By the early s, Standard Oil controlled more than 90 percent of the market. His business was described as an octopus , a grasping monster:. In fact, Ida Tarbell's father and a business partner had been among Rockefeller's competition, until Rockefeller brutally took them over , writes Gilbert King for Smithsonian.
After the takeover, the partner committed suicide and he was ruined, leaving a deep impression on a young Ida Tarbell. In , while working on her expose, she watched him in church. By this point in his life, Rockefeller was suffering from alopecia and was entirely hairless, including eyebrows. But there was another side to him. Because entry costs were so low in both oil drilling and oil refining, the market was glutted with crude oil with an accompanying high level of waste.
In his view, the theory of free competition did not work well when there was a mix of very large, efficient firms and many medium and small firms. His view was that the weak firms, in their attempts to survive, drove prices down below production costs, hurting even the well-managed firms such as his own. Although his economics may be suspect in modern eyes, his solution -- a market with a few maybe one! What makes oil stand out is that it happened by design -- as the result of a plan formulated by a single person — John D.
During , Rockefeller formulated his plan for consolidating all oil refining firms into one great organization with the aim of eliminating excess capacity and price-cutting.
Although no written records exist, both Rockefeller and Flagler 30 years later claimed this was when they worked out the master plan, which they later implemented. The claim that the plan was formulated in is evidenced by the fact that all the major Cleveland banks joined the Standard Oil organization in and later backed Rockefeller and Flagler to the hilt in their rapid expansion. Tom Scott of the Pennsylvania Railroad came up with the idea.
The scheme was inspired by the Anthracite Railroad combination of in which five railroads and two coal companies bought up all the coal pits along the five railroads in order to control output and prices. The South Improvement Company had been created by the Pennsylvania Legislature in and its charter allowed the Company to hold the stocks of other companies outside the state. This was an unusual power at the time and made it ideal for Scott's scheme.
Scott arranged for the purchase of the charter by a group of Philadelphia and Pittsburgh refiners with Scott in the background. The scheme was essentially a plan to unite the oil-carrying railroads in a pool; to unite the refiners in an association, the South Improvement Company; and to tie the two elements together by agreements which would stop "destructive" price-cutting and restore railroad freight charges to a profitable level.
To enforce the cooperation of refiners, a set of rebates was agreed to for participating refiners. This alone would have undoubtedly forced all the refiners into the combine, but the scheme did not stop there.
In what turned out to be a public relations disaster, the participants decided to add a drawback on every barrel shipped by a non-participant equal to the ordinary rebate. In effect, this would be a tax on non-participants, the proceeds of which would be transferred to the participating oil refiners.
What the planners forgot, however, was to include the producers in the scheme as well. Despite efforts to reassure the drillers in the Oil Regions that the scheme would benefit them as well by keeping prices up, the Oil Regions Men revolted and organized an effective boycott of all the refiners and railroads they suspected of being part of the scheme. Consequently, the scheme collapsed in before it was ever implemented.
Subsequent historians repeated the view of many at the time that Rockefeller had been one of the originators of the South Improvement Scheme. In fact he had not been, but he and Flagler did agree to participate, and worked hard to set up the scheme.
Rockefeller's most important error of his career was to not go public at the time with his side of the story. This was the first time that a broad public became aware of Rockefeller and the episode was to forever tarnish his reputation.
He said of it later, "Our silence encouraged the wildest romancers to spread wild tales about us;" and on another occasion, "I shall never cease to regret that at that time we never called in the reporters. In December , during the dust-up over the South Improvement Scheme, Rockefeller and Flagler set in motion their plan to consolidate the industry.
They began by buying up all their competitors in Cleveland. He began with the strongest refineries first. He believed that if he had bought up the weak refineries first then he would be faced with higher prices later and stiffer resistance.
Consequently, he approached the strongest first and bought them out. His technique was always the same. The merger would be effected by an increase in the capitalization of The Standard Oil. The rival refinery would be appraised and the owners would be given Standard Oil stock in proportion to the value of their property and good will and they would be made partners in Standard Oil. The more talented owners would also be brought into the Standard Oil management.
If they insisted upon cash they received it. Later some owners who had been bought out complained to the press that they had been treated unfairly. After the conquest of Cleveland, the Standard inexorably expanded. All the transactions were kept as secret as possible.
The leaders of the Standard were so successful in this secrecy at times that many rival independent refiners were totally unaware of what was going on. In , Jabez A. The teamsters, men who drove commercial wagons drawn by horse-teams, fought pipelines tooth and nail, but were destined to lose because it was so much cheaper and easier for the producers to send their crude through pipes as opposed to wagons.
