion,” Standard Oil Bulletin 21 (June 1933): 1; “Raiding the Gas-Tax Funds,” Standard Oil Bulletin 21 (March 1934): 1. 15. “Gas Tax Diversion Moves Protested,” Motorland 32 (February 1933): 7. See also Leon Pinkson, “Six Representative State Groups Denounce Gasoline Tax Diversion,” SFC, 19 March 1933, 9:1. 16. Leon J. Pinkson, “Highway Fund Raiders Get Sharp Repulse,” SFC, 7 May 1933, 7:1. The California Highway Commission selected the sixty-six hundred miles of new highway and then submitted the selections to the legislature for approval. John W. Howe to P. A. Stanton, 14 March 1933, California Highway Commission—General Correspondence—Correspondence, Internal, January–August 1933, CSA. Some opponents of the state’s takeover of county

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highways distributed counterpropaganda to small papers throughout the state. John W. Howe to Harry A. Hopkins, 21 February 1934, California Highway Commission—General Correspondence—Correspondence, Internal, 1934. State control over the local highways could shape local development prospects significantly. See Earl Lee Kelly to J. B. Casselman, 27 September 1937, Public Works Administration (California Department of Public Works)—Correspondence, 1936–37, CSA. Still, some county boards of supervisors supported incorporation of county roads into the state system to ease their own budgetary situation. See, for example, D. F. Hunt to Frank F. Merriam, 4 April 1933, Merriam Papers, MSS C-B 577, Box 35, Folder 1933, BL. Hunt informed Merriam that the Santa Barbara County Board of Supervisors unanimously opposed a proposal to give three-quarters of a cent of the gas tax to cities and instead advocated “the economy plan now before the Legislature, whereby 6600 miles of county highways would be taken into the State secondary system, thus relieving local taxpayers.” By contrast, the Los Angeles County League of Municipalities pressed for the assembly bill giving cities an additional three-quarters of a cent of the gas tax. See F. A. Baughan to Merriam, 21 March 1933, Merriam Papers, Box 35, Folder 1933, BL. The Los Angeles County Board of Supervisors also opposed Breed’s proposal to expand the state system. County of Los Angeles Board of Supervisors, “Resolution Opposing Any Diversion of Gasoline Tax Also Senate Bill No. 563; and Urging Adoption of Principles Set Forth in Assembly Bill No. 1172,” 19 April 1933, Merriam Papers, Box 35, Folder 1933, BL. 17. “California Borrows Five Millions of Gas Taxes,” SFC, 13 September 1933, 11:3. 18. “State Sales Tax Passed; Income Levy Battle On,” LAT, 27 July 1933, 1:7. 19. “Sales Tax Bill Signed; Effective Tomorrow,” SB, 31 July 1933, 1:4. 20. “Owners Pay Big Portion of Sales Tax,” SFC, 3 March 1935, 9:8. The San Francisco Chronicle reported that motor vehicle owners paid nearly 15 percent of the total sales tax revenue. Oil industry lobbyists and motor vehicle advocates also used the gas tax to stop a statewide per-barrel tax on oil and natural gas production that would go to the general fund. “A Tax to Cripple Industry and Employment,” SFC, 11 January 1939, 14:1; Earl C. Behrens, “Large and Small Oil Companies Join in Protest against Severance Tax Measure,” SFC, 23 February 1939, 9:3; “Look at Severance Tax on Petroleum Industry,” SFC, 19 March 1935, 12:2. 21. Richard M. Zettel, An Analysis of Taxation for Highway Purposes in California, 1895–1946: Submitted to the Joint Fact-Finding Committee on Highways, Streets, and Bridges (Sacramento: California State Printing Office, 1946), 111. 22. An attempt to extend the 5 percent sales tax to gasoline failed in 1967, but by 1974 the sales tax had been instituted and was raising $180 million per year in revenue. See Bob Simmons, “The Freeway Establishment,” in Cry California: The Journal of California Tomorrow (spring 1968); and Secretary of State, State of California, Proposed Amendments to Constitution: Propositions and Proposed Laws (Sacramento: California State Printing Office, 4 June 1974), 22–23. According to James Dunn, only ten states in the United States

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collected a general sales tax on gasoline as late as 1993. “The Politics of Motor Fuel Taxes and Infrastructure Funds in France and the United States,” Policy Studies Journal 21, no. 2 (1993): 275. 23. The oil industry’s opposition to the expansion of the gas tax and advocacy of a general sales tax is revealed in Edwin Higgins, “California Oil and Gas Association, Brief of Minutes of the Meeting of the Board of Directors” 18 May 1933, Lloyd Corporation Papers, Box LCL Letter 1933 (A–C), Folder: California Oil and Gas Association—Letters, Minutes of Meetings, etc., HL. Axtell Byles, president of the American Petroleum Institute, similarly criticized in 1934 the excessive taxation of motorists and the oil industry and called for a general manufacturer’s sales tax as a preferable alternative. “Petroleum and Taxation,” Review of Reviews (September 1934): 31. J. Allen Davis, former general counsel of the Automobile Club of Southern California, described in 1960 the threat posed by repeal or reduction of the state sales tax: “An initiative measure to repeal the sales tax and to substitute what amounted to a single tax on land qualified as No. 20 on the November ballot in 1938. The enactment of this measure would have been fatal to the State General Fund and would have invited diversion of highway revenues to General Fund revenues.” Davis described a similar scenario that occurred in 1958, when opponents defeated a proposed sales tax reduction. The consequent “loss of General Fund revenues would mean that other sources of revenue would have to be found. It would be permissible for the state to borrow gasoline tax and motor vehicle fee revenues to meet the cost of public schools and for other General Fund purposes. A continuing General Fund deficit would be disastrous to the street and highway programs of the state.” Raids on the Gas Tax, 55, 75. 24. Stockwell, Studies in California Taxation, 111. Protests against this 3 percent tax on gross receipts continued through the 1930s. See, for example, C. Don Field to State Board of Equalization, 10 July 1935, Controller—Division of Tax Collection and Refund—1935; and “Transportation Tax-Court Actions,” 1924–47, Controller—Accounting—etc., 1924–37, CSA. 25. Secretary of State, State of California, Proposed Amendments to Constitution and Proposed Statutes, with Arguments Respecting the Same (Sacramento: California State Printing Office, 8 November 1932). 26. The “in lieu” license fee raised approximately $11 million per year during the mid-1930s. The general fund received 62.5 percent of that revenue, but 66 percent of its allocation paid for interest and redemption on the old highway bonds. After the allocation to the general fund, 25 percent of the original money raised went to the cities to finance law enforcement, and the regulation and control and fire protection of highway traffic. Finally 12.5 percent paid for the administration of the vehicle license fund (up to 3 percent), with the remainder going to the cities, with no restrictions on how it should be spent. These percentages (62.5, 12.5, 25) were written into the Vehicle License Fee Act. Victor W. Killick, California Taxes on Motorists (Sacramento: Department of Motor Vehicles, 20 May 1940). The percentages were subsequently altered in 1939 when the revenues were apportioned first to administration (3 percent) and the interest and redemption of highway bonds. The balance was distributed between the state general fund (20 percent), the counties (40 percent), and the

