The Whiskey Trust

When it comes to the history of American whiskey, there is no more important topic than that of the Whiskey Trust. In fact, American whiskey history should probably be divided into 2 eras: Pre-Whiskey Trust and Post-Whiskey Trust. Even the staggering effects on the whiskey trade caused by Prohibition would not have been as impactful without the machinations of the Whiskey Trust. The story of the Whiskey Trust, as described by whiskey historians, often stops in 1895 when the company was dissolved, but it does not end there. Each iteration of the Whiskey Trust became more influential and impactful than the last. Its legacy lives on with us today and is reflected in the state of modern America’s whiskey industry.

The concept of a “whiskey trust” began to congeal after the Civil War when the excise tax returned. America’s industrial revolution was well underway when speculation within the liquor industry began to grow unchecked. By the end of the war, production of spirits grew to be 3x higher than the rate of consumption. To be clear, this overproduction was not of aged spirits, but of un-aged high wines and neutral grain spirits which could immediately be sold for quick profit to the rectifying market*. This excess of less expensive products flooding the market were the result of newly constructed high-capacity distilleries using modern column stills to increase efficiency and output. While these products were not directly competitive with the aged whiskey market, the flooding of the market with inexpensive rectified whiskeys could not help but affect overall whiskey sales. The overproduction was becoming an obvious problem for western distillery owners, so they attempted to create volunteer “pools” in which distillery owners could collectively reduce their output and steady the market.

In the 1870’s a man named H.B. ”Buffalo” Miller formed the “Peoria Pool” which was composed of midwestern distillers. Miller’s efforts to curb overproduction and regulate prices were short-lived due to a draught-induced grain shortage in Europe which allowed US producers to sell excess liquor abroad. Once things normalized a few years later, the overproduction problem inevitably returned because the underlying problem had never been addressed. The endless stream of profit that investors were making in the liquor trade fueled the greedy markets. By 1875, the “Whiskey Ring Scandal” exposed how this greed had fostered corruption in government that went all the way to the office of the President. Officials had been colluding with distillers to siphon off millions of dollars from the Department of Internal Revenue’s excise tax collections. Instead of curbing the appetites of wealthy investors for profits from the liquor industry, these corruptions seemed to encourage it.

One of the men to profit from the discord was Joseph B. Greenhut. Greenhut, who had worked his way up in Chicago’s distilling trade to become secretary and treasurer at the Keller Distilling Co. after the war, was hired by Nelson Morris in 1878 to run his cattle feeding business in Peoria. Nelson Morris was a wealthy and influential meat packer in Chicago with a monopoly on the cattle stocks that were fed on Peoria’s abundant stillage slop. Just three years after hiring Greenhut, Morris, Greenhut, and their partner, John H. Francis, built the Great Western Distillery in Peoria. Upon completion, it was publicized as being the largest distillery in the world. While the Peoria pools in the early 1880s were limiting production to about 40% capacity, the owners of the Great Western Distillery were making money on two fronts- liquor and beef cattle. This “cash cow” (pun intended) would inspire Greenhut in the years to come…   

Like coal, oil, and iron, distilling was very big business, and the big businessmen all wanted a piece of the action, even as the market continued overstep its capacity. By 1882, John D. Rockefeller’s Standard Oil Trust had presented the large distillers with a solution. By creating a trust, they could control the market by owning stock in everyone else’s companies, thereby placing themselves in a central position where they could dictate all aspects of the trade. And they were not alone in this monopolistic vision! The country was awash in new trusts being set up for industries of every kind- from railroads to salmon canneries. If you can picture the wealthy men in suits, smoking cigars in leather chairs and sipping fine whiskeys while plotting away in dark, mahogany rooms…THIS is that era.

The 1880s marked a power shift within the American whiskey industry. The modern liquor trade, which had firmly established itself in the eastern cities after the Civil War, was moving west. Railroad expansion opened the American Midwest to trade, commerce, and a great westward migration of thirsty citizens. Though it may seem odd to a modern whiskey enthusiast to imagine St. Louis, Peoria, or Cincinnati at the epicenter of the liquor trade, it very much was…at the time. Those cities were booming with industrial growth. Cities like Peoria became production centers because of their ready access to cold, clean well water, an abundant supply of coal, and vastly improved access to railroad and river transportation. The huge distilleries being built there were conveniently located within the main corn producing region of the country. As all this change took place, Joseph Greenhut was able to harness the new power dynamic. He saw the potential in creating a trust modeled after Rockefeller. On May 10, 1887, a combine of 65 distilleries formed the Distillers and Cattle Feeders Trust.  

