The Whiskey Trust

Another chapter in the whiskey craziness of the Gilded Age

When you start taking a harder look at what the booze industry was getting up to at the end of the 19th century, the march to Prohibition starts to look a little more understandable. There was the Whiskey Ring, the tied houses, the questionable practices that led to our initial wave of food safety regulations – none of it made for a pretty picture. When the Whiskey Trust arose in the 1880s, it added a business kind of corruption to those political and public health varieties, furthering the evolution of the distiller into the nation’s chief heel.

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Distillers in the 1880s had a problem. Wild fluctuations in the market were bringing rapid cycles of under- and over-supply. Distilleries were opening by the dozen, only to crash and burn a year later. The possibility of making money was evident, but very few were actually pulling it off. Part of the problem was just the unregulated market of the Industrial Revolution era—there was way more money flying around, spending was highly speculative, and the economy was susceptible to sudden starts and stops. But the issue was exacerbated, in liquor’s case, by national tax policy. During the Civil War the Feds had levied an excise tax on liquor (the first since the War of 1812), and then had raised it every few years since. The thing was, they would announce that a tax hike was coming in, say, six months, and the tax hikes weren’t retroactive—anything made before it went into effect would be taxed at the lower rate. Every distiller, of course, raced to produce as much as possible in those six months, with the overall result of a glutted market and losses for the distillers. It was a classic Prisoner’s Dilemma – if a distiller decided not to overproduce for the greater good, they’d probably lose even more, because everyone else would still flood the market and they’d be stuck paying higher taxes on what they did make. What was needed was a little cooperation.

Groups of distillers started getting together in the late 1870s to form “pools,” loose (and illegal) arrangements where members would make a gentleman’s agreement not to overproduce. Shockingly, many of the men involved were not gentle, as such, and the agreements often lasted only a few months before they were broken. After several years of trying and trying again, a group of distillers based in Peoria, Illinois decided that something more serious was needed. There was a new thing called a “trust,” pioneered by Rockefeller’s Standard Oil Company, that took this whole “pool” notion to another level. In a trust, individual competing companies agree to sell a majority stake to an elected committee of trustees. The trustees manage the whole group of companies as if it were one, providing the former owners with regular dividends. No more rogue distillers, no more overproducing, no more damaging cycles of a little profit and a lot of loss. In spring 1887, the group formed the Distillers’ and Cattle Feeders’ Trust. (Feeding spent grain to livestock was an important component of a 19th century distilling business. Again with the public health issues.) The group was more commonly known as the Whiskey Trust, though that’s a bit of a misnomer: the members of the Trust weren’t really whiskey distillers but rectifiers who took neutral spirits, added flavorings and colorings, and labeled it whiskey.

The Trust was managed pretty effectively in its first few years. Dozens of distilleries joined, and before long the group was responsible for over 80% of the whiskey market. They would often acquire a distillery and just completely shut it down, making up for it by upping production at another, more efficient or well-located facility. They could essentially set the price they wanted, and everyone involved was making a decent profit. By 1890, that market control had made them bolder and they were making riskier moves, playing with the price of liquor in the name of quick profits. Members of the Trust were also rumored to engage in a variety of extracurricular activities at competing distilleries, most of which involved either matches or dynamite.

All of this soon brought an end to the Whiskey Trust. Trusts in general were garnering a bad reputation as anticompetitive hindrances to a healthy economy, and the entrance of the liquor industry into such an accord—and its behavior once it did so—hadn’t helped matters. In 1890 the Sherman Antitrust Act passed, rendering arrangements like the Whiskey Trust illegal. The group reorganized as a corporation and continued in this less-dominating form, actually becoming one of the companies listed in the original Dow Jones Industrial Average, but economic realities soon ate into it as well. The depression of 1893 was a big blow, but a more general issue was simply that, at this time, it was pretty easy to get into the distilling business, so competition cropped up faster than the former Trust could crush it. Their habit of buying and closing distilleries also meant that they were the proud owners and lessees of a lot of vacant land, on which they had to pay taxes or rent. Bad management exacerbated the issues, and by the end of the century the company was in a downward spiral.

The former Trust changed names and hands numerous times over the next few decades. During Prohibition it became the U.S. Food Products Corporation and produced liquor-adjacent foodstuffs like yeast and cereal. In a fun twist, a good manager at the company saw the writing on the wall and started buying up aged whiskey stocks and brand names, setting the company up to emerge from Prohibition as the National Distillers Products Company, purveyors of top-shelf hooch. NDP would become one of the “big four” who controlled the American liquor market in the middle of the 20th century; most of its brands would be acquired by Jim Beam in 1987. It’s a strangely respectable end to a company with such a sordid beginning.

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Sources:

The main primary source for the Whiskey Trust is an 1893 congressional investigation into Trust activity. There’s plenty of secondary sources as well. A few I used include:

Carson, Gerald. “The Highwine Trust.” The Social History of Bourbon. University Press of Kentucky, Lexington: 1963
Jenks, Jeremiah W. “The Development of the Whiskey Trust.” Political Science Quarterly vol. 4, num. 2 (June 1889); pp. 296-319
Clay, Karen and Werner Troesken. “Strategic Behavior in Whiskey Distilling, 1887-1895.” The Journal of Economic History vol. 62 num. 4 (Dec 2002); pp. 999-1023
East, Ernest E. “The Distillers’ and Cattle Feeders’ Trust.” Journal of the Illinois State Historical Society vol. 45, num. 2 (Summer, 1952); pp. 101-123

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