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History of Standard Oil: How John D. Rockefeller’s Company Captured the Oil Refining and Transportation Market

We studied the history of the corporation Standard Oil: its formation, tough methods of combating rivals and decay by a court decision. The company in the late 19th century was made by a standout amongst the most well-known and wealthy people in the history of business – John D. Rockefeller.

John Davison Rockefeller

Perhaps, John Rockefeller was heard by everyone: an all-powerful tycoon, the world’s first dollar billionaire, one of the most influential people in the United States. Someone is interested in Rockefeller’s company Standard Oil, which fell under the resonant court case and was eventually divided – this is one of the first examples of the antimonopoly legislation. Others will recall that Rockefeller founded a foundation that spends significant sums on medical research and fighting poverty. In any case, he is one of the most exceptional entrepreneurs in history.

John Rockefeller was born into the family of a medicinal drug dealer William Rockefeller. His father, a former logger, had his farm, but hard physical labor quickly bored him. William began to create and sell medicines from herbs, traveling to different cities, and received a good profit. However, the business was not entirely honest: in the numerous biographies of the billionaire, it is mentioned that William presented some of his designs as herbal cures for cancer.

 

John D. Rockefeller with relatives and friends

Rockefeller Sr. considered entrepreneurship to be the best career, and from childhood, he taught his son scrupulous filling of business papers and the basics of accounting. Moreover, he suggested that children breed birds for sale and help their neighbors for money. William was always on the road and kept the family with loans, repaying them after returning from travel. His wife was upset by his inconstancy and rumors of numerous changes, but because of her religiousness and fear of public opinion, she did not dare to divorce.

Education in the school did not bring John Rockefeller special benefits. He was a serious and concentrated child, but the teachers did not have the skills to develop his abilities. He was outstanding in mathematics. According to another version, Rockefeller was not a very capable pupil, and he had to devote a lot of time to learning, to be comparable to the class. John was more influenced by home education: his mother strove to develop perseverance and diligence in him.

After graduating, John Rockefeller went to Cleveland’s commercial school, where he studied accounting and banking for three months. Then he decided to go to work in his specialty. A young man without a higher education could only hope for the position of a clerk in a small office, but this did not suit him. Rockefeller was extremely ambitious, and ordinary work did not interest him. He was primarily looking for an experience that could be useful to him in business. The searching took a long time, but in the end, John was lucky: he settled in a more or less large company Hewitt & Tuttle in Cleveland.

The persistence of Rockefeller struck the employers. Besides, he did not insist on a high salary – he just needed practical skills. The cost of the services of a person who will later become one of the richest in the world was estimated at $3.5 per week. The first three months he was not paid at all, and when they came to an end, Rockefeller received $50. The meticulousness and thoroughness of the young man, the speed of his training and diligence (he came to work first and left last) impressed the employers, and he was raised to $500, and later to $600 a year.

In Hewitt & Tuttle John worked for almost 3.5 years, after which he left because of dissatisfaction with his salary. One version of the story states that Hewitt raised his salary to $700, although Rockefeller wanted $100 more. On the other, John was offered the post of manager, but they promised to pay not $2000 as a predecessor, but only $800.

Soon Rockefeller met the beginning entrepreneur Maurice. B. Clark and he invited Rockefeller to start a business for the sale of grain, meat and other goods. The idea was indeed excellent: new immigrants arrived in the region. But Clarke demanded to invest $2000 in the business, and Rockefeller had only $900. However, the novice businessman knew where to get the rest of the money: William Rockefeller promised to give each of his children $1000 when they turned 21. John was 20, and he concluded a contract with his father: he gives John money ahead of time, and in return receives interest. Rockefeller taught the children that the family ties are not a hindrance to business, and willingly turned various deals with them.

John Rockefeller

In 1859, after receiving the money, John finally set up a company “Clark and Rockefeller”. Young and active entrepreneurs were doomed to success. In a year they turned deals for almost half a million dollars and earned about $4,400. Maurice Clarke recalled that Rockefeller constantly, without distraction, worked, controlled every aspect of the company and communicated with bankers himself – those were delighted with the pedantry of the entrepreneur and the accuracy of his bookkeeping. John also approached the work with clients: he gave everything that was due to them and did not try to cheat. This worked the other way: all partners were charged to the last cent.

