Number
23
Standard Oil Company
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Whenever anyone mentions the Standard Oil Company, two things immediately spring to mind: Rockefeller and monopoly. The linkage is unavoidable, for nobody but John D. Rockefeller could have built this oil refining goliath—and nothing but a charge of monopoly could have torn it down. Further, the three are forever intertwined because all reached their zenith in an era when the industrial revolution was transforming American business into the global force it remains to this day.
Rockefeller didn’t run this gargantuan enterprise on his own, of course. Even a titan of his stature required an extraordinary management team to handle the socalled “octopus” of the refinery industry, which at its peak controlled almost all U.S. oil production, processing, marketing and transportation. But it was J.D., as he was known, who put it all together and ran it. Until, that is, he and his company ran afoul of the federal anti-trust laws that eventually shut them down.
But Rockefeller was more than one of the most astute businessmen of his time. Rockefeller’s estate was worth about $1 billion when he died at age 97—a sum that would be 10 times that today. A lifelong philanthropist, he gave away money even when he barely had any. He donated $20,000 to help build Cleveland’s Euclid Avenue Baptist Church the year Standard Oil was born. Over the next seven decades he also financed the Rockefeller Foundation and Rockefeller Institute for Medical Research, among other charities, while funding the University of Chicago and presenting countless additional gifts to many more colleges and churches. During the course of his life, in fact, he gave away an estimated $500 million in philanthropic gifts. Yet these days he is primarily remembered by many, and none too fondly at that, for the infamous oil refinery from which he made his fortune.
From most accounts of his remarkable life, however, it is apparent that this contradiction never bothered him much.
John Davison Rockefeller was born on a farm in upstate New York in 1839. One of four children, he was raised by a very religious mother while his father was busy swindling locals with financial con games and phony medical cures. When J.D. was 10, his father was accused of raping a household worker and the family fled. Eventually, they wound up in Cleveland. Not long after, the elder Rockefeller ran off to South Dakota on his own.
J.D. landed his first job in 1855, working as an assistant bookkeeper for the Hewitt & Tuttle commodities house. He earned $3.50 a week and donated regularly to his church. Nonetheless, he managed to save $800 in just three years. With that and a small borrowed stake, he and a British immigrant named Maurice B. Clark opened a commodities business of their own. The firm, which dealt in hay, grain, meats, and other goods, prospered.
Rockefeller was only 19, but he was restless to expand. Oil was then a booming industry, and had been since a successful well was sunk in Pennsylvania’s Allegheny mountains about 10 years earlier. Clark had a friend in the business, and in 1863 he came to the pair seeking funds. Rockefeller invested $4,000 and took his first step into the field that was to make him rich.
The exploration and drilling for petroleum always has been an up-and-down business. It certainly was no different in those days, when a barrel fetched anywhere from 10 cents to $20. By the time Rockefeller entered the fray, the price was fluctuating around $5. But that wasn’t what really interested him. Rockefeller was savvy enough to recognize that when drillers did make a successful strike, they needed refiners to produce and market the resulting by-products. He also realized that there was much more money to be made on this end. So, with Clark and a new partner named Samuel Andrews, he formed a small Ohio refinery in 1863 and dubbed it Excelsior Oil Works.
With growth on its mind, the new company began buying other existing refineries. It quickly picked up 50 in Cleveland, and another 80 in Pittsburgh. Sensing that profits would be even greater if they controlled all aspects of their operation, the partners also started purchasing warehouses, timber stands (to make their own barrels), and even fleets of ships (to transport the products they produced). In 1865 Rockefeller bought out Clark’s interests and two years later brought in local businessman Henry Flagler, who had money and the inside track in an emerging transport mode—railroads—that would prove even more important to their industry than ships. They renamed the company Rockefeller, Andrews & Flagler. It evolved into Standard Oil within three years, and soon could legitimately claim to be the largest operation of its kind in the world.
