For eight years, the Whiskey Trust attempted to consolidate distilleries and control the production of alcohol.
Many locals know that in the last half of the 19th century, Peoria was considered the “Whiskey Capital of the World.” Fewer know that from 1887 to 1895, Peoria was home to one of the largest “trusts” in American history—the Whiskey Trust, an effort to consolidate distilleries and control the production of alcohol—and it was centered in Peoria.
The Trust Model
The story of the Whiskey Trust begins with the Civil War, as taxation policy during the war led to speculation in the distilling industry. By the end of the war, production of distilled spirits was three times consumption; thus, there were efforts in the 1870s and 1880s to control the production of distilled spirits through volunteer “pools.” In the early 1870s, H. B. “Buffalo” Miller formed the “Peoria Pool,” comprised of many Midwestern distilleries, but it had limited success. Later that decade, a drought in Europe led to grain shortages, and exports of U.S.-distilled alcohol erased the problem of overproduction.
By the early 1880s, however, the overproduction problem returned, and Miller organized the Western Export Association, which included almost all of the Midwestern distilleries. The association limited the production of each distillery and tried to have any overproduction exported, usually at a loss. But because membership in the association was voluntary, it was virtually impossible to enforce its rules. A different answer was needed.
In 1882, John D. Rockefeller created the Standard Oil Trust. It was designed to allow Rockefeller and other Standard Oil stockholders to get around state laws prohibiting one company from owning stock in another. Five years later in Peoria, Joseph Greenhut and other distillery owners used the Standard Oil Trust as a model and created the Distillers & Cattle Feeders Trust (known as the Whiskey Trust).
To join the trust, owners incorporated their distilleries and assigned their shares to trustees, in exchange for trust certificates. In essence, they gave up control of their distilleries—the trustees controlled all decisions on production and pricing. As an incentive to join, an owner was either paid cash or received dividends. Additionally, he was often hired as a manager of the distillery (even if it was closed). When the Whiskey Trust formed in May of 1887, 65 distilleries joined it, including 24 in Illinois. Peoria had 12—no other city in the country had more distilleries—and there were three in Pekin and one in Canton. There were nine trustees of the Whiskey Trust, three from Peoria. Joseph Greenhut of Peoria was elected president, and the headquarters of the Whiskey Trust was located at 217 N. Jefferson Avenue in Peoria.
In 1899, Charles C. Clarke of Peoria testified at hearings on trusts held by the Industrial Commission of the U.S. House of Representatives. He described how the Clarke Bros. Distillery became part of the Whiskey Trust. The distillery was valued at $100,000 (four times its actual value, according to Mr. Clarke), and the Clarke brothers received 1,000 trust certificates; each had a par value of $100. In addition, Charles C. and his brother Chauncey were employed by the Whiskey Trust at a salary of $2,500 per year for five years.
Controlling the Market
In its early years, the Whiskey Trust was profitable, paid dividends and tried to convince other distilleries to join. It employed three strategies to entice them:
- The first strategy attempted to convince owners that it was profitable to enter the Whiskey Trust. Overvaluing the distillery and employing the owner were the tactics used.
- If that did not work, the Whiskey Trust moved into the community where the distillery was located and undercut its prices. The idea was to convince the owner to join the trust—or put the distillery out of business.
- Finally, the Whiskey Trust is alleged to have used force if other methods failed to convince the owner to join. The H.H. Shufeldt distillery’s facilities in Chicago were dynamited when it refused to join the Whiskey Trust. Though the trust was accused of sponsoring this action, no charges were ever filed.
By 1888, the Whiskey Trust felt it had sufficient control of the market to raise prices. This prompted the entrance of new and old distilleries into the market, so two years later, it changed strategies. In an effort to hold to a higher price for alcohol spirits, it now offered rebates to distributors and retailers who gave 100 percent of their business to the Whiskey Trust.
Joseph Greenhut was the most famous of Peoria's "whiskey barons."
The year 1890 saw other significant changes in the Whiskey Trust, as the federal government and several states became concerned that trusts were monopolistic. Trying to avoid trouble with the government, the Whiskey Trust incorporated under Illinois law and became the Distilling and Cattle Feeding Company. Trust certificates were exchanged for stock, and Whiskey Trust trustees became directors of the new company. The early 1890s were boom years for the company—which everyone still called the Whiskey Trust.
Production increased until 1894, when the Whiskey Trust accounted for more than 80 percent of the nation’s total production of alcohol spirits. Peoria remained its headquarters, with Peoria distilleries accounting for 50 percent of the trust’s production. By 1890, the trust was operating only six distilleries in Peoria—so those six Peoria distilleries accounted for 50 percent of the nation’s total trust production and 40 percent of all alcohol produced in the United States.