This new “Whiskey Trust,” as it became known, was formed with an initial capital of $30 million and based in Peoria, Illinois. Like Rockefeller’s Standard Oil Trust, the Whiskey Trust was overseen by nine trustees; Joseph B. Greenhut, Adolph Woolner and John H. Francis of Peoria; William H. Hobart, George K. Duckworth and Lewis H. Green of Cincinnati; Peter J. Hennessey of Chicago; William H. Corning of Cleveland; and Alfred Davis of Portsmouth, Ohio. Joseph Greenhut served as the elected president of the trust with Woolner as vice-prseident, Corning as second vice president, Hobart as treasurer, and George J. Gibson as secretary. To join the whiskey trust, you need only assign your distillery’s stock shares to trustees (i.e. give up control of your distillery) in exchange for cash or dividends. At first, it may have been profitable to participate as a member. The trust would overvalue your distillery and even allow the owner to stay on, though they were asked to produce at only 40% capacity. If a distillery did not join, the trust might move into another distillery nearby to disrupt their sales and undercut their prices. If a distillery continued to resist, scare tactics, threats and even force would be used. In one famous case, dynamite was employed (Shufeldt Distillery).

Let’s look at a timeline of the Whiskey Trust from its inception to its dissolution:

1861– Lincoln imposes excises taxes
1870’s– Buffalo Miller’s “Peoria Pool”
1875– The Whiskey Ring Scandal exposed
1881– The Western Export Association (pre-cursor to Whiskey Trust- a membership pool to limit production)
1882– The Standard Oil Trust is formed
1887– The Distillers and Cattle Feeders Trust, also known as the “Whiskey Trust” is formed
1888– The Whiskey Trust, feeling confident, raises prices on liquor
1890– Whiskey Trust offers 5% rebates to distributors and retailers that deal 100% with the Trust
-The Distillers and Cattle Feeders Trust incorporates to avoid trouble with the government and becomes the Distillers and Cattle Feeders Company on January 25.
– The Sherman Anti-Trust Act is approved on July 2.
– Meetings of wholesale liquor firms in New York City to discuss strategies for combatting the trust’s “tyrannical methods”. The Mutual Distilling Company is formed from Philadelphia, New York, and Baltimore interests to pool their recesses to build large, mutually beneficial distilleries closer to home.
1891– The Whiskey Trust promises a new and more efficient way to make alcohol through a new process, known as the Takamine Process, hiking its stock value.
-February 11, 1891- George J. Gibson, secretary of the Trust, is arrested in Chicago on charges of conspiring to blow up the Shufeldt Distillery, a distillery refusing to join the Trust. He resigned as secretary but remained on the payroll.
1892– The Trust lowers dividends, using surplus funds to buy more distilleries
– Shufeldt Distillery is acquired.
– Tax hike on spirits is proposed on liquor to go up from $.90 to $1.25. The Trust, which knows the hike is coming, will purchase large amounts of bonded whiskey at the lower price to inject the government with much needed revenue ($50 million, or close to $1.5 billion today) and be able to sell their whiskey at a $.35 per gallon profit.
1892– Pennsylvania and New York interests begin to invest in the building of large distillery facilities to combat the trust
1893
– Illinois sues the trust charging that it “exceeds powers granted by its charter, destroyed competition, and was repugnant to public policy”
1894– The Whiskey Trust controls 80% of the nation’s total production of spirits, 50% of which was made in Peoria, Illinois
– After years of secrecy, the Takamine process is put into production in December 1894 at the Manhattan Distillery in Peoria.
– A shareholders committee asks a federal judge to appoint a receiver for the Distilling and Cattle Feeding Company.
1895– The Illinois courts found the Distiller and Cattle Feeders Company’s practices unlawful, and the corporation was terminated and forced to dissolve.