In 1861, when the Civil War began in the USA, Rockefeller remained the sole breadwinner of the family. According to other sources, John escaped the call because he declared his mother a widow and moved her to his place in Cleveland while Rockefeller Sr. was wandering around the country. John was well aware of what prospects the war opens for food trade, and he managed to become one of the suppliers of provisions for the troops of the northerners. Rockefeller was able to adjust the supplies in the required quantity and earned well in the war, however, soon he was interested in another industry – where profits promised to be significantly greater. The businessman drew attention to the oil industry in 1859. Immersed in the topic, he noticed a big difference in the price of crude oil and ready-made oil products. He met Samuel Andrews, a talented chemist who first started producing kerosene in Cleveland and was thinking about starting his own business. In 1862 the joint efforts of Rockefeller, Clark, and Andrews, which was to create new methods of processing, set up the Andrews, Clark & Company. Soon the factory of the company, named The Flats was opened. The company was profitable, and Rockefeller’s talent opened up great prospects for him.

There was one problem: the brothers Clark Maurice and Rockefeller could not stand each other. Rockefeller sought to grow and continuosly knocked out loans for development – Clarke was content with what is and were unhappy with the “extra” spending. Soon they set up Maurice against his companion. In 1865 Rockefeller argued with Clark about the next loan of $100 thousand. Maurice could not protest the arguments of his partner and made his last attempt to reason with him, threatening to withdraw from the company. Rockefeller did not tolerate blackmail, and such a move brought him to himself. John discussed the situation with Andrews, who was on his side and made a plan to eliminate the brothers from the business.

Soon, the Clarks once again threatened to throw him out of the company, but Rockefeller’s retaliation hit them: he told the newspapers that the company was self-dissolving. Clarks decided to negotiate with John about the sale of Andrews, Clark & Company. Rockefeller arranged former partners: he held an auction and bought the enterprise for $72,000, and at the same time sold his stake in Clark and Rockefeller. Later, the businessman named the day when he got rid of Clark, the real beginning of his career. John finally began to develop his own business, and in a year the enterprise several times outperformed local competitors. Rockefeller did not stop there: he took his brother William as a partner, and together they set up another processing company and an oil export company. Then the boom of oil production began, which led to the growth of the processing industry. Competition has worsened and led to overproduction. The oil industry, which spilled hundreds of millions of dollars, fell into a severe crisis. Small companies were ruined, and even Rockefeller, who built a solid business, ran into problems.

Unlike many competitors, he found a way out of a difficult situation. In 1866, Rockefeller met an experienced, an extraordinary and active entrepreneur Henry Flagler. They found a common language, and Flagler entered the oil business, investing in it $50,000, and besides, convinced to invest $90,000 relative of his wife Stephen V. Harkness.

Flagler began to reduce the cost of transporting crude oil. Each transport company tried to take the share of the competitive market. He managed to negotiate discounts with Lake Shore, Erie, and New York Central Railroad – this company was part of the railway empire of the famous tycoon Cornelius Vanderbilt.

John D. Rockefeller with his son

There is a version that before 1870, Pennsylvania Railroad also cooperated with the Rockefeller Company – but later, assessing the growing influence of the entrepreneur and his ability to manipulate the allies, the owners began to treat him with caution. Also, this company gave preference to “primordially oil” regions. Concluding agreements with railway companies, Rockefeller sought to reduce prices because the market for carriers was a tough competition, and the volume of its supply was huge.

Later, the entrepreneur stressed that discounts were important, but not a key factor in the company’s development. The main thing, according to Rockefeller, is the professionalism of the company’s leaders and their ability to seek innovation. Rockefeller, Andrews, and Flagler was one of the first companies that used to transport the tank and produced them independently. Often there are references to the fact that Rockefeller bought up such capacity for a long time to reduce the supply of competitors, and for discounts provided additional capacity to the railway companies.

In 1870, many investors came to the market. Rockefeller was not averse to increasing capital, but could not trust new partners. The former form of the business organization did not suit him, and soon he founded and headed the joint stock company Standard Oil with a capitalization of $1 million.

The company controlled a tenth of the U.S. oil market, had modern production, an established supply chain, but suffered from the increased competition of carriers. Rockefeller sent Flagler to his allies with a tempting offer. In return for the reduction of duties, Standard Oil will refuse to transport water in spring and summer and will completely switch to the services of railway companies, guaranteeing them 60 tanks per day.

The deal was extremely beneficial for the carriers, since with such volumes their costs would have decreased threefold – from $900 thousand to $300 thousand per month. Of course, Flagler’s proposal was accepted. Other entrepreneurs who needed to finish up such a deal were refused. In the future, when most of the industry will rebel against the company, these discounts will harm it, but then it was necessary for development.

John D. Rockefeller, 1900

The crisis continued, in the oil industry there was still tough competition and overproduction, and Rockefeller was looking for a way out of the situation. Finally, the solution to the problem of the company Standard Oil was offered from the outside.