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cities (40 percent). For a summary of the fee, see Zettel, An Analysis of Taxation for Highway Purposes, 44, 54–60. Stockwell, Studies in California Taxation, 108–9. Senate Constitutional Amendment 18, rejected by the voters in November 1930, would have authorized the legislature to fix an assessment in lieu of the personal property tax to be collected by the division of motor vehicles at the time license plates are issued. Supporters maintained that only three of four registered taxable automobiles paid the personal property tax. Ninetyfive percent of the revenue would have been returned to the counties. Secretary of State, State of California, Proposed Amendments to Constitution and Proposed Statutes, with Arguments Respecting the Same (Sacramento: California State Printing Office, 4 November 1930), 23. 27. In the 1936 case of Ray Ingels v. Ray L. Riley, the California Supreme Court declared the “in lieu” tax to be an excise or privilege tax rather than a property tax. In this instance, the auto interests and highway department sought to preserve the veterans’ exemption as part of maintaining their alliance with motorists (Supreme Court of California, 5 Cal. 2d 154 [14 January 1936]). For a wide-ranging argument that views the evolution of governments principally as a function of their character as revenue maximizing, predatory institutions, see Margaret Levi, Of Rule and Revenue (Berkeley: University of California Press, 1988). 28. Zettel, An Analysis of Taxation for Highway Purposes, 70. 29. Ibid. 30. State of California, Budget of the State of California for the 85th and 86th Fiscal Years July 1, 1933, to June 30, 1935 (Sacramento: California State Board of Control and Budget, January 17, 1935), xxiv. 31. Finla G. Crawford, Motor Fuel Taxation in the United States (Syracuse, New York: privately printed, 1939), 76–77. For the text of the law, see H.R. 878: June 18, 1934, 48 Stat., 995. 32. William Ullman, “Tax Diversion May Entail Penalty,” New York Times, 2 May 1937, sec. 12, 8:3. 33. United States Report of the Chief of the Bureau of Public Roads, 1938–39 (Washington, D.C.: U.S. Public Roads Administration, Federal Works Agency, 1939), 8. 34. Crawford, Motor Fuel Taxation in the United States, 76–77. 35. Ullman, “Tax Diversion May Entail Penalty,” 8:3; “Fund Diversion Scored,” New York Times, 16 August 1937: 14:6. 36. “Barriers to Gas Tax Raids,” Motorland 38 (March 1936): 1. See also “Reports on Legislation Affecting Motorists” Motorland 36 (May 1935): 8; “VOTE NO on NO. 10: Protect Our Highways,” Motorland 39 (September– October 1936): 2; “Plan to Divert Gas Tax Stirs Strong Protest,” SFC, 10 January 1935, 5:4; Earl C. Behrens, “Gas Tax Fund Diversion Bill Perils Roads: California Will Lose Much Federal Aid through Scheme, Officials Warn,” SFC, 9 May 1937, 1:5; and Westways (July 1937) as cited in Davis, Raids on the Gas Tax, 58. 37. Leon J. Pinkson. “Diverting Gas Tax funds Will Mean Yearly Loss to California of $3,000,000,” SFC, June 24, 1934, A1: 1. See also “VOTE NO on NO. 10: Protect Our Highways,” 2.

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38. “Protecting Gas Tax Funds Holds Federal Road Money,” SFC, 17 September 1937, 10:2. In May 1938, the San Francisco Chronicle described a new amendment before Congress that proposed to increase federal penalties for diversion at the state level from one-third to two-thirds of the federal apportionment. The Chronicle reported a statement by the CSAA that “emphasiz[ed] the severity of the penalty” and highlighted the loss of funds by New Jersey ($250,000) and Maryland ($341,600). The article held out the promise that the proposed constitutional amendment would forever remove that threat in California. “Diversion of Gas Tax Perils US Road Aid,” SFC, 8 May 1938, A1:1. 39. “State Diverts Gas Taxes to Relief Funds,” SFC, 18 July 1936, 3:8. 40. Zettel, An Analysis of Taxation for Highway Purposes, 111; Davis, Raids on the Gas Tax, appendix, p. 11. 41. “New $12,000,000 Tax for California Motorists,” Standard Oil Bulletin 22 (February 1935): 1. 42. “State Operation of Mines as Unemployment Aid Proposed in Senate: Income Need Stressed in Control Bill,” SFC, 17 January 1935, 12:1. See also Davis, Raids on the Gas Tax, 55. 43. Behrens, “Gas Tax Fund Diversion Bill Perils Roads” 1:5; for six bills allocating funds to special assessments, see Davis, Raids on the Gas Tax, 55. 44. Randolph Collier, the leader of the highway lobby in the legislature, criticized these tendencies after World War II and threatened to penalize those who violated “sound highway policy.” Collier, “Financial Aspects of California’s Road Problem,” 1 April 1946, Ford Papers, Box 70, Folder 3f, HL. 45. “Bill to Halt Diversion of Taxes Filed,” SFC, 26 July 1936, 4:1. 46. Secretary of State, State of California, Proposed Amendments to Constitution: Propositions and Proposed Laws (Sacramento: California State Printing Office, 3 November 1936), 17. 47. “VOTE NO on NO. 10,” 2. 48. Leon J. Pinkson, ‘Beware of Jokers Hidden in Proposed Gasoline Tax Constitutional Amendment,” SFC, June 21, 1936, A1:1; “Gas Tax Amendment Is Suspect,” SFC, July 7, 1936, 6:1. 49. “VOTE NO on NO. 10,” 2. 50. Leon J. Pinkson, ‘Beware of Jokers Hidden in Proposed Gasoline Tax Constitutional Amendment,” SFC, 21 June 1936, A1:1. 51. “VOTE NO on NO. 10,” 2. 52. AP Press Release, Knowland Papers, BANC MSS 75/97 c, Carton 136, BL. 53. “Auto Clubs’ Gas Tax Amendment Presented to Legislature,” Motorland 40 (June 1937): 8. States that had already instituted a constitutional ban included Colorado (1934), Kansas (1928), Minnesota (1920), and Missouri (1928). California, Michigan, and New Hampshire all approved amendments in 1938. National Highway Users Conference, Texts of Good Roads Amendments (Washington, D.C.: National Highway Users Conference, 1949), 6. 54. “Vote YES—Propositions 3 and 4,” Motorland 43 (October–November 1938): 3. 55. “Amendment to Protect State Gas Tax Proposed,” SFC, May 7, 1937, 6:5. See William F. Knowland’s press release in the Knowland Papers, BANC MSS 75/97 c, Carton 136, BL.