The previous timeline follows the Whiskey Trust from its inception to its termination. This, however, was just the beginning! The company immediately reorganizes…

1895The American Spirits Manufacturing Company (ASMC) was formed under the laws of New York as the new face of the Distillers and Cattle Feeders Company.
– The Distillers and Cattle Feeders Company quit claimed its interest in 58 of its 65 distilleries to the receivers and the company reorganized.
– Bids were taken on the remaining 17 properties. Only one bid was given for $9,800,000 by the reorganization committee, under the name American Spirits Manufacturing Company (ASMC). The committee was found to hold 347,508 of the 350,000 Distillers and Cattle Feeders Trust’s shares.
-The New York World writes “The Whiskey Trust’s plan of reorganization is as unlawful as burglary.”
1896- The Spirits Distributing Company was organized under the laws of New Jersey by the Whiskey Trust to act as distributor for the products of their American Spirits Manufacturing Company. The ASMC understood that the real money was in distribution of raw distillate for compounding, not in distilling, and they used the Spirits Distributing Company to acquire brand assets and distribution networks to move their profitable blends, wines, rectified goods, etc. more easily.
– Eastern rye whiskey producers from Pennsylvania and Maryland meet at Coney Island and “agree” to shut down for a year to curb overproduction.
The Standard Distilling and Distributing Company was organized under the laws of New Jersey to manage the purchases of distilleries and distributing plants. The new “Whiskey Trust” was able, through the Standard Distilling and Distributing Company, to focus on buying large production facilities that were ideal distribution centers. While it also purchased large distilleries that it did not intend to utilize for production or distribution, it could, in purchasing the plants, rid itself of any legitimate competition. These three companies were the core of the new Whiskey Trust. Their assets controlled the distribution of rectified spirits in Peoria, Ohio, Indiana, etc., and the rum trade in New England, but they would need to gain control of America’s straight whiskey producers to truly control the market.
1897– The American Spirits Manufacturing Company sends representatives to Kentucky and begins to assemble the Kentucky whiskey interests into a combine.

At the end of the 20th century, overproduction, a slow market, and elevated grain prices created an excellent environment for opportunists to buy up distilleries that were struggling financially. The Whiskey Trust, which helped to create the problem in the first place, was quick to take advantage of the situation. Though they had been forced to dissolve their assets in 1895, they had successfully reorganized and shuffled those assets into new corporations that they would continue to manage. Nothing much had changed, but the company could now be managed in “government approved” manner. By 1899, the new Whiskey Trust managed to purchase 52 Kentucky distilleries and form a combine of “straight bourbon” producers that they could control. This became known as the Kentucky Distillers and Warehouse Company. (see timeline below)

1899- The American Spirits and Refining Company forms a combine, capitalized at $15,000,000.
– The Standard Distilling and Distributing Company forms a combine, capitalized at about $25,000,000.
February 3, 1899– The American Spirits Manufacturing Company organizes 90% of the Kentucky distillers into a combine called the Kentucky Distillers and Warehouse Company. Organized in the state of New Jersey and capitalized at about $32,000,000 (close to $1 billion in today’s money), this company would manage the Whiskey Trust’s assets in Kentucky and would represent their aged whiskey stocks (i.e. straight bourbon).
June, 1899
– The Whiskey Trust places newspaper articles describing a “Rye Whiskey Combine” being formed, capitalized at about $50,000,000.

The Whiskey Trust negotiated options to purchase Pennsylvania and Maryland’s rye distilleries in the same way they had the Kentucky distilleries. The Times Philadelphia described negotiations: “It is of the utmost importance to the success of the syndicate that it obtain control of the trade in Pennsylvania and Maryland, which is the most profitable. Heretofore the whiskey distilling interests in these two states have been entirely free from combinations and their superiority in the field has been unquestioned.” In early July, the trust was able to purchase the Hannis Distilling Company in Baltimore (Mount Vernon Pure Rye Whiskey among other brands) for $1-2 million. The purchase included shares of stock in a company that did not yet exist. However, that would soon change.

– Discussions of a general combine to form with a capital of $150,000,000. Newspaper articles describe a new company that would control the entire liquor industry.

On July 12, 1899, in Trenton, N.J., The Distilling Company of America was incorporated with an authorized capital of $125,000,000. It represented the consolidation of the following companies: The American Spirits Manufacturing Company, Spirits Distributing Company, Standard Distilling and Distributing Company, the Kentucky Distilleries and Warehouse Company, and only 1 of the 14 rye whiskey distilleries that they optioned to buy (Hannis Distilling Co. in Baltimore).

