World War I Centennial: Breaking Up DuPont

The First World War was an unprecedented catastrophe that killed millions and set the continent of Europe on the path to further calamity two decades later. But it didn’t come out of nowhere. With the centennial of the outbreak of hostilities coming up in 2014, Erik Sass will be looking back at the lead-up to the war, when seemingly minor moments of friction accumulated until the situation was ready to explode. He'll be covering those events 100 years after they occurred. This is the 21st installment in the series. (See all entries here.)

June 13, 1912: Breaking Up DuPont

Image credit: Ukexpat/Wikimedia Commons

The turn of the century was a time of upheaval in the American economy, as powerful corporations formed during the latter half of the 19th century came under fire from populist politicians who accused them of conspiring with each other to gouge American consumers.

In its struggle against monopolies and trusts, the government was armed, somewhat dubiously, with the Sherman Anti-Trust Act passed by Congress in 1890, which banned anti-competitive cooperation but seemed to provide few enforcement mechanisms.

In 1902 the Sherman Anti-Trust Act was given teeth by President Teddy Roosevelt, who ordered the Department of Justice to go after the Northern Securities railroad monopoly created by J.P. Morgan, a powerful banker, resulting in the dissolution of the company in 1904 after a close vote in the Supreme Court. In 1907, Roosevelt turned government lawyers loose on John D. Rockefeller’s Standard Oil, which was broken up into 33 companies in 1911.

Another high-profile case from this period, all the more sensational because it involved national security, concerned E.I. du Pont de Nemours & Co., which owned the DuPont Powder Company – the nation’s largest manufacturer of gunpowder and explosives, including all the gunpowder used by the U.S. military. DuPont owned some 40 gunpowder and explosives plants around the U.S., putting it in a position to dominate its smaller competitors. Rather than simply crush their rivals, however, the DuPont family realized it would be wiser to cooperate with them behind the scenes, forming an industry organization, the Gunpowder Trade Association, for that purpose in 1872.

In 1906 Robert S. Waddell, a former sales agent for DuPont Powder Company, launched a crusade against his former employer, alleging that DuPont was colluding with its competitors to reap huge profits by restraining competition and price-fixing. According to Waddell -- who not coincidentally had founded his own powder company to compete with DuPont -- the “Powder Trust” was bilking the U.S. government to the tune of $2,520,000 a year in illegal profits through its monopoly on the manufacture of gunpowder for the military. Waddell further alleged that the company was relying on the protection of a powerful member of the DuPont family, Senator Henry S. DuPont, to get away with it.

Nor were these charges unsubstantiated. Waddell was able to produce letters, price agreements, and internal documents from his time with DuPont showing how it worked together with other companies in the GTA to restrict competition and keep prices high. Presented with this evidence, on July 31, 1907, the U.S. Department of Justice charged DuPont and the other powder companies in the Gunpowder Trade Association with “maintaining an unlawful combination in restraint of interstate commerce” in violation of the Sherman Anti-Trust Act.

Break It Up

After almost five years of legal wrangling, on June 13, 1912, the District Court of the United States for Delaware ordered that the DuPont Powder Company be broken up as part of the dissolution of the Powder Trust. The court decreed the formation of two new companies, Hercules Powder Company and Atlas Powder Company, which would receive some of DuPont’s assets in order to become effective competitors. However, as with other anti-trust decisions, the outcome was less dramatic than it looked, as the companies were still effectively controlled by DuPont through back channels.

Moreover, DuPont itself got to keep its monopoly on the manufacture of gunpowder for the U.S. military – supposedly the object of the anti-trust action in the first place. The company would go on to make a fortune during the Great War by supplying the European Allies and later the U.S. Army with high-powered explosives for artillery shells, manufacturing up to 40% of the munitions used by the Allies over the course of the war. DuPont’s revenues from the sale of powder and explosives soared from $25 million in 1914 to $319 million by 1918, totaling an astonishing $1.245 billion in this five-year period.

See previous installment, next installment, or all entries.