Notes to Pages 195–201

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56. Secretary of State, State of California, Proposed Amendments to Constitution: Propositions and Proposed Laws (Sacramento: California State Printing Office, 8 November 1938): pt. 2, 11–13. 57. “4 on the Ballot,” Motorland 43 (September 1938): 3. 58. “Save the Gas Tax for Highways,” Motorland 43 (September 1938): 2. 59. “Highway Dollars,” Motorland 42 (April 1938): 1; “Wanted: Better Business in Highways: Motorists’ Initiative Seeks More for Road Investment,” Motorland 42 (May 1938): 10. 60. Secretary of State, State of California, Proposed Amendments to Constitution: Propositions and Proposed Laws, 8 November 1938, 11. 61. J. Gould to William F. Knowland, 8 May 1937, Knowland Papers, BANC MSS 75/97 c, Carton 136, BL. 62. Secretary of State, State of California, Proposed Amendments to Constitution: Propositions and Proposed Laws, 8 November 1938, 9, emphasis in original. 63. Oil Producers’ Sales Agency to All Members, 23 January 1932, Lloyd Papers, Box LCL 7(4), Folder: OPSA, HL. 64. Ray L. Riley, in Commonwealth Club of California, Transactions of the Commonwealth Club of California 29 (May 7, 1935), 326, as cited in Stockwell, Studies in California Taxation, 123, n. 119. 65. Stockwell, Studies in California Taxation, 111. 66. “State Gasoline Fund Must Be Opened,” SB, 6 October 1969. 67. Automobile Club of Southern California, “Statement by the Automobile Club of Southern California,” August 21, 1969, in Constitutional Revision Commission binder, Institute of Governmental Studies Collections, University of California, Berkeley. 68. “New Goals for Gas Taxes,” LAT, August 29, 1969, pt. 2, 6. 69. California Department of Transportation, Statutes: Relating to the California Department of Transportation, 1979 (Sacramento: California State Printing Office, 1980), 335–36. 70. James J. Flink, The Automobile Age (Cambridge: MIT Press, 1988), 372. 71. For political advocacy work by the American Road and Transportation Builders Association, including its efforts to remove transportation funds from the unified federal budget, see: www.artba.org, visited on July 22, 2003. For an example of oil company advocacy, see the Mobil Oil Company’s national advertisement in 1997 attacking the use of highway funds for mass transit, bicycle paths, and highway beautification: “Taking the High Road on Highways,” found at www.mobil.com/this/news/opeds/970821_oped.html in December 1998. During the recession of the early 1990s, the California state general fund borrowed a billion dollars in state transportation funds. As a result of this borrowing, Caltrans temporarily stopped taking bids on new highway construction projects and laid off hundreds of Caltrans employees. At the same time, California voters rejected three bond issues for roads totaling $4 billion. David B. Rosenbaum, Janice I. Dixon, Debra K. Rubin, Mary Buckner Powers, and Tom Ichniowski, “TEA-21: Action Shifts to States,” Engineering News-Record 241 (19 October 1998): 32. In November 1998, voters approved a constitutional

274

Notes to Pages 202–8

amendment restricting the general fund’s ability to borrow from the highway program. See “Elxn-State Props,” City News Service, 13 November 1998; Anthony York, “A California Journal Analysis: November 1998 Ballot Propositions,” California Journal (1 September 1998).

conclusion. the politics of petroleum prices 1. Kenneth R. Kingsbury to Hubert Work, 9 March 1925, GTWHP, Carton 155070, Box: Conservation, Chevron Archives. The American Petroleum Institute voiced similar themes in a 1925 report, discussed in part 3 of this volume. 2. See John G. Clark, Energy and the Federal Government: Fossil Fuel Policies, 1900–1946 (Urbana: University of Illinois, 1987). 3. National Highway Users Conference, Texts of Good Roads Amendments (Washington, D.C.: National Highway Users Conference, 1949), 6. 4. William Clay Ford Jr., chief executive officer of the Ford Motor Company, declared at a recent Automotive News World Congress, “I believe fuel cell vehicles will finally end the 100-year reign of the internal combustion engine as the dominant source of power for personal transportation. It’s going to be a winning situation all around—consumers will get an efficient power source, communities will get zero emissions, and automakers will get another major business opportunity—a growth opportunity.” Ford, Automotive News World Congress, Detroit, Michigan, January 2000. John Browne, chief executive officer of British Petroleum, estimated in 1997 that his company could make solar power “competitive in supplying peak electricity demand within the next 10 years.” “Addressing Global Climate Change,” Stanford University, California, 19 May 1997, from the www.BP.com Website, accessed on 10 June 1998. General Motors’ executive director Robert Purcell said, “Our long-term vision is of a hydrogen economy.” As quoted in “GM Foresees Hydrogen Economy: Autos, Fuels Must Change,” Octane Week 15, no. 20 (15 May 2000).

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Index

agricultural land claims: fraudulent, 16, 17, 18; of Southern Pacific Railroad, 20–21 Aitken, L.L., 40 Alexander, Arthur: observed slanted drilling, 71; and State Lands Division scandal, 98, 99, 100, 105, 235n23, 242n106 Alien Land Law of California, 58 Alliance for Truth in Transportation Budgeting, 201 American Petroleum Institute, 116–17, 121 American Road and Transportation Builders Association, 201, 273n71 Anderson, Alexander, 86 Anderson, Neal, 145 Anderson, William H., 181 antitrust laws: natural gas conservation act as way to avoid, 60, 126; as obstacle to private solution to overproduction, 119–20; and Oil Producers Sales Agency (OPSA), 140; and Standard Oil Trust, 112 Arnold, Ralph, 18–19 Arthur Carr v. W.S. Kingsbury, 66 Associated Oil Company, 26, 38, 132, 147 Associated Oil Company et al, People v., 122 Association of American Railroads, 179 Atkinson, Maurice, 151–52 Automobile Club of Southern California: opposed reallocation of highway taxes, 182, 192–93, 200; proposed amendment creating highway and traffic safety commission, 194–96 automobile clubs: opposed reallocation of highway taxes, 182–83, 185, 200;

and proposed amendment prohibiting diversion of highway taxes, 193–94; proposed creating highway and traffic safety commission, 194–96 automobiles. See motor vehicles Autry, Gene, 187(fig. 22) Ballinger, Richard, 19 Barnsdall Oil Corporation, 61 Barrett, Frank, 22 Bay Area Rapid Transit system, 200 Bay Bridge financing, 239n70 beach protection: funding from tidelands oil royalties for, 104, 243n123, 244n124; in Huntington Beach, 64–65, 65(fig. 8), 66–68, 69; and Proposition 4 (1936), 87–88; and Proposition 11 (1932), 68, 69; and slanted drilling, 78, 83; vs. tidelands oil development, 59–60 Bean, Robert S., 20, 21, 25, 26, 27, 28 Belither, S.E., 150 Belridge field, 29 Bennett, James S., 137–38 Bishop, Roy, 29, 33–34, 36, 40 Bledsoe, Benjamin: and continued production on disputed oil lands, 220n36; and federal charges against Southern Pacific for misrepresenting oil lands, 22–23, 218n17; on federal government’s deception of oil companies, 27; government/oil industry employment of, 226n89; personal investment in oil companies by, 25, 218n25 Blodget, Rush, 142, 145, 146, 148 Boggs, Paul, 130

297

298 Bolsa Chica Oil, 125 Bolsa Land Company v. Vaqueros Major Oil Company, 97, 105 bonds: funds used for paying off, 188, 189; issued for highway construction, 162–63, 163(fig. 16), 167, 170, 171–72, 262n12, 265n43; proposals to use gas tax revenues to pay off, 183–85, 191–92, 267n7, 268n10 Bonnelli, William, 99 Boone v. Kingsbury, 56, 58, 59, 60, 61, 77, 103, 105 Borton, F.E., 143, 256n48 Bowron, Fletcher, 187(fig. 22) Breed, Arthur, 188, 191 Breed, Arthur Jr., 193–94 Bridges, Harry, 101 Brown, J.A., 131 Buena Vista Hills oil lands, 22, 29; ownership of, 23, 45– 46 Buena Vista Hills oil reserve: competitive drilling practices in, 46, 47(fig. 4); creation of, 19; Fall’s granting leases within, 47– 48, 225nn82, 84; and James Gillett, 32 Bull, Ralph, 170 Burke, J. Frank, 151, 152 Burke, Norris J., 98–100 Burns, Michael, 83–84 Bush, George H.W., 245n130 Bush, George W., 208 business, relationship between government and, 8–10, 214nn14–15, 215nn17–18 Byles, Axtell, 270n23 Cahuenga Pass road/highway, 186(fig. 21), 187(fig. 22) California Highway and Public Works, 168–69 California Highway Commission, 193, 268n16 California Highway Patrolmen’s Association, 196 California Midway Company, 26 California Midway Oil Company, United States v., 219n30 California Oil and Gas Association, and Sharkey bill, 141, 142, 143, 253n16 California oil economy, 3–6; relationship between environmental change and, 7, 213n8; relationship between government and, 9–10, 215n18; relevance of, 1, 10–11 California Railroad Commission, 174, 176 California Real Estate Association, 69 California State Automobile Association (CSAA): opposed proposed