The new face of the Whiskey Trust was confident that more Pennsylvania and Maryland Pure Rye distilleries would soon join their ranks. Option deadlines to purchase several Pennsylvania distilleries (including -but not limited to- the Pennsylvania Pure Rye Distilling Co. in Eddington, Pa and the Moore & Sinnott Distillery in Gibsoton Mills, Pa.) ran out in early July. The distillery owners of the large pure rye whiskey distilleries refused to sell. The Whiskey Trust was forced to admit that their plans to create a company controlling the interests of America’s whiskey producers had failed. By 1902, the Distilling Company of America was amending its charter and decreasing its authorized capital stock from $125,000,000 to $85,000,000. The minority stake holders were demanding a probe into the company’s books, and the owners of the company’s stocks and bonds were demanding their yearly payouts. Later that year, a receiver was appointed to manage the company’s dissolution. The Distilling Company of America was restructured, and its stock transferred to form the Distillers Securities Company.

Figure 1- Asheville Citizen-Times (Asheville, North Carolina), June 6, 1899.

The Whiskey Trust rather brilliantly navigated the early 20th century. Though their plan to control America’s entire whiskey industry fell through when they failed to gain control of Pennsylvania and Maryland’s rye whiskey producers, they rallied. The Whiskey Trust controlled most of the liquor being produced in the country, but they understood that the real path to dominance lay in which properties they owned. The Whiskey Trust was strategic in their use of their properties, favoring those distilleries with both brand name recognition and superior distribution networks. They not only controlled the rectified whiskey market, they now controlled Kentucky’s straight bourbon market. The Bottle in Bond Act, which was passed in 1897 as they gained control of Kentucky’s aged whiskey stocks, bolstered the value of their assets there.

When the Food & Drug Act of 1906 was passed, there was a great deal of legal debate stirred up around the definition of whiskey. Kentucky distillers, as represented by the Whiskey Trust, sought the definition of whiskey to only include those high wine spirits that had been aged in wood. The Secretary of Agriculture under President Theodore Roosevelt, Dr. Harvey Wiley, who was the main author of the Food and Drug Act and the department’s chief chemist, explained that the Kentucky distillers were correct in their thinking. He explained that fusel oils, which were present in new make spirit, were a poison, but that after three years in wood, those fusel oils dissipated and the aged whiskey was then made safe for consumption. In 1907, Internal Revenue Order No.728 gave directions on how liquor was to be branded on labels. Only “straight whiskey” could be labeled as whiskey at all, and all other rectified products must be listed as imitation whiskey. The terms “imitation whiskey” and “compound whiskey” were being used to describe rectified products that had been stripped of fusel oils through re-distillation or charcoal filtering. Bottlers struggled to understand how their products were meant to be labeled and consumers struggled to understand what they were buying.

Chemistry data soon proved Dr. Wiley’s belief that barrel-aging removed fusel oils after three years was false, and that all the fusel oils remained. In fact, it was found that only their scent was reduced. Wiley quickly changed his tune and explained that fusel oils were not poison, but were now necessary for a product to be considered whiskey at all. He invented the word “congeners” to replace the term “fusel oils” and explained that these “congeners” were naturally occurring flavors that only high wines aged in wood could create. The legal representatives of wholesale liquor firms across the country attacked Wiley for his obvious favoritism and fickle disposition and appealed to President Taft to hear their side of the story. Taft served as a gauger for the Department of Internal Revenue before becoming a politician and was well acquainted with the whiskey industry which was unique in the upper echelons of government. He was able to see through Dr. Wiley’s assertions and understood that the rectifying market was not poisoning anyone any more than the bourbon market was. He separated the struggle for market dominance from the need for fairness in advertising and wrote the Taft Decision in 1909. While Taft did not define “straight whiskey” in so many words, he did explain that straight whiskey was “aged in charred wood” and that “the term ‘straight whiskey’ was well understood in the trade and well understood by consumers.” The term “straight”  favored bourbon makers because it had only been used to describe bourbon for about a half century. Rye whiskey had, since the early 1800s, been using the descriptor “pure rye,” but just as they accepted the term “bottled in bond,” they accepted the use of “straight” as well.

The years before and during Prohibition are often described as a low point for the Whiskey Trust, but I would argue the opposite. The company just continued to redefine and restructure itself as it had done in the past. Back in 1906, the Distillers Securities Company created the Industrial Alcohol Company to handle their industrial alcohol business. This business was very advantageous during the years of WWI when the need for industrial alcohol grew. When Prohibition went into effect, the Distillers Securities Company became the U.S. Food Products Company, dealing in yeast, vinegar, and cereal products. After finding a crowded field for these products, the company went into receivership. The company’s receiver, Seton Porter, of the engineering firm Sanderson & Porter, commandeered the company and became its president. Porter reduced the company’s expenses in 1922 by moving the Whiskey Trust’s remaining 70,000 barrels of aged whiskey from 20-odd Kentucky locations to the company’s Elk Run Distillery warehouses. The U.S. Food Products Company and its subsidiary, the Kentucky Distilleries and Warehouse Company, were merged to become National Distillers in 1924.

