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John Arbuckle: Entrepreneur, Trust Buster, Humanitarian

MAY 01, 1990 by CLAYTON COPPIN

Clayton A. Coppin is a Research Consultant at the Center for the Study of Market Processes, George Mason University, Fairfax, Virginia. An earlier version of this article, with full footnote citations, appeared in the spring 1989 issue of Market Process, published by the Center for the Study of Market Processes.

The importance of the entrepreneur to the spectacular growth of the American economy in the late 19th and early 20th centuries is now widely understood. The contributions of John D. Rockefeller, Andrew Carnegie, and J. F. Morgan are well known.

There are other entrepreneurs, however, whose names and achievements are not so familiar. Among the forgotten is John Arbuckle, whose recognition as an outstanding entrepreneur and humanitarian is long overdue. He deserves equal recognition as one who fought against monopolistic practices, and who relied on his own business skills rather than government regulation to compete.

John Arbuckle was born in Allegheny City, Pennsylvania, near Pittsburgh, in 1838. His father, Thomas Arbuckle, immigrated to western Pennsylvania from Scotland as a young man and became the successful operator of a cotton mill and a small grocery and spice business. John attended public school in Allegheny and Pittsburgh, and he attended Washington and Jefferson College for a short time. But formal education held little appeal for him. He was more interested in business, so he dropped out of school to enter the grocery business with his brother Charles.

John and Charles Arbuckle soon expanded into the coffee roasting business. At the time, coffee was roasted and stored in bulk. The grocer would scoop out the amount desired by the customer and place it in a smaller package. This method had dis-advantages-coffee left open in the air after roasting deteriorated rapidly; high quality and low quality were mixed together; it was easy to adulterate; the grocer’s scale wasn’t always reliable. The Arbuckles found a way to avoid these problems. They roasted coffee and wrapped it in individual packages of uniform weight and quality. They could sell different grades of coffee at different prices, and guarantee the weight and quality of their brand-name product.

Their business grew quickly, and in 1871 they moved to New York City and formed the Arbuckle Brothers Company. Business continued to expand, and at one point they employed 50 women just to wrap the coffee. John felt that manual wrapping was inefficient and that operating costs were too high. He saw the packaging process as a bottleneck and sought a way to eliminate it. With the aid of a draftsman and a machinist, he invented a machine that would fill, weigh, seal, and label the bags in one continuous operation. Once installed, the machinery increased the production tenfold, doing the work of 500 wrappers.

With the increased production, the Arbuckle brothers expanded their distribution, improved their procurement system in coffee-producing countries, and began an aggressive advertising campaign. They quickly developed a national market and became the dominant coffee company in the United States. Particularly popular was their Ariosa brand, which was a coffee bean glazed with a sugar and egg coating. The egg was supposed to cause a quick settling of the grounds, and the sugar added sweetness to the already high quality of the coffee. Whatever the virtues of Ariosa, the product’s reputation for consistency and quality led to further expansion of market share.

Seeking a New Market

Having won much of the coffee market, the brothers sought a new market for expansion. John Arbuckle developed and patented a machine that automatically filled and sealed sugar bags. They made an arrangement with Henry O. Havemeyer, who controlled the American Sugar Trust, to produce sugar in two-pound bags. Once again they found a ready market for their packaged goods, and made substantial inroads in the retail sugar market.

Charles Arbuckle’s death in 1890 didn’t slow the company’s growth, but Henry Havemeyer was soon to try. Havemeyer had become the leading force in the American sugar refining industry, driving all but a few small companies out of business. Havemeyer realized that if profits were too high it would invite new entrants into the field. He attempted to avoid this by keeping prices reasonable, by making rebate agreements with the railroads, and by arranging for price maintenance with wholesale grocers.

Havemeyer kept ahead of the competition for several years until a conflict erupted with Arbuckle. What exactly led to the break isn’t known. Perhaps Arbuckle wanted a lower price because of his volume buying, or, more likely, Havemeyer, seeing Arbuckle as a growing competitor, raised Arbuckle’s price for refined sugar. Whatever the exact cause, Arbuckle announced his intention to build a sugar refinery. Havemeyer had no intention of allowing new competition in the sugar refining business. The resulting battle would become one of the legendary competitive struggles in American business history.

Arbuckle broke ground in Brooklyn in January 1897 for his sugar refinery, but it would be nearly two years before it was producing. Meanwhile Havemeyer decided to retaliate by entering the coffee business. He purchased controlling interest in the Woolson Spice Company in Toledo, Ohio, and immediately started lowering prices. Arbuckle responded and the price quickly dropped untilboth companies were selling below costs.