Index amendment prohibiting diversion of highway funds, 293; opposed reallocation of highway taxes, 183; proposed amendment creating highway and traffic safety commission, 194–96 California state government: and bond issues for highway construction, 162–63, 163(fig. 16), 171, 262n12; direct subsidies for building and maintaining highways, 160–61, 162(fig. 15), 261nn6–7; link between petroleum economy and policies of, 203–7; oil royalties as source of revenue for, 63, 72–73, 81, 82; oil well drilling monitored by, 245n4; scandal over management of tidelands by, 97–100, 105–6, 242n106; tax assistance from, for highways, 178, 178(fig. 20), 266n62; voluntary curtailment role of, 128, 250n82 California State Lands Act: attempted amendment of, 99; passage of, 80, 94, 95–96, 205 California State Lands Commission: creation of, 80, 94; reforms of, 101 California State Parks Commission: acquisition program of, 95–96, 240n80; creation of, 57, 94; proposition allocating oil royalties to, 87; Standard Oil’s alliance with, 87, 95 California Supreme Court: administrative limits on coastal drilling, 56, 58, 59, 60, 61, 77, 103, 105; decision on natural gas conservation statute, 122–23, 128, 132; decisions against state ownership of tidelands, 96–97; ruled against California’s mineral leasing bill, 58–59. See also specific legal cases California Taxation Improvement Association, 72 California Taxpayer’s Association, 72, 95 California, United States v., 54 Carr, Arthur, 68; Arthur Carr v. W.S. Kingsbury, 66 Cartwright Act (California, 1905), 112 Central Proration Committee, 144, 145– 47, 150 Chicago, economic and ecological relationships of, 8 Clark, Clarence, 35 Clark, John Gee, 84, 90 Clinton, Bill, 245n130 Clock, Ralph, 98 Coalinga field, 23, 29 coastal oil drilling: context of, 53–56; at Huntington Beach, 64–69, 65(fig. 8),

Index 77, 88–93; Proposition 4 on, 87–88; royalties from, funding beach protection, 104, 243n123, 244n124; in Santa Barbara County, 56–62, 77; state vs. federal petroleum politics of, 103–7, 244n130; in Venice, 62, 63(fig. 7), 77; vs. beach protection, 59–60. See also offshore oil development; tidelands Colby, William, 87, 95, 236n27 Collier-Burns Act, 172 Committee of Nine, 118–19 Commonwealth Club, Mineral Resources Section, 69 competitive production practices: encouraged by rule of capture, 16, 18, 64; and Mineral Leasing Act, 45–46, 47(fig. 4); overproduction due to, 112–13, 114(fig. 11). See also oil production; oil production control conservation: California plan for, of natural gas, 60, 121–23, 125–26, 128, 132; Fall’s efforts against, 46–49, 225nn79–80, 82; Kettlemen Hills plan for, 123–27, 249n65, 250n78; and Mineral Leasing Act, 44–45, 224n73; of Santa Barbara County tidelands, state efforts for, 56–62; and Taft withdrawal order, 28–29. See also oil production control Coolidge, Calvin, 115–16, 118, 130 Craig, Edward, 72, 74, 83, 233n78 Crocker, Charles, 23 Cronon, William, 8 crude oil: portion used by motor vehicles, 159, 260n1; reservoirs for storing, 114, 116(fig. 13) crude oil prices: driven down by rising oil production, 60, 111, 117; government actions affecting, 2–3, 202–3; oil industry urging government actions to boost, 117–20; voluntary oil company actions to boost, 114, 116(fig. 13). See also gasoline prices; oil production control Daniels, Josephus, 23, 33, 37 Daugherty, Harry, 71, 225n82 Davis, J. Allen, 270n23 Davisson, Malcolm M., 197 DeLap, T.H., 92 Democratic Party: and coastal oil drilling, 79; and End Poverty in California (EPIC), 81, 84; and leasing bill lobbying, 33–34, 35 Depression. See Great Depression de Young, Michael, 35–36, 221n22

299 diagonal drilling. See slanted drilling Diericx, A.C., 37 diesel tax, 193 Dockweiler, Isadore, 34 Doheny, Edward, 48–49, 48(fig. 5), 58 Donnelly, Hugh, 91 Dumas, Vern, 128 dummy entryman land claims, McMurtry, 25–26, 38, 219n30 Duncan, C.S., 176–77, 179 Dust Bowl (Worster), 8 Eberlein, Charles, 21 economy: public lands given away and sold to spur development of, 16, 216n2; relationship between environmental change and, 6–8, 214nn9–10. See also California oil economy Eisenhower, Dwight, 107, 207 Elk Hills oil lands: federal suit to regain, from Southern Pacific Railroad, 20–22, 23, 218n17; yield from, 29, 220n38 Elk Hills oil reserve: competitive drilling in, 46; creation of, 19; Fall’s granting leases within, 48 Elliott, John B., 149 Ellwood field, 56–57, 61, 63, 227n7 End Poverty in California (EPIC), 81, 84 environmental change: relationship between California oil economy and, 7, 213n8; relationship between economy and, 6–8, 214nn9–10 environmental history, and economyecology relationship, 7–8, 214n10 Eshleman, John, 32, 34, 36, 226n89 Executive Committee for Equitable Curtailment, 144, 256n60 Fall, Albert: and federal leasing regulations, 39; and oil industry labor disputes, 44; and Teapot Dome scandal, 46–49, 48(fig. 5), 58, 225nn79–80, 82 federal government: early mineral policies of, 16–17, 216n3, 217n5; efforts to regain control of mineralrich public lands, 17–20; extraction on reserved oil lands continued by, 28–29, 45–46, 220n36; Kettleman Hills conservation plan, 44, 123–27, 132, 249n65, 250n78; Kingsbury letter on petroleum pricing role of, 202–3; lawsuits to regain oil lands of San Joaquin Valley, 20–28, 218n17; lead-leasing program of, 16, 216n3; national code for controlling oil production, 145–49;