It was a short logical step to extend those pipelines directly to refineries. Vandergrift into the Standard management. Two large refineries in Titusville joined the Standard and John Archbold later the President of Standard Oil was brought into the management. The Standard expanded into Philadelphia by buying the largest refinery.
In , the Standard bought more pipelines and firms in the oil buying business and merged them all into the United Pipe Lines in In , Johnson N.
Camden later a senator from West Virginia came into the Standard secretly and moved to buy up all the West Virginia oil supply to squeeze the Pittsburgh independents.
By Camden gained control of most of the West Virginia refineries. In , Standard bought the Columbia Conduit Co. The Pennsylvania Railroad used armed guards to prevent them from laying a pipeline under its right-of-way north of Pittsburgh. The Standard gained control of most of the property of the Empire Transportation Company -- a subsidiary of the Pennsylvania Railroad that had its own fleet of tank cars, pipelines, lake steamers, and terminals in New York harbor.
The Empire had briefly threatened the Standard, but Rockefeller built new tank cars, cut prices, and cancelled all his shipments over the Pennsylvania Railroad. The railroad capitulated and sold Rockefeller the Empire's assets. In , the Standard forced the railroads to pay a drawback of cents a barrel of crude oil shipped by any other party. In effect, this was a tax levied by the Standard upon its competitors.
This combination of rebates and "taxes" some authors dub this a "drawback" -- but that term is also used to refer to a specific type of rebate is what forced the remaining independent refiners to capitulate to the Standard. Production increased in the Pennsylvania Oil Regions because of a large discovery in the Bradford area. Standard was forced to frantically build as many large holding tanks as possible to hold the market glut of oil.
By , the Standard Oil Company did about 90 percent of the refining in the United States, with almost 70 percent being exported overseas. The business had become so large and so complex that Rockefeller only dealt with the major problems and the larger outlines of his affairs. Rockefeller was only 40 years old.
It took Rockefeller by surprise and succeeded in building a pipeline from the Oil Regions east across northern Pennsylvania to Williamsport, where the oil was transferred to the Reading Railroad. Attorney Samuel Dodd came up with the idea of a trust. A Board of Trustees was set up and all the Standard properties were placed in its hands.
Every stockholder received 20 Trust certificates for each share of Standard Oil stock, and all the profits of the component companies were sent to the nine trustees who determined the dividends. The nine trustees elected the directors and officers of all the component companies. The nine Trustees controlled 23, of the 35, shares with J.
Rockefeller holding 9, shares. Rockefeller, at age 43, was the leader of the Trust because he was "primus inter pares" first among his peers , not a dictator. As such, he could not dictate policy even when he felt strongly that he was right.
An example of this was the Lima Oil field in Ohio. The field had been discovered in the early s. The problem was that the oil was "sour" -- that is, it had a very high sulfur content so it smelled like rotten eggs.
Even worse, when it was refined into kerosene and used in lamps it produced too much soot, which coated the lamp chimneys. Rockefeller wanted to buy up as much of the oil as possible and worry about solving the sulfur problem later. The other directors were unenthusiastic about this policy and John Archbold began quietly selling some of his Trust shares in the Standard.
By , the Standard owned 40,, barrels of the Lima oil, which were stored in huge tank farms at the fields. Rockefeller hired a great chemist, Herman Frasch, who, with the aid of talented Standard engineers, devised a process using copper oxides to remove the sulfur from the oil. By , The Standard had set up an elaborate nationwide distribution system that reached nearly every American town. The Standard was aggressive in its marketing practices and tried to force all grocery and hardware stores that sold kerosene and lubricants to sell only Standard products.
With such an aggressive push into the industry, the public and the U. Congress took notice of Standard and its seemingly unstoppable march. Monopolistic behavior was not kindly regarded, and Standard soon became the epitome of a company grown too big and too dominant, for the public good. Congress jumped into the fray with both feet in with the Sherman Antitrust Act, and two years later the Ohio Supreme Court deemed Standard Oil a monopoly that stood in violation of Ohio law.
Always eager to be a step ahead, Rockefeller dissolved the corporation and allowed each property under the Standard banner to be run by others. Just nine years after the company broke itself into pieces in the face of antitrust legislation, those pieces were again reassembled in a holding company. In , however, the U. Supreme Court declared the new entity in violation of the Sherman Antitrust Act and illegal, and it was again forced to dissolve.
With his wife, Laura, Rockefeller had five children, including a daughter, Alice, who died in infancy. Rockefeller passed away on May 23, , in Ormond Beach, Florida.
His legacy, however, lives on: Rockefeller is considered one of America's leading businessmen and is credited for helping to shape the U. We strive for accuracy and fairness.
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