The Kentucky Distillers and Warehouse Co. was well positioned after Prohibition as the largest holder of aged whiskey stocks in Kentucky. The Whiskey Trust created their own consolidation warehouses to bring as much of their assets into 9 warehouse locations in Kentucky. In 1922, the Concentration Act effectively consolidated all the whiskey in the country into 24 government-controlled warehouse locations, 12 of which were conveniently located in Kentucky. The lawyer representing the owners of these locations (Levi Cooke) explained that they would gladly accept the cost of transportation of liquor to these locations and for its security once it arrived. The experts called to advise Congress on how to proceed with decisions surrounding the liquor trade during the 1920s were often those employed by companies falling under the Whiskey Trust’s umbrella. In 1927, The American Spirits Manufacturing Company was restructured to become the American Medicinal Spirits Company. That same year, the American Medicinal Spirits Company, which already controlled the Kentucky Distilleries & Warehouse Co., purchased another 5 major consolidation warehouse sites: the R.E. Wathen & Co., F.S. Ashbrook Distilling Co., Hill & Hill Distilling Co., E.H. Taylor & Sons, and the Baltimore Distilling Co. Seton Porter now controlled over 50% of Kentucky’s whiskey stocks and nearly 30% of the country’s whiskey stocks.

In 1933, when Repeal became imminent, National Distillers began to buy up any remaining/avaialable aged whiskey stocks in the United States. Two Pennsylvania distillery locations with large rye whiskey stocks remaining were purchased: A. Overholt & Company in Broadford and Large Distillery (Large Distillery, though not an official consolidation warehouse, held about 20,000 barrels of rye whiskey they produced between 1920 and 1922. And yes, they had a license to produce during Prohibition.). The pure rye whiskey that had been denied to the Whiskey Trust in 1899 was finally theirs. Seton Porter’s National Distillers now controlled about half of America’s aged whiskey stocks.

There is no doubt in my mind that the Whisky Trust’s history is riddled with corruption. Each time I try to follow a branch of the company it leads to a fraudulent lawsuit or a company’s rebranding. The post-Prohibition years of National Distillers are riddled with buyouts and government lobbying to secure their place in the industry. The Whiskey Trust was a bully in a three-piece suit. It had many connections in government and its representatives often instructed Congress on how to draw up laws that would give it an advantage. Porter would not make the same mistakes that were made during Greenhut’s day. He would focus his attention on the market the Whiskey Trust missed- the high end straight aged whiskey market. In an ironic twist of fate, the American population moved toward wanting rectified spirits instead (blended and rectified whiskeys). National Distillers knew that the whiskey market was never going to be a growth market, so they turned much of their attention to industrial chemicals and allied products. The next half century changed the way the Whiskey Trust did business.

National Distillers and Chemical Corporation sold its distilled spirits division to American Brands in 1987 for $545 million. American Brands, inc., which was American Tobacco until 1969, was a Connecticut company that owned brands such as Lucky Strike & Pall Mall cigarettes, Sunshine Crackers, Jergens, Master Lock, and…Jim Beam. The modern iteration of the Whiskey Trust still employs column stills to produce massive quantities of whiskey and still holds sway over the American whiskey market. The new American whiskey market is changing under our noses. Perhaps it will embrace change and diversity in its production of American whiskeys. Only time will tell.

 

*Rectification was the altering of an “unfinished spirit” to create a finished product. A rectifying license gave a distiller the ability to buy spirits from another distillery and alter it. Whiskeys were often strained through charcoal to remove fusel oils and unpleasant odors. They were re-distilled by rectifiers to “clean the spirit” and bring a 140-160 proof “high wines” to 160-188 proof neutral grain or “cologne” spirit. These neutral spirits were then blended with flavors such as caramelized sugar, prune juice (or other fruit juices), or extracts to produce a finished spirit that could be bottled and sold to the public. Products like fruit liqueurs, rock and ryes, and blended whiskeys were considered rectified spirits. Many rectifying licenses were used by blending houses to purchase aged spirits and blended them to make what we could consider straight blended whiskeys today. There were no two rectifying houses that were exactly the same.