300 federal government (continued) offshore oil development control by, 106–7, 244n130; oil lands ownership by, and Mineral Leasing Act, 43–46; ownership of San Joaquin Valley oil lands by, 23, 54; penalized states for diverting gas tax revenues, 189–91, 272n38; reforms of petroleum land policies of, 17–20; sale and granting of public lands by, 16, 216n2 federalism, as building block of California oil economy, 4. See also California state government; state governments Federal Oil Conservation Board, 115–16, 118, 246n20 Finney, Guy, 87 Flint, Gene, 97 Fogelson, Robert, 175 Ford, William Clay Jr., 274n4 fraud: in land claims to public lands, 16, 17, 18–19; in McMurtry claim, 25–26, 219n3; Mineral Leasing Act (1920)’s provision on, 42; and Southern Pacific Railroad oil land claims, 20–22, 23, 218n17 free market: myth of, xv, 152, 203; oil industry’s position on federal action to readjust, 116–18 fuel cell vehicles, 208, 274n4 Gas Conservation Association, 121 gasoline: exempt from sales taxes, 187–88, 269n22, 270n23; portion of U.S. oil becoming, 159, 260n1; shortage of (1920), 29–30 gasoline prices, 111, 130 gasoline taxes: benefits of, to rural vs. urban areas, 265n47; history of origin of, 166–68, 263n27; popularity of, 168–69, 173, 265n48; proposals to pay off highway bonds with revenues from, 183–85, 191–92, 267n7, 268n10; proposed amendment prohibiting diversion of funds from, 192–94, 195–96, 197, 272n53; revenues from, vs. general fund revenues during Depression, 198–99, 199(fig. 23); for road construction, 169–70; for road maintenance, 166–67, 169(fig. 17); states penalized for diverting revenues from, 189–91, 272n38; struggle to use funds from, for general fund expenses, 191–92, 272n44. See also user financing General Petroleum Company, 61, 124, 153 Getty Oil, 125

Index Gillett, James N., 33(fig. 3); government/oil industry employment of, 32, 38–39, 49, 226n89; leasing bill lobbying efforts of, 32–33, 34, 35, 36–37, 39–40, 222n29; post-Mineral Leasing Act actions of, 40–41, 43; and San Francisco Chronicle, 35–36, 221n22 Gilmore, Helen Swain, 196 Glenn, Malcolm, 73, 105 global climate change, 11, 214n8 Gould, J., 197 government: economic development spurred by public lands given away by, 16, 216n2; employment in oil industry after career in, 49, 226n89; oil industry calls for actions by, 117–20; opposition to interference by, 115–17; relationship between business and, 8–10, 214nn15–16, 215nn17–18. See also California state government; federal government; state governments Great Depression: and California’s interest in oil royalties, 63, 72–73, 81, 82; employment from road construction during, 185, 198, 268n13; general fund vs. gasoline tax revenues during, 198–99, 199(fig. 23); proposal during, to repay highway bonds with gas tax revenues, 183–85, 267n7, 268nn10 Gregory, Thomas, 23–24, 33, 42 gypsum land claims, 18–19, 24 Haight, Raymond, 81 Handlin, Mary, 3 Handlin, Oscar, 3 Harding, Warren, Teapot Dome scandal, 46–49, 48(fig. 5), 225nn79–80, 82 Hartz, Louis, 3 Hatfield, George, 99, 100 Hayden-Cartwright Act (1934), 189–91 Hazlett, William, 140 Hearst, William Randolph, 66–67 Heron, Alexander R., 59, 60 Herrin, William, 36, 38, 40 Higgins, E. Roy, 171 highway and traffic safety commission, proposed amendment creating, 194–96 highways: bond issues for, 162–63, 163(fig. 16), 167, 170, 171–72, 262n12, 265n43; direct government subsidies for building and maintaining, 160–61, 162(fig. 15), 172, 261nn6–7; federal penalties for diverting gas tax revenues from,

Index 189–91, 272n38; funds for completing system of, 169–70; local roads added to state system of, 185–86, 268n16; major California (1931), xxii(map 2); overbuilding of, 6, 198, 200–201; proposed amendment prohibiting diversion of funds for, 192–94, 195–96, 197, 272n53; public investment in, as building block of California oil economy, 5–6; reorganization of administrative structure for, 172–73, 265nn44, 47; repairing and upgrading, 166–67, 169(fig. 17); shifting funds for, to mass transit, 200; sources of funds for, 171–72, 172(fig. 18); tax assistance for, 178, 178(fig. 20), 266n62. See also motor vehicles; user financing Highway Users Trust Fund, 200 Honolulu Consolidated Oil Company, 22, 32, 47–48 Hoover, Herbert, 45, 118, 119, 126 Hopkins, Mark, 23 Hornblower, William, 84 Huegeinan, Emile, 86 Hughes, Charles Evans, 117 Hunt, Charles, 97 Huntington Beach: beach protection efforts in, 64–65, 65(fig. 8), 66–68, 69; coastal oil drilling at, 64–69, 65(fig. 8), 77; slanted drilling by trespassers at, 70–78, 83–84 Huntington Beach oil field, 59, 103, 129; competitive production practices in, 64, 65(fig. 8), 114(fig. 11); federal lawsuit for overproduction in, 148; fight over drilling in, and royalties for state, 81–86, 235nn23–24; Olson-Merriam struggle over tidelands drilling in, 88–93 Huntington, Collis, 23 Huntington, Henry, 160 Hurst, James Willard, 3, 4, 213n6 hydrogen, as fuel, 208, 274n4 Ickes, Harold, 145–46, 152 immigration, state policies opposing, 58 Independent Petroleum Association of California (IPA), 82, 84, 137, 138, 144 “in lieu” taxes, on automobiles, 189, 270n26, 271n27 Interstate Oil Compact, 135, 136 Ise, John, 2 Jefferson, J.M., 71 Jergins, A.T., 137

301 Johnson, Lyndon, 207 Jones, William Mosely, 81–82 The Jungle (Sinclair), 80 Justice, E.J., 24 Kearful, Francis J., 23 Kegley, Howard, 57, 61, 145, 147 Kellogg, Frank, 40 Kemnitzer, William J., 82, 84, 236n24 Kern River fields, 23 Kettleman Hills conservation plan, 44, 123–27, 132, 249n65, 250n78 Kettleman Hills fields, 23, 123 Kettleman North Dome Association (KNDA), 126–27, 250n78 Kettleman North Dome field, 29, 125–27, 249n65, 250n78 Kingsbury, Boone v., 56, 58, 59, 60, 61, 77, 103, 105 Kingsbury, Kenneth R., 117, 123, 138, 146, 202–3, 149–50 Kingsbury, William: Arthur Carr v. W.S. Kingsbury, 66; efforts to restrict coastal oil drilling in Santa Barbara County, 56–57, 58, 59–60, 61, 227n7, 228n15; investigated slanted drilling at Huntington Beach, 71; K.E. Boone v. W.S. Kingsbury, 56, 58, 59, 60, 61, 77, 103, 105; opposed tidelands drilling in Huntington Beach, 65–66; and overproduction problem, 119 Knowland, William, 193–94, 197 labor relations, government power in, and Mineral Leasing Act, 44 LaFollette, Robert M., 49, 85 land claims: agricultural, 16, 17, 18, 20–21; fraudulent, 16, 17, 18–19; gypsum, 18–19, 24; McMurtry dummy entryman, 25–26, 38, 219n30; and Pickett Act, 26–27 land grants, school, 54, 227n3 Lane, Franklin, 34, 35, 226n89 Langdon, William, 97 Latham, E.V., 191 lead-leasing program, 16, 216n3 leasing bill. See Mineral Leasing Act (1920); mineral leasing act (California, 1921) Lewis, John L., 101 Lloyd, Ralph B., 9, 76, 139, 139(fig. 14); and federal national code, 145, 147; and Oil Producers Sales Agency (OPSA), 140–41, 254n25; supported Sharkey bill, 137, 141, 142; and voluntary curtailment, 131–32, 144, 149