In 1871, the Union of the South Improvement Company appeared. Rockefeller claimed that he had nothing to do with his creation and joined it after the foundation, but many believe that everything was wrong. Allegedly the head of Pennsylvania Railroad Tom Scott turned to Standard Oil with a proposal for a special scheme of work. The railway companies that joined the association had to increase the tariffs for transportation for all oil producers several times. However, it was possible to join the South Improvement Company and become a premium customer, receiving a 50% discount for a fixed amount of traffic per day.

This approach was supposed to regulate transportation and reduce overproduction. Any company could enter the South Improvement Company, and the increase in tariffs should have forced all the managers of oil refineries to this – otherwise, they risked losing their business.

Standard Oil owned part of the association. It also includes a few more oil processors (some sources deny it). Rockefeller received additional bonuses in this alliance in the form of a 40 cents discount from the transportation of a barrel of oil. As much he received from each barrel of competitors. Thus, Standard Oil earned even the transportation of its competitors. This formation was supposed to stabilize the industry, having consolidated railway and oil refining companies – but it did not fulfill its function. The South Improvement Company went down in history as a cartel formation that gave birth to the new term “economics of infringement.”

Most of all from the alliance suffered “primordially oil” regions – before its formation they successfully resisted the growth of the same Cleveland. For one February night in 1872, the oil industry changed. For example, the price of transporting a barrel of oil from Warren, New York rose from 87 cents to $2.14. Because of public outcry, the Union of Oil Industrialists was established, which introduced several rules to reduce competition and to reason with the South Improvement Company. In the press, the union was called an anaconda, an octopus, which would strangle competitors and take over the industry unless they came out against it with a united front.

Companies that joined the South Improvement Company were boycotted. Began to collect money to build a bypass railroad through Buffalo. Journalists enthusiastically promised that soon honest businesspeople would be dealt with by Rockefeller. The Union of Oil Producers persuaded the railway companies to cancel bonded contracts. In the end, the South Improvement Company was banned. Rockefeller lost the battle, but not the war.

Oil producers who opposed Rockefeller understood their mistake: Standard Oil was the strongest player, and no one could reach its industrial capacity. Refusing to cooperate with Rockefeller, the owners of the fields collided with a total crisis and were forced to return to it. Such entrepreneurs were tried to press through public condemnation and the press, but they made an obvious choice between prosperity and bankruptcy. The boycott weakened, and later it was totally abandoned by him.

The entrepreneur knew that the industrialists would soon again disintegrate into small groups and continue to damage his industry. To the heads of the largest companies, he suggested merging with Standard Oil, and they quickly forgot about the feud. Others surrendered to Rockefeller himself. It is interesting that the entrepreneur never entered into negotiations on the purchase – he simply called the price, and businesspeople had to agree to it or prepare for the fight.

As a result of the struggle, Rockefeller saw the weaknesses of Standard Oil and analyzed what impacts it could cause. The boycott of oil producers was no longer terrible: the company started a strategic supply of raw materials. On the part of the carriers, too, nothing threatened: The railroad tycoon Vanderbilt supported Rockefeller, and the other allies were ready to give him discounts that the rivals had not even dreamed of.

In 1878, Standard Oil controlled, according to different sources, from 85% to 90% of enterprises engaged in oil refining. Most of the competitors were forced into Standard Oil or were destroyed. Vanderbilt entered Standard Oil in 1875, which meant greater control over the railway companies. True, it was not easy to achieve this.

In 1877, carriers of Pennsylvania Railroad and the Empire Transportation Company (originally a branch of Pennsylvania Railroad, but later received some independence) decided to invade the oil refining industry. It was the idea of Joseph Potts, head of the Empire Transportation Company. The companies expected to buy some of the remaining small oil companies, increase their industrial potential and pretend they are ready to come to an agreement and strike an unexpected blow.

The idea, which appeared to be insane to many, fell through at the very beginning. Rockefeller was extremely vigilant, and the heads of the companies he bought, who had joined the board of directors of 30 people, noticed the preparation of the plot. Rockefeller and Flagler went to the head of the Pennsylvania Railroad Tom Scott – but not from the position of people who are looking for a compromise, but as the owners of the situation. Scott was “reminded” who carried most of the oil products along the lines of the company, and was told to back off from the venture. Tom declined: he believed that Standard Oil, which operated throughout the US, was still unstable, and hoped for competition from carriers with whom Rockefeller had a contract.

