James B. Duke: Cigarettes and Power

    Despite his dominance of two major industries in the South, very few people have probably heard of the name James Buchanan Duke. It is unclear why the man for whom Duke University is named and who monopolized the tobacco industry and then took that wealth to invest in hydroelectric power soon dominating that industry throughout the South does not even merit a footnote in the history books. However, his importance to the southern tobacco industry and electric infrastructure is indisputable.

James B. Duke
Wikipedia

     James Duke’s keen businesses sense took his father, Wash Duke’s, tobacco firm and turned it into the American Tobacco Company (ATC) making him one of the wealthiest men in the United States. His success in tobacco came first through acquiring and improving two of James A. Bonsack’s rolling machines and second through a mass advertising campaign. His acquisition of the Bonsack rolling machine allowed him to mass produce quality rolled cigarettes, reduce labor costs, meet the increasing demands, and eliminate his competition.[1] Additionally, to maintain the demand for Duke brand cigarettes, James Duke spent around 20% of his sales on in-house advertising.[2] Trading card sets used sex appeal, adventure, and manliness, advertisements were included in trade magazines, and eventually billboards and wall paintings were employed to sell ATC products. Success led him to develop a trust with five other tobacco companies and, after failing to destroy it, into a partnership with England’s Imperial Tobacco Company. ATC dominated between 71%-96.1% of the tobacco market and was one of the most powerful companies in the United States by 1907.[3]

Isabella Terrise from the Actors and Actresses Series

Card Number 319

Duke Sons & Co., www.metmuseum.org

    Unfortunately, for Southern tobacco growers, the creation of this trust was disastrous. There was little incentive for ATC companies to pay high dollar for the grower’s tobacco leaving them indebted and bankrupt.[4] North Carolina law also placed an excise tax and a fee of $5000 on any company or individual selling direct to consumer. The tobacco growers had little choice but to sell their crop for what the ATC trust offered. This led to the Tobacco Wars between 1904-1909, which included two different disputes – The Black Patch Tobacco Wars and the Burley Tobacco Strike. Farmers throughout Kentucky and Tennessee attempted to band together to withhold their black tobacco and burley tobacco from sale until ATC paid 18-20 cents a pound. The fight against the ATC led to a fight among the growers themselves. For farmers who continued to sell to ATC, “Night Riders” destroyed tobacco crops, threatened, and committed violence. While the Black Patch efforts were an abject failure, the Burley strike resulted in short term success as the ATC’s burley crop dwindled to dangerously low levels forcing them to give into the striker’s demands for two years.[5]

H.A. Vivian, "How Crime is Breeding Crime in Kentucky," New York Times, 1908.
The Tobacco War

    In 1911, the Supreme Court ruled that ATC violated the Sherman Anti-Trust Act constituting a “restraint of trade…and an attempt to monopolize…”[6] and Duke was forced to break it up. Duke expressed his incredulity at the ruling by challenging the government’s definition – or lack thereof -- of a trust. He held that they broke up his business because it was big, not because it engaged in unethical business practices designed to bury his competition and rule the southern tobacco farmer. As with Rockefeller, Duke saw his monopoly as a stabilizing influence keeping prices low, employing thousands of people, and building the southern economy.[7]

"To End the Tobacco Trust," The Baltimore Sun, Oct. 15, 1911

    Despite the break-up of his tobacco conglomerate, James Duke was a wealthy man, and a new enterprise caught his attention: hydroelectric power. Introduced to the possibilities of by Dr. W. Gill Wylie, Duke believed electricity was the wave of the future. In 1905, James and his brother, Ben, incorporated the Southern Power Company (SPC) in New Jersey and then acquired Wylie’s Catawba Power Company’s outstanding stock, land, and water rights eventually taking over several other corporations. The Duke brothers had “first-mover” advantages, and by 1920, over 94 percent of all electricity flowed through transmission lines produced by hydroelectric plants under Duke’s control.[8] Even though North Carolina claimed a “regulatory board” to oversee the actions of this utility, it is more aptly considered a “supervisory board” and the North Carolina government was content with SPC’s actions even providing the company with eminent domain power.[9] North Carolina was pulled into the modern era.

    Eventually, Duke met his match in the Public Service Company located in Salisbury, NC. When he attempted to raise their rates, they balked and refused to pay. Duke threatened to shut off all power to the city causing an economic collapse. The company sued and the case was heard in Guildford County by Duke’s longtime nemesis, Justice Walter Clark. Clark ruled that the public nature of Duke’s company and the powers given to it by the state “subjected it to public control” and required that rate changes be uniform and “fair and reasonable.” It did not, however, break Duke’s market dominance. Duke appealed, lost, and then begrudgingly accepted the changes using the regulations to his advantage as most understood North Carolina depended on Duke money to maintain its power infrastructure. In 2012, Duke Energy merged with Progress Energy and is now the largest regulated utility company in the United States.