302 lobbying, oil industry, for leasing bill, 31–40 Long Beach, 244n127 Long Beach v. Marshall, 97, 105, 106, 241n89 Loomis, Francis B.: called for government action to boost oil prices, 117, 117–18; government/oil industry employment of, 226n89; leasing bill lobbying efforts of, 32, 34, 35, 41 Los Angeles, Stone v., 62, 77, 97 Los Angeles Examiner, on Olson’s legislative victory, 91 Los Angeles Times: favored tidelands oil drilling, 57; favored unlocking highway funds for other purposes, 200; on federal regulation of oil production, 145, 147; on Huntington Beach drilling, 64; and lobbying for leasing bill, 35; on Stone v. City of Los Angeles, 62; on tidelands oil development, 57, 61 lumber industry, and government of Wisconsin, 3 MacMillan, Herbert, 60, 129 Maggart, Roy, 68 Marion, John, 74 Marshall, Long Beach v., 97, 105, 106, 241n89 Marsten, Alfred, 143 Maryland, gas tax revenues diverted by, 190 Massachusetts, gas tax revenues diverted by, 189 mass transit: government expenditures for, 180; shift from, to motor vehicles, 159–60, 165–66, 181; using highway funds for, 200, 273n71. See also railroads; streetcars McAdoo, William G., 226n89, 242n113 McCaslin, W.E., 70 McCutchen, United States v., 27 McMurtry, L.B., 25–26, 38, 42, 219n30 Meek, B.B., 171 Merriam, Frank: charges of misconduct by administration of, 97, 99, 100; and creation of State Lands Commission, 93–94; gubernatorial campaign against Olson, 100, 101; gubernatorial election of, 80–81; and Standard Oil’s Huntington Beach tidelands drilling, 86; struggle between Olson and, over Huntington Beach tidelands drilling, 88–93; vetoed bill on oil royalties from tidelands oil, 84 Midway Northern Oil Company, United States v., 27, 28, 220n36

Index Midway oil field: continued oil production during litigation over, 28, 220n36; fraudulent McMurtry claim in, 25–26, 219n30 Midway-Sunset oil field, 29 Midwest Oil Company, United States v., 24, 28 Milham Exploration Company, 124, 125 Mineral Leasing Act (1920), 40, 119, 228n12; and claims for relief of Taft land withdrawal, 37–38, 41–42, 223n59; effects of implementation of, 41–46; and Kettleman Hills conservation plan, 127; lack of public hearings on, 36–37, 222n29; lobbying preceding, 31–40; newspapers’ positions on, 35–36, 37 mineral leasing act (California, 1921), 53, 58; passage of, 53; questioning of constitutionality of, 58; and tidelands drilling at Huntington Beach, 65, 66 mineral policies, early federal, 16–17, 216n3, 217n5 mining law (1872), 17, 217n5 Morton, Harold C., 152 Morton, R.M., 170 motorist class, 165–66, 263n19 Motorland: opposed reallocation of highway taxes, 183, 195–96; supported proposed amendment prohibiting diversion of gas tax revenues, 193, 194 motor vehicle fees, 167, 168, 173, 182, 270n26. See also user financing motor vehicles: “in lieu” taxes on, 189, 270n26, 271n27; portion of U.S. oil consumed by (1940), 159, 260n1; shift from streetcars and railroads to, 159–60, 165–66, 179–81; taxation of users of, 174; tourism linked with, 165, 263n20. See also gasoline taxes; highways Murray, William H., 142 Myers, Henry, 34 Naramore, C., 46 National Industrial Recovery Act, 145, 147, 148 natural gas: California act for conserving, 60, 121–23, 125–26, 128, 132; proposed per-barrel tax on production of, 269n20; waste of, accompanying oil production, 120–21 Nature’s Metropolis (Cronon), 8 naval oil reserves, 19; federal government’s continued production from, 28–29, 45–46, 220n36; Mineral Leasing

Index Act’s effect on, 42–43; and World War I, 37; yield from, 29, 220n38 Newby, Nathan, 76 New Deal: origins of, in state governments, 3; road construction employment under, 185, 198, 268n13 New Jersey, gas tax revenues diverted by, 189, 190 Newspapers, and lobbying for leasing bill, 35–36, 37. See also specific newspapers Neylan, John Francis, 98, 100 Norris, Frank, 160 North American Consolidated Oil Company, 25 Noyes, Fred B., 176 Nye, Gerald, 93 O’Donnell, Thomas A., 116 offshore oil development: federal control of, 106–7, 244n130; first, 55(fig. 6). See also coastal oil drilling oil. See petroleum Oil! (Sinclair), 81 Oil and Gas Conservation Act, 121, 253n16 oil companies: obtained land through fraudulent claims, 18–19, 26, 219n30; and Pickett Act, 25, 26–27; slanted drilling at Huntington Beach by, 70–78; as trespassers, 27, 219n35; voluntary actions by, to boost crude oil prices, 114, 116 (fig. 13). See also oil industry; specific oil companies oil fields: 53, 112–13, 115(fig. 12); major California (1940), xxi(map 1). See also specific oil fields oil industry: employment in, after public service, 49, 226n89; government action to boost crude oil prices advocated by, 117–20; history of relationship between government and business in, 10, 215n17; lobbying by, for leasing bill, 31–40; opposition to government interference in market forces of, 115–17; voluntary curtailment attempts by, 144–45, 149–51; voluntary statewide curtailment of production by, 128–32, 133, 250n82, 251n98. See also oil companies Oil Industry Association of California: formation of, 33; leasing bill lobbying by, 31–32 oil lands. See petroleum lands

303 Oil Leasing Bill. See Mineral Leasing Act (1920) oil operators. See oil companies oil prices. See crude oil prices Oil Producers Sales Agency (OPSA): gasoline taxes opposed by, 198–99; private cooperation encouraged by, 140–41, 254n25; Sharkey bill supported by, 141, 142, 144 oil production: continued during litigation over ownership of petroleum lands, 28, 220n36; declined as result of Taft withdrawal order, 29–30; predictable pattern of, from new fields, 112–13; proposed per–barrel tax on, 269n20. See also competitive production practices; oil production control; overproduction oil production control: Atkinson bill, 151–52; California natural gas conservation act, 60, 121–23, 125–26, 128, 132; effects of attempts at, 152–55; federal national code, 145–49; interaction of public and private forces in, 204; Kettleman Hills conservation plan, 44, 123–27, 132, 249n65, 250n78; Oil Producers Sales Agency (OPSA), 140–41, 254n25; Sharkey bill, 136–38, 141–45, 253n16, 256n48; voluntary curtailment after National Industrial Recovery Act declared unconstitutional, 149–51; voluntary curtailment after Sharkey bill defeat, 144–45; voluntary statewide curtailment program, 128–32, 133, 250n82, 251n98 oil prospecting: Mineral Leasing Act’s effect on, 43, 45, 224n73; photos, 18(fig. 1), 27(fig. 2) oil royalties: beach protection funding from, 104, 243n123, 244n124; federal public works funded by, 42; fight over, from Huntington Beach field drilling, 81–86, 235nn23–24; from Huntington Beach drilling by trespassers, 73–75, 76, 232n65; Merriam-Olson struggle over, 87–93; Proposition 4 on, 87–88; recreational development funding from, 94, 95–96, 96(fig. 9); as source of revenue for state of California, 63, 72–73, 81, 82 oil umpires, 128, 131, 133, 250n82 Oklahoma: model legislation of, 136; regulatory measures in, 113, 152