Standard initially had competition both domestically and overseas. The Nobel Brothers of Sweden and Britain’s Shell Transport & Trading, for example, were a large reason why America had captured just over half of all global production by the late 1880s. But Standard continually hired the top chemists, marketing specialists, attorneys, and other professionals. It also, according to most accounts, closed secret deals with companies it needed and strong-armed those it did not. Standard Oil rapidly grew in size as well as profitability. Eventually, it was the exclusive supplier of petroleum products to some 37,000 communities.
The late 19th century was a period of astounding change in American business. Cities sprang up almost overnight and railroads tied them together. Manufacturing became the dominant force in the U.S. economy, and a handful of individuals— Andrew Carnegie, Cornelius Vanderbilt, J.P. Morgan, and Rockefeller, among them— controlled the most powerful companies leading the way. These men were resourceful and imaginative, and sometimes not opposed to pulling any strings necessary to stay atop their respective fields. Because most states at the time prohibited local companies from holding shares in others headquartered outside their borders, Rockefeller devised a way around the applicable laws in order to expand. In 1882, he formed the Standard Oil Trust to combine Standard with affiliated companies in other locations. Utilizing a maze of obscure legal devices that made the structure difficult to decipher, it brought some 40 corporations under his authority and continued to exercise ironclad control in its industry.
Charges of illegal rebates, coercive tactics, and predatory pricing continued to mount. In 1892 the Ohio Supreme Court stepped into the fray and ordered the trust dissolved. Undaunted, Rockefeller continued operating from his New York headquarters. In 1899, when states began relaxing their incorporation statutes, he reorganized as the Standard Oil of New Jersey holding company and transferred all assets to this new entity.
Rockefeller’s actions did not go unnoticed by other industrialists. Some forged similar trusts in the cotton, whiskey, sugar, and tobacco industries. Others consummated megamergers that created corporate giants such as General Electric, AT&T, and U.S. Steel. These vast concentrations of wealth and power increasingly struck observers (and would-be competitors) as unfair, if not downright criminal. Journalists began taking notice and one—Ida M. Tarbell—put Standard under the microscope in a 19-part expose that appeared in a McClure’s magazine beginning in 1902. In issue after issue, Tarbell hammered at Rockefeller’s claims that his corporation did nothing untoward. Rather, she wrote, Standard Oil’s rise to prominence was “accomplished by fraud, deceit, special privilege, gross illegality, bribery, coercion, corruption, intimidation, espionage, or outright terror.”
The series made Tarbell a celebrity, with President Theodore Roosevelt among her many fans. (Rockefeller offered no comment, but reportedly savaged the writer in private conversations.) The series also initiated a federal investigation, and in 1906 the government filed suit under its 16-year-old Sherman Anti-Trust Act. This officially alleged what long had been whispered: that Standard Oil monopolized the oil industry, and thereby restricted free trade.
In 1907, the company was found in violation of antitrust laws and fined about one-third of its $100 million market value. That penalty was thrown out, but a little more than four years later—on May 15, 1911—the U.S. Supreme Court ruled that Standard’s structure was indeed “a monopoly in restraint of trade” and ordered it split into some three dozen separate companies. Rockefeller was out on the golf course when he heard the news, and reportedly advised his playing partners to “buy Standard Oil.” It proved a wise tip, as the pieces of his empire soon were worth far more than the single entity ever had been. Rockefeller’s own considerable fortune soared to even greater heights, and later that year he retired.
The breakup created many names that to this day are well-known in the oil business, including Exxon, Amoco, Mobil, and Chevron. It long remained controversial, though, as many suspected that Standard might have escaped its fate had Rockefeller been more politically astute—or more willing to kowtow to regulators and officials. (Although it was equally in control of its own industry, for example, the contemporary U.S. Steel did not similarly fall victim to antitrust regulations.) But Rockefeller was never one to genuflect to secular powers, or shrink from the doctrine under which he lived his life. “I believe it is a religious duty to get all the money you can, fairly and honestly; to keep all you can, and to give away all you can,” he once said. When he died in 1937, no one could dispute that he ever doubted what he was doing. Or that he hadn’t followed those beliefs unerringly to the end.