    As with all the major industrialists in the late 19^th-early 20^th centuries, Duke’s legacy is mixed. He used his vast wealth to fund Duke University, build schools and hospitals, and invest in the South’s infrastructure. Conversely, his American Tobacco Company played a role in impoverishing southern tobacco growers. He brought modern electricity to the South but controlled its access. Perhaps, as one newspaperman wrote, the Catawba River had always been there and it was Duke who harnessed it with his money and risk, why should he not reap the rewards?

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[1] Alfred D. Chandler, Jr., “Scale, Scope, and Organizational Capabilities,” in Scale and Scope: The Dynamics of Industrial Capitalism (Harvard University Press, 1990), 26, ProQuest Ebook Central.

[2] Patrick G. Porter, “Advertising in the Early Cigarette Industry: W. Duke, Sons & Company of Durham,” The North Carolina Historical Review 48, no. 1 (1971): 31-43, https://www.jstor.org/stable/23518222; For further discussion on the importance of specialized marketing in large firms, see Chandler’s “Scale, Scope, and Organizational Capabilities” in Scale and Scope.

[3] Tracy Campbell, The Politics of Despair (University of Press of Kentucky: 1993), 24, https://www.jstor.org/stable/j.ctt130jq0q; The percentage of the market controlled was based on tobacco type. 79.7% of plug and twist products, 71.2% of all smoking tobaccos, and 96.1% of all snuff products.

[4] Tracy Campbell’s Politics of Despair discusses this issue in depth; For a more personal story regarding the impact of Duke’s monopoly on individual tobacco growers see Wendell Berry’s “It All Turned on Affection,” The Progressive 76, no. 8 (2012): 16-21, ProQuest.

[5] For further study, Tracy Campbell’s Politics of Despair provides an in-depth study of both the Black Patch Tobacco War and the Burley Strike not only discussing ATC’s complicity, but what led to the organization of the growers and why they ultimately failed to succeed.

[6] United States v. American Tobacco Company, 221 U.S. 2016 (1911), in Justia US Supreme Court Center, https://supreme.justia.com/cases/federal/us/221/106/

[7] James B. Duke, “Politics and Prosperity,” The North American Review 201, no. 713 (1915): 521-529, https://www.jstor.org/stable/25108425.

[8] Chandler, “Scale and Scope,” 34-35; John James Kaiser, “Clark v. Duke: The Struggle for Water Rights and the Future of North Carolina’s Public Energy Policy,” Southern Cultures Electric 20, no. 3 (2014): 126, 130, doi:10.1353/scu.2014.0027.

[9] For further information on difference between supervisory and regulatory commissions, see Robert Bradley and Roger Donway’s “Reconsidering Gabriel Kolko: A Half-Century Perspective,” The Independent Review 17, no. 4 (2013): 561-76.

Bibliography

Berry, Wendell. "It All Turns on Affection." The Progressive (Madison) 76, no. 8 (2012): 16-21.

Bradley, Robert and Roger Donway. "Reconsidering Gabriel Kolko: A Half-Century Perspective." The Independent Review 17, no. 4 (2013): 561-76. ProQuest.

Campbell, Tracy. The Politics of Despair. University of Kentucky Press, 1993.

Chandler, Alfred D. "Scale, Scope, and Organizational Capabilities." In Scale and Scope: The Dynamics of Industrial Capitalism, 14-46. Harvard University Press, 1990.

Duke, James B. "Politics and Prosperity." The North American Review 201, no. 713 (1915): 521-529. https://www.jstor.org/stable/25108425.

Kaiser, John James. "Clark v. Duke: The Struggle for Water Rights and the Future of North Carolina's Public Energy Policy," Southern Cultures 20, no. 3 (Fall 2014): 123-136. doi: 10.1353/scu.2014.0027.

Porter, Patrick G. “Advertising in the Early Cigarette Industry: W. Duke, Sons & Company of Durham.” The North Carolina Historical Review 48, no. 1 (1971): 31-43, https://www.jstor.org/stable/23518222

"To End Tobacco Trust: Method of Dissolving the Company Made Public. Four Corporations Planned." The Baltimore Sun, Oct. 15, 1911, ProQuest Historical Newspapers.

Vivian, H.A. "How Crime is Breeding Crime in Kansas." New York Times, July 26, 1908. ProQuest Historical Newspapers.