304 Olson, Culbert, 187(fig. 22); and Atkinson oil control bill, 151; fought against Huntington Beach tidelands oil drilling, 79, 81, 85–86, 235nn23–24; gubernatorial election of, 80, 100–101, 102(fig. 10), 233n3, 242nn113, 115; management of tidelands oil by, as governor, 101–3, 106, 243n120, 244n126; political career of, 85; Proposition 4 opposed by, 87, 88; struggle between Merriam and, over Huntington Beach tidelands drilling, 88–93 Otis, Harrison Gray, 35 overproduction: decline in oil prices due to, 60, 111, 117; due to competitive production practices, 112–13, 114(fig. 11); due to new fields, 113, 117; oil industry calls for government action to solve problem of, 117–20. See also oil production; oil production control Owen, Wilfred, 178–79 Pacific Exploration Company, 68, 230n44 Pacific Western Oil Company, 61, 125, 153 Palmer, A. Mitchell, 23 Panama Refining Company v. Ryan, 148 Patterson, Ellis E., 84, 90, 151 Peek, Paul, 94 Pennsylvania, gas tax revenues diverted by, 190 People v. Associated Oil Company et al, 122 Perkins, George C., 34 petroleum: California/American dependence on, 1–2, 11; deposits of, under coastal tidelands, 54; mineral laws extended to, 17; U.S.’s abundance of, 2–3 petroleum lands: competitive production practices on, and rule of capture, 16, 18, 64; federal lawsuits to regain, in San Joaquin Valley, 20–28, 218n17; federal ownership of, and Mineral Leasing Act, 43–46; and mining law (1872), 17; reforms of federal policies on, 17–20; Taft withdrawal order on, 19, 24, 25, 27, 28, 29–30 petroleum politics: effects of, in California, 2–3; historical events with prominent role of, 11, 207–8; state vs. federal, and coastal oil drilling, 103–7, 244n130

Index Petroleum Securities Company, 125–26 Phelan, James, 33, 34, 43 Phillips, Herbert, 89 Pickett Act (1910), 25, 26–27 Pinchot, Gifford, 17, 23 Pinkson, Leon J., 185–86, 190, 193 Pittman, Key, 32, 33, 34, 226n89 Playa Del Rey field, 129 Pollak, A.J., 36, 38, 39, 40 Potter, C.M., 71 Potter, David, 2 price, economic role of, xiv. See also crude oil prices; gasoline prices property rights, 4; and early federal mineral policies, 16–17, 216n3, 217n5; private ownership and rule of capture, 15–16, 216n1 Proposition 4 (1936), 87–88 Proposition 11 (1932), 68, 69 Propositions 9 and 10 (1933), 185, 268n10 public lands: early federal policies on minerals and, 16–17, 216n3, 217n5; fraudulent claims on, 16, 17, 18–19; given away and sold by governments, 16, 216n2; mineral-rich, federal efforts to regain control of, 17–20; and mining law (1872), 17, 217n5. See also petroleum lands Purcell, C.H., 171 Purcell, Robert, 274n4 railroads: energy use by, 159–60; government assistance for, 160; shift from, to motor vehicles, 159–60; taxation of, 176–79. See also Southern Pacific Railroad Company Rayburn, Sam, 207 Reagan, Ronald, 6 recreation: and auto-linked tourism, 165, 263n20; oil royalties funding development of, 94, 95–96, 96 (fig. 9). See also beach protection Reeser, E.B., 121, 141–42, 142 regulatory rules, as building block of California oil economy, 4–5 Republican Party: and California’s fiscal crisis during Depression, 183–84; and leasing bill lobbying, 35, 37–38, 222n35 Requa, Mark L., 134, 226n89 Rich, W.P., 90 Richfield field, 129 Riley, Harry, 100 Riley, Ray L., 183, 198, 199, 264n27 Rivers of Empire (Worster), 8 roads. See highways

Index Roche, Theodore, 141 Rolph, James, 80; favored reallocation of gas tax revenues, 182, 184; and federal action to protect domestic oil producers, 135; and Sharkey bill, 138, 141, 142; and slanted drilling at Huntington Beach, 72, 73, 76, 78, 79; and tidelands drilling at Huntington Beach, 66, 67, 69 Roosevelt, Franklin D., 3, 145, 152 Roosevelt, Theodore, 17 Rosenthal, Ben, 82 Rosenthal, Joe, 98, 105 Rossi, Angelo, 69 royalties. See oil royalties rule of capture: applied to oil extracted from under private lands, 15–16, 216n1; competitive production practices encouraged by, 16, 18, 64 Ryan, Panama Refining Company v., 148 Sacramento Bee: on Burke’s charges of misconduct by state officials regarding oil issues, 99; on Burns bill on oil royalties from tidelands oil, 84; denounced prohibition on diverting highway funds, 200; on importance of tidelands oil issue, 90; on oil lobby in Sacramento, 89; on tidelands oil legislation, 92 Safford, Charles, 39 sales taxes, gasoline exempt from, 187–88, 269n22, 270n23 Samish, Arthur, 97–98 San Francisco Chronicle: on diversion of gas tax revenues, 190–91, 192, 193, 194, 272n38; on federal land withdrawal’s effect on oil conservation, 28–29; lobbied for Proposition 4, 87; and lobbying for leasing bill, 35–36, 221n22; on misconduct by state officials regarding oil issues, 98–99; on overproduction and regulation of oil industry, 119, 120; on slanted drilling at Huntington Beach, 71; on state system incorporating local roads, 185–86; on tidelands oil drilling, 59, 61; on voluntary curtailment, 129, 152 San Francisco Examiner, 173, 200 San Joaquin Valley: federal lawsuits to regain oil lands of, 20–28, 218n17; joint control of oil lands in, 23, 54; oil prospecting in, 18(fig. 1), 27 (fig. 2); yield from oil fields of, 29, 113, 220n38. See also specific oil fields

305 Santa Barbara County, coastal oil drilling in, 56–62, 77 Santa Fe Springs field: and California natural gas conservation statute, 122, 132; competitive production practices in, 64; federal lawsuit on overproduction in, 148; voluntary curtailment of production in, 129, 130 Santa Monica: beach at, 62, 96(fig. 9); and Stone v. Los Angeles, 62, 77 scandals: state management of tidelands oil, 97–100, 105–6, 242(n106); Teapot Dome scandal, 46–49, 48 (fig. 5), 225nn79–80, 82 Schechter Poultry Corporation v. United States, 148 school land grants, 54, 227n3 Seawell, Emmett, 102(fig. 10) Shadle, Webb, 75, 235n23 Sharkey, William R., oil control bill, 136–38, 141–45, 253n16, 256n48 Sherman Act (1890), 112, 126 Shoreline Planning Association, 88, 95 Short, Frank, 32, 34, 53, 226n89 Signal Hill field, 64, 115(fig. 12), 129 Sinclair, Harry, 46, 49 Sinclair, Upton, 80–81, 85 Sinnott, Nicholas, 39 slanted drilling: beaches protected by, 78, 83; Burns bill in support of, 83–84; by trespassers at Huntington Beach, 70–78, 83–84; Proposition 4 on, 87–88 Smith, Felix, 142 Smith, George Otis: and Kettleman Hills conservation plan, 124, 125, 126, 132; and private claims to federal oil lands, 17–18, 19 Smith, John, 151–52 Smoot, Reed, 34, 40 Snyder, Bert B., 176 Southern Pacific Company, United States v., 23, 218n17 Southern Pacific Railroad Company: federal suits to regain oil lands of, 20–23, 218n17; and naval oil reserves, 23, 45–46; political influence of, 160 Spry, William, 40 Standard Oil Bulletin: on Huntington Beach tidelands drilling, 74; on natural gas conservation, 121; on new discoveries of oil, 117; on 1921 surge of oil production in California, 113; opposed repaying highway bonds with gas tax revenues, 185