Standard Oil Trust

Rockefeller terminated the contract with Pennsylvania Railroad and hastened to build the strength of his allies Erie and New York Central. Those reduced the cost of transportation, and Rockefeller promised them to increase the traffic to 600 cisterns. John’s next actions dealt, even more, damage: he lowered the cost of oil products within reach of Empire Transportation to slow its development.

Production of Standard Oil in Pittsburgh was temporarily closed to prevent Scott from transporting crude oil to the region. They returned to operation immediately after the conclusion of the agreement with Baltimore and Ohio. Pennsylvania Railroad also reduced tariffs, but it did it tremendous damage, and the development of Empire Transportation, despite all the efforts, went slowly. The chapter plans of the Pennsylvania Railroad were finally destroyed by the workers’ uprising, which was suppressed with the help of federal troops. This war put the company on its knees. Scott decided to start negotiations with Rockefeller, who promised to help him rebuild, but Potts did not want peace. It was only the fact that Standard Oil repurchased the processing enterprises belonging to the Empire Transportation Company. So Pennsylvania Railroad was controlled by Standard Oil.

Another point that has ensured Standard Oil’s dominance is oil pipelines. In the mid-1870s, Rockefeller was faced with the fact that overproduction of crude oil complicated its transportation: there were not enough tanks for delivery, and the railways were not effective enough. The sizes of Standard Oil complicated the problem: some companies sold less crude oil much cheaper, and more often than an entrepreneur’s competitors. In 1874, Rockefeller acquired one of America’s leading pipelines, the American Transfer Company. A year later, he entered into agreements with another large network United Pipe Line and then bought it.

By the end of the 1870s, the transportation problem had not disappeared: there were not enough railways, and representatives of the United Pipe Line offered to the processing enterprises cooperation on the following terms: the company pumps a quarter of the oil of each producing company at a market price, the price for the remaining raw materials will be much lower. This practice has just been utilized to diminish overproduction and stabilize the industry. But this time it turned out that most of the cheap oil claimed Standard Oil.

Oil producers could not believe that there were not enough tanks for transportation, and overproduction drove the industry into crisis, they everywhere unfluenced Rockefeller, who was trying to force them to obey. Soon, entrepreneurs convened an association and decided to build several new pipelines.

To quickly implement the idea, it was necessary to pass a law on free pipelines. This had to be done for a long time, but eventually, the law was adopted in Pennsylvania and began to be discussed in other states. Rockefeller, in response, lobbied for a ban on this law and began to create associations of all sorts of interference, including through pressure on pipe manufacturers.

Then the heads of the oil companies, with the help of the Pennsylvania authorities, appealed to the Supreme Court demanding that United Pipe Line fulfill its obligations, as usual, to bring cases against carriers Pennsylvania Railroad, Erie, and New-York Central, which, in their opinion, deliberately created obstacles. Standard Oil in circulation was accused of criminal conspiracy.

Soon an investigation began that involved several states. It became known that the carriers give Standard Oil discounts, also, from different players charge extra duties. Worst of all, for Standard Oil, was the situation in Pennsylvania, where the positions of oil companies were the strongest. Following the investigation, nine company executives, including Rockefeller, were found guilty of criminal collusion and an attempt to create a monopoly. Several members of the board of directors were arrested but were soon released on bail.

Standard Oil Refinery

Rockefeller hired lawyers, and they assured him of the victory of Standard Oil. Also, with the help of the Governor of Ohio, Rockefeller obtained a ban on his extradition to the Pennsylvanian authorities. As a result, the entrepreneur had to cancel the proposed United Pipe Line plan, as well as reduce the duties of railway companies. Oil producers, who at last facilitated transportation, themselves began to seek a way to stop the investigation as soon as possible, which now harmed their business. In a month and a half, the case of collusion was closed.

However, in 1880 a new complexity arose: pipelines of other companies were ready for operation, and one of them, Tidewater, was able to compete with Standard Oil. Rockefeller began to make discounts, build and buy new pipelines and enterprises. Tidewater opposed Standard Oil, but did not go on an active offensive, hoping to hold on long enough to make the giant its client. Rockefeller, meanwhile, acquired most of the players and began to build a pipeline company, led by the last opponent of Standard Oil, Joseph Potts (according to other sources, he did not lead it, but instead advised).

Tidewater continued to increase the length of its routes, and Standard Oil did everything to prevent it. There are still rumors that Rockefeller hired street gangs to annihilate pipelines and attack workers. But in Tidewater, there were internal troubles that led the company to financial problems. In search of a loan, they came to Rockefeller, who easily helped them.