The Takamine Chapter
Another interesting chapter in the history of the Whiskey Trust began in 1891 when it contracted with Japanese scientist Dr. Jokici Takamine to develop a faster method of fermentation. Dr. Takamine resided in Peoria for four years. His laboratory, under heavy security, was located in the malt house of the Woolner Grove distillery, along the river on the city’s south side. In 1894, the Manhattan Distillery in Peoria was converted to use the Takamine method of fermentation. Writing in the 1952 Illinois State Historical Journal, Peoria historian Ernest East pointed out that critics of the trust believed Joseph Greenhut used Takamine’s research and announcements about the success or frustrations of his research to manipulate the Distilling and Cattle Feeding Company’s stock.
When the Whiskey Trust met its eventual downfall, the contract with Dr. Takamine was terminated and the Manhattan Distillery was converted back to the old process. A few years after leaving Peoria, Dr. Takamine announced his discovery of adrenalin. He is also credited with the gift of 2,000 cherry trees to Washington DC, the source of the National Cherry Blossom Festival.
The Trust’s Demise
The demise of the Whiskey Trust began in 1892 when it lowered dividends and used surplus funds to purchase additional distilleries—not a popular move. In June 1893, the State of Illinois filed suit against the trust, charging that it “exceeded powers granted by its charter, destroyed competition, and was repugnant to public policy,” and was therefore illegal. The state asked that it be allowed to cancel the trust’s certificate of incorporation, and in December of 1893, the court sided with the state. The Whiskey Trust bought some time by appealing to the Illinois Supreme Court, but was unsuccessful in overturning the lower court’s ruling.
In 1894, the Whiskey Trust used funds set aside for payment of rebates to purchase four additional distilleries. Distributors and stockholders became concerned, formed a shareholders committee (representing approximately 300,000 of the 350,000 shares) and demanded a meeting with the directors. The directors agreed, but in January of 1895, shareholders friendly to Greenhut (representing just 1,700 shares) asked a federal court to appoint a receiver to control the assets and ensure their responsible use. The court named Greenhut himself—who was still president of the trust—as one of the receivers! Members of the disgruntled shareholders group protested, and after an examination of Greenhut, the judge replaced him as receiver and appointed two new receivers, including John McNulta, a lawyer from Bloomington.
In an effort to bring some order to the industry, the receivers helped form the Spirits Distilling Association, which included both trust distilleries and independents. They agreed to limit production and raise prices, which caused a large amount of criticism from several trust shareholders, and the three receivers resigned. The judge accepted the resignations of two of the receivers, but refused McNulta’s. During this controversy in March of 1895, by order of the court, the directors of the Distilling and Cattle Feeding Company quit-deeded the assets of 58 trust distilleries—in essence turning the properties over to the court and the receiver.
McNulta invited bids for the properties, but there was just one. It came from a group of shareholders of the Distilling and Cattle Feeding Company, representing 347,508 of the 350,000 total shares, who offered $9.8 million to purchase 17 distilleries that were part of the old trust. Six of the 17 were in Peoria, two in Pekin. In August of 1895, titles of the 17 distilleries were transferred to the new American Spirits Manufacturing Company.
In June 1895, the Illinois Supreme Court found that the Whiskey Trust had “usurped powers not conferred by its charter, that it was monopolistic in its operation and therefore was illegal.” The final nail in the trust’s coffin came in November of 1920 when Illinois Attorney General Edward Brundage obtained a decree from the Circuit Court of Peoria County dissolving the Distilling and Cattle Feeding Company.
Reflections on a Monopoly
The life of the Whiskey Trust was a short eight years—just 1887 to 1895—but its impact on Peoria, the nation and the spirits industry was significant. From 1888 to 1895 (trust production in 1887 is unknown), the Whiskey Trust produced 300.4 million gallons of alcohol—71 percent of all alcohol produced in the country. If we do not include 1895—the year the trust folded and production was very low—it produced 75 percent of all alcohol made in the United States. Peoria was the center of not only the trust, but of all alcohol production in the U.S.
So why did the Whiskey Trust fail? Looking back today, we first have to question management decisions, such as generous salaries, the overvaluing of assets and stock speculation. Secondly, federal and state antitrust enforcement was a factor. Finally, a 2002 study by Carnegie Mellon and University of Pittsburgh researchers concluded that “entry barriers in distilling were very low, and the trust was able to do little to raise them.” As the Whiskey Trust was successful in raising prices, it encouraged new distillers—both legal and illegal—to enter a market it did not have the resources to buy or control.
But for a few years, not only was Peoria the Whiskey Capital of the World, it was also the center of the effort to monopolize the whiskey industry. iBi
Bernie Drake is a past president of the Peoria Historical Society.