306 Standard Oil of California: advocated cooperative action to solve overproduction problem, 118, 119–20; allied with beach protection and development groups, 4, 86–87, 95; automobile tourism envisioned by, 165, 263n20; and Burns bill on oil royalties from tidelands oil, 83, 84; called for government action to boost low prices, 117–18; crude oil stored by, 114, 117; Huntington Beach tidelands drilling by, 64–65, 65(fig. 8), 66, 67, 68, 69, 77, 82; and Kettleman Hills conservation plan, 124, 126, 127, 132; and Merriam-Olson struggle over Huntington Beach tidelands drilling, 89–93; and Mineral Leasing Act (1920), 32, 42, 43; and natural gas waste at Kettleman Hills, 123; and naval oil reserves, 23, 46; and Sharkey bill, 142, 143, 253n16, 256n48; and slanted drilling at Huntington Beach, 70, 74, 75; as statewide price-setter and curtailment enforcer, 130, 149–50 Standard Oil Trust, 112, 119–20 Stanford, Leland, 23 Stanley, C.C., 136 state governments, scholarship on economic development and, 3, 10, 212n4, 214n16, 215n18. See also California state government Sterling, Ross, 142 Stevenot, Fred, 125, 142 Stevens, C.R., 141, 143 Stockburger, Arlin, 75, 98, 242n106 Stockwell, Marvel, 199, 267n74 Stone, Lewis, 62; Lewis Stone v. Los Angeles, 62, 77, 97 Storey, H.M., 246n20 streetcars, 160; shift from, to motor vehicles, 159–60, 165; taxation of, 174–76, 175(fig. 19), 266nn50, 55 Sturzenacker, Carl, and State Lands Division scandal, 98, 99, 100, 103, 105, 235n23, 242n106 Submerged Lands Act (1953), 54 Summerland oil field, 55(fig. 6) Surrey, Stanley, 268n7 Sutro, Oscar: on future of oil industry, 246n20; and lobbying for leasing bill, 34, 41; on McMurtry claims, 219n30; on overproduction, 120; on preferential leases for claims for relief from Taft withdrawal order, 223n59; and Sharkey bill, 256n48 Swing, Ralph E., 90, 192

Index Taft withdrawal order: claims for relief from, and leasing bill, 37–38, 41–42, 223n59; and conservation, 28–29; court rulings for/against, 24, 28; and Pickett Act, 25, 27; private claims to federal oil lands removed by, 19, 29 Tallman, Clay, 219n30, 226n89 taxation: benefit theory of, 163–64, 167–68, 181, 195–96, 198, 262nn15–16; policies on, as building block of California oil economy, 5–6; of railroads, 176–79; of streetcar system, 174–76, 175(fig. 19), 266nn50, 55; tax assistance for highways, 178, 178(fig. 20), 266n62 taxes: on diesel fuels, 193; evasion of, for tidelands oil income, 228n21; gross receipts, 188, 270n24; “in lieu,” on automobiles, 189, 270n26, 271n27; per barrel, on oil production, 10, 81, 106, 204; sales, gasoline exempt from, 187–88, 269n22, 270n23. See also gasoline taxes Teagle, Walter, 138 Teapot Dome scandal, 46–49, 48(fig. 5), 225nn79–80, 82 Termo Oil Company, 71, 73, 99, 232n65 Texas: model legislation of, 136; regulatory measures in, 113, 134, 152 tidelands, 54; Olson-Merriam struggle over Huntington Beach, 88–93; scandal over state management of, 97–100, 105–6, 242n106. See also coastal oil drilling Titus, Louis, 34 toll roads, 180 Touring Topics, 165, 182 tourism, automobile-linked, 165, 263n20 Towne, Charles, 32, 226n89 transportation industry, history of relationship between government and business in, 10, 215n18. See also motor vehicles; railroads; streetcars trespassers, oil companies as, 27, 219n35 Turner, Frederick Jackson, 2 United States Geological Survey (USGS), reforms of petroleum lands policies urged by, 17–19 United States, Schechter Poultry Corporation v., 148 United States v. California, 54 United States v. California Midway Oil Company, 26, 219n30 United States v. McCutchen, 27 United States v. Midway Northern Oil Company, 27, 28, 220n36

Index United States v. Midwest Oil Company, 24, 28 United States v. Southern Pacific Company, 23, 218n17 U.S. Bureau of Public Roads, 189–90 U.S. Department of Agriculture, highway funds withheld from states by, 189, 190 U.S. Department of the Interior: Central Proration Committee production code, 144, 145–47, 150; curtailment of petroleum land leasing by, 45, 119, 224n73, 228n12; Kettleman Hills conservation plan, 44, 123–27, 132, 249n65, 250n78; and San Joaquin Valley 1921 oil field strike, 44 U.S. Department of Justice, lawsuits by, to regain federal control of oil lands, 20–28, 218n17 user financing: advantages of, 170–73; attempts to reallocate revenues from, 182–85, 267n7, 268n10; benefit theory of taxation justifying, 163–64, 167–68, 181, 195–96, 198, 262nn15–16; government subsidies for highways replaced by, 161–62, 162(fig. 15), 263n7; highway costs covered by, 181, 267n74; highway system expansion resulting from, 179–80; history of origin of, 166–68, 263n27; and shift from mass transit to motor vehicles, 179–81. See also gasoline taxes U.S. Supreme Court: Elk Hills oil lands decision of, 21, 22; upheld California natural gas conservation statute, 128, 132; upheld constitutionality of Taft land withdrawal, 24. See also specific legal cases Utt, James B., 73, 105 Vandegrift, Rolland: and coastal leases, 105; favored repaying highway bonds with gas taxes, 183–84, 267n7; fought against Huntington Beach tidelands drilling, 71–74, 76, 233n78; on state income from oil royalties, 82

307 Vaqueros Major Oil Company, Bolsa Land Company v., 97, 105 Vehicle License Fee Act, 270n26 Venice, coastal oil drilling in, 62, 63 (fig. 7), 77 Ventura field, 129, 132–33, 139, 144 voluntary curtailment: after National Industrial Recovery Act declared unconstitutional, 149–51; after Sharkey bill defeat, 144–45; oil industry’s statewide program of, 128–32, 133, 250n82, 251n98 Wagy, Earl, 118 Wardman, A., 143 Waters, Frank, 89 Webb, Ulysses S., 57–58, 62, 66, 71, 73, 76, 77 Weeks, John, 34, 53 Weil, A.L., 123, 136 Wells, J.B., 153–54, 154 Welsh, Ralph, 91, 92 West, Nathaniel, 84 White, Richard, 7 Wilbur, Ray Lyman: called for interstate oil compact, 135; and Kettleman Hills conservation plan, 123–27, 132; and permits for federal oil lands under 1920 Mineral Leasing Act, 45, 119, 224n73, 228n12 Wilmington field: control of tidelands in, 58, 93; discovery of, 89; and oil production controls, 151; petroleum deposits in, 54 Wilshire Oil Company, 148 Wilson, Woodrow, 37 Wisconsin, government of, and lumber industry, 3 Wood, Fred, 98, 99, 100 Woodring, Harry H., 135 Work, Hubert, 117, 202 World War I, and relief for oil land claimants, 37 Worster, Donald, 8 Wright, Frank, 83, 191 Wright, Gavin, 2 Young, Clement C., 57, 59, 60, 78, 128

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