The battle was not to be fought on the price front alone. Havemeyer advertised heavily, obtained rebates from railroads, and attempted to keep wholesalers from handling Arbuckle’s product. International shipping was dragged into the battle when Havemeyer managed to obtain shipping rebates. Arbuckle responded by buying his own ships. Havemeyer made inroads into the coffee market, but at a very high cost.

Havemeyer was unable to stop Arbuckle from entering the sugar business and, when Arbuckle’s refinery started producing in late 1898, the price war extended to sugar. Both companies were now losing money in sugar and coffee. Havemeyer was receiving rebates from the railroads for the sugar he shipped as well as on what Arbuckle shipped, and he attempted to control the wholesalers by threatening to break the price maintenance agreements with them if they carried Arbuckle’s sugar.

Havemeyer would seem to have had the advantage in the sugar fight. However, although both companies were selling at a loss, Havemeyer’s greater market share led to higher losses. In addition, since Arbuckle alone sold sugar in small packages, he was able to obtain a higher price per unit and suffered smaller losses. Arbuckle challenged Havemeyer’s control of the wholesalers by selling directly to retailers, and eventually forced the wholesalers to cooperate to avoid being bypassed. Arbuckle gained another advantage by hiring Joseph Stillman, a former employee of Havemeyer and the leading expert on sugar refining in the country. Stillman designed and built Arbuckle’s refinery using the latest technology, which produced a superior product at a lower cost.

The End of the War

The battle over sugar couldn’t continue indefinitely with the size of the losses both companies were sustaining. No record has been found of a settlement, but sometime in 1901, after Havemeyer and Arbuckle held a private meeting, the price war in sugar ended. Havemeyer accepted Arbuckle’s presence in the sugar refining business and made no further attempts to drive him out. To recover from the loss, however, both companies substantially increased their prices, which quickly led to additional entry, most notably by Claus Spreckels. Havemeyer’s companies would continue to hold a strong market share, but the days of his domination of the industry were over.

Arbuckle was more clearly the victor in the coffee battle. He had managed to obtain a few shares of the Woolson Spice Company and through a stockholders’ suit forced the company to stop selling at a loss. Prior to this, however, an interesting episode emerged during the battle in Ohio. In early 1901, Edward Beverstock, a food and dairy inspector in Toledo, charged a retailer selling Arbuckle’s Ariosa coffee with violating Ohio’s pure food law. Arbuckle was charged with adulterating his coffee beans by adding the egg and sugar glaze for the purposes of increasing the weight and covering up inferiority. Arbuckle had attempted to meet all requirements of the law, carefully labeling his product and having it analyzed for purity. Who or what was behind the charges isn’t known, but the timing and subsequent events suggest Havemeyer might have been involved.

The trial was held in Toledo, and in spite of expert testimony for the defense from scientific witnesses such as Harvey Washington Wiley, Chief Chemist for the U.S. Department of Agriculture and the nation’s leading advocate of pure food, the jury found Arbuckle guilty. The appeals court reversed the conviction. They found that the jury had been improperly selected, that individuals closely associated with Inspector Beverstock and his son had been placed in the jury pool, and that the judge had erred in not allowing the defense to challenge the way the jury was selected. The Appellate Court also found that Ariosa coffee wasn’t covered by the statutes under which the original complaint had been made. Arbuckle was cleared of all charges. The numerous irregularities in the trial would seem to indicate that more was involved than protecting the consumer in Ohio.

While Arbuckle clearly entered sugar refining for commercial reasons, he objected to organizations which were formed to obtain monopoly profits. He did not, however, believe that government interference was the solution. He preferred to call on his own abilities and finances to challenge monopoly control of a market. His entry into these markets resulted in the breakup of the monopolies without government interference.

The fight with the sugar trust was the most spectacular of Arbuckle’s challenges to monopolies, but not the only one. Earlier he had challenged and successfully overthrown the towing monopolywhich controlled traffic on the Erie Canal. In 1901, as his fight with Havemeyer wound down, Arbuckle turned his attention to the tugboat monopoly on the Hudson River. Deciding that the rate of $50 for a tow from New York to Albany was excessive, he entered the market. The price of towing quickly dropped, reaching a low of $5. One barge owner reportedly said, “They’ll be giving trading stamps next.” Another barge owner claimed that he had been offered money to have his boat towed up the river. The final outcome was a permanent lowering of towing costs.

John Arbuckle’s fights against trusts demonstrate the power of the entrepreneur to challenge those who would restrict entry into markets. He didn’t seek government intervention and regulation of the market. There is a great difference between an entrepreneur who breaks up a trust by open competition, and a businessman who tries to hamper his competitors by complaining to the Department of Justice or the Federal Trade Commission. The entrepreneur provides a public service by improving a product or lowering prices. The complainer usually hampers the efficiency of those he cannot compete with in the open market. Today, over two-thirds of antitrust cases in the United States are initiated by competitors who cannot meet the superior efficiency of their rivals. Far better that they would follow the example of Arbuckle, who used his inventive, organizational, and commercial abilities to challenge those who wanted to limit competition.

Arbuckle as Philanthropist

However, there was more to John Arbuckle than just his business accomplishments. He also had a remarkable record as a humanitarian. For many years in Brooklyn he was a member of the congregation of the Plymouth Church headed by Henry Ward Beecher, the noted reformer and the brother of Harriet Beecher Stowe. He shared Beecher’s concern for his fellowmen, and he brought to his humanitarian concerns the same genius he displayed in his commercial activities.

Arbuckle’s inventiveness involved him in several efforts to help New York City’s needy. Convinced that overcrowding, bad air, and the hustle and bustle of city life were bad for health, he financed several projects to help people escape from city life. The most fanciful of these was the outfitting of several ships with rooms, recreational facilities, and dining rooms, then towing them out to sea at night. The plan was to give people who couldn’t otherwise afford to escape from city life the benefits of fresh ocean breezes and a sound diet. The scheme was short lived, but the ships, tied to the docks, continued to be used for charitable purposes providing shelter, low-cost meals, and job training sites to the needy for many years. One boat was converted into the Riverside Home for Crippled Children.

On Lake Mohonk north of New York City he built a retirement colony for older citizens who needed assistance, and a hotel for those who needed fresh air and nutritious food. He also built hotels for workers who needed to be out in the open, and hotels for the handicapped to learn a trade. Arbuckle seldom gave to established charities, preferring to experiment with his own ideas.

As a result of the Ariosa coffee case, Arbuckle became a friend of Harvey W. Wiley and developed an interest in the pure food movement. His interest, however, was not to support regulation, but to try to establish a company to produce pure and nutritious food with Wiley as the company’s head. Arbuckle several times made offers to Wiley to finance the business, but Wiley never took up the offer. On Wiley’s suggestion, Arbuckle did establish an independent sugar testing laboratory to monitor the quality of sugar in the American market.

Arbuckle, even in his old age, was interested in new and inventive ideas and willing to take on new ventures. Following the end of his fight with Havemeyer, Arbuckle became interested in the ship salvage business. He was attracted to the work of two Canadians, R. O. King and William Wotherspoon, who developed a method for using compressed air to refloat ships. He contacted them and began salVaging ships that others had regarded as impossible to refloat. He offered to go to Havana Harbor and raise the battleship Maine, but his offer was refused. He wanted the government to establish a warning system so that a ship in distress could call for help and salvage vessels could rush to its aid, but the government wasn’t interested. Arbuckle proceeded to establish his own system and rescued several ships.

Arbuckle later spoke out strongly against the duties on sugar, arguing that the duties were only for the benefit of the sugar beet interests and at the expense of all other Americans. He pointed out that sugar was used by the rich and poor alike, and the added expense was felt most by the poor. To charge duties on sugar, Arbuckle argued, was a case of the government literally taking candy from babies. In 1911 he announced his intention to fight the duties as soon as his health improved. He had for many years suffered from malaria, which frequently incapacitated him. His condition deteriorated, and on March 27, 1912, he died. With better health, however, he might have left an even more remarkable record.

This article has explored some of the contributions John Arbuckle made to building the American economy. His innovations in packaging and marketing coffee and sugar marked a significant change in the retail food market. This was more than a simple technological improvement; it was a reordering of the market. It changed not only the production process, but also the way the product was distributed and sold.

Arbuckle’s competitive struggles with the established market system also demonstrate how the entrepreneur can change the existing order. Henry O. Havemeyer, through his American Sugar Trust, was able to control competition in the older order, but he lost to Arbuckle because of the innovations Arbuckle brought to the competition. The career of John Arbuckle is more than the story of an entrepreneur; it is a demonstration of the process of change in the market caused by entrepreneurship.

Arbuckle’s humanitarian endeavors contained the same type of innovative activity as his commercial enterprises. Little attention is paid to the importance of the entrepreneur in providing humanitarian services. It is assumed that the entrepreneur is motivated by personal gain, and, therefore, the entrepreneurial process is not important in providing humanitarian services. Arbuckle’s efforts would suggest that improvements in humanitarian services can benefit from the entrepreneurial process. It may well be that improvements in humanitarian activities require the same type of innovativeness and new combinations for improved efficiency that economic growth requires.

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May 1990

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