The businessman established control over most of the industry and pinned oil companies but realized that his empire was not well built. He owned about 80 companies, and this structure could collapse in case of a sudden change in the circumstance or the death of one of the major shareholders. In 1882, the companies were merged into a trust with a capital of $70 million, and the largest entrepreneurs were his supreme council.

Rockefeller had to learn to control the acquired companies because their owners did not always execute the orders of the central office. In special cases, representatives of Standard Oil were sent to establish relations with them. The remaining competitors of Rockefeller squeezed out of the market with the help of dumping: total control over the industry allowed him to manipulate prices arbitrarily. From the mid-1880s, the entrepreneur began to buy up oil fields, reducing dependence on producers and strengthening power over them.

In 1890, Standard Oil and even more than 50 trusts in the country began to have problems: the government adopted Sherman Antitrust Act. Standard Oil of Ohio came under investigation. The court hearings proved the company’s ownership of the trust, and it almost took away the license. Besides, Standard Oil of Ohio was prohibited from participating in such associations and allowing outside control.

A dangerous precedent was created: now it was possible to bring to account any company and with a high probability of winning the case. Rockefeller moved the central office of Standard Oil to New Jersey, where he managed to attenuate antitrust laws. Rockefeller began the procedure for the dissolution of the trust, which was later transformed into a holding company Standard Oil. Most of the enterprises united, and there were about 20 of them left.

At the end of the decade, Rockefeller began to withdraw from the leadership of the holding company gradually. He was already more than 60 years old, and his health left much to be desired. In 1897, the management practically went to John Archbold: he had long been a vice president and officially became head of the company only in 1911, and it was done so quietly that even many shareholders of Standard Oil did not know about the changes.

In order to understand what was happening in the entrepreneur’s life, it is important to understand the relationship of Rockefeller with the government. The total amount of fines, which the entrepreneur had to pay for his life, is approaching several tens of millions of dollars. Lawyers partially facilitated the situation, looking for weaknesses in the court’s orders.

Many experts believe that such a result would be impossible if it were not for Rockefeller’s ability to build relations with the government. Standard Oil was a regular sponsor of both the Democratic and Republican parties. Journalist Lloyd, criticizing the trust, said that the government is chosen not by US citizens, but by the rich, and it’s difficult to contend with this: Rockefeller has, in fact, prevailing in lobbying the necessary laws several times.

Practices were also made on the bribery of senators, who were disguised as financing. The commissions that investigated the activities of Standard Oil were filled with Rockefeller agents who reported the situation to him and influenced the decisions made. He also sought to abolish unprofitable bills.

In 1890, the businessman managed to agree with the politician Marcus Hanna, who had a significant influence on the Republican Party: he helped Standard Oil persuade prosecutors who opened cases against the trust. The influence of Rockefeller and Hannah strengthened in 1896: William McKinley became the US president, whose campaign was heavily financed by the entrepreneur. However, McKinley was not just a pawn in the hands of Rockefeller – he maintained independence.

The situation became worse five years later when President Theodore Roosevelt became president with antitrust and antitrust policy. Roosevelt also took money from Rockefeller for the election campaign, but did not hurry to help him. Roosevelt responded to the letter from Rockefeller through newspapers, knowing that the entrepreneur avoids publicity, and the American public regards him extremely negatively. Roosevelt started some resonant cases against Standard Oil, and the antimonopoly investigation did not stop.

In 1911, the Supreme Court ruled to divide Standard Oil, but it did not do much damage. Researchers say that Rockefeller lost money only to replace signage with the name of the company. With the collapse of Standard Oil, most American oil companies began to operate, including Exxon Mobil, which is now known.

The businessman himself saddened the verdict, and he did not even declare it to the company’s employees. Together with Archbold, he developed a control system for the shattered Standard Oil. The reorganization took four years, upon completion it was reported to the authorities, but they did not begin to check how the court decision was carried out. By the way, the activities of companies that were previously part of the trust were not controlled after the division: Rockefeller’s influence on Taft and the next President Wilson affected.

Another essential part of Rockefeller’s life is charitable work. His mother was extremely religious and instilled in John the desire to help society: according to rumors, even in his school years, he paid church tithes. As incomes grew, Rockefeller increased a number of donations, even in Standard Oil a direction was created that dealt with charity. So, thanks to the entrepreneur, the University of Chicago, the Medical Institute and the Rockefeller Foundation were established. The latter works so far: it provides grants for arts and scientific programs, and also struggles with poverty and unequal opportunities for representatives of different social strata.

Since 1911, Rockefeller spent most of his time playing golf and doing charity work. His regular golf partner was well-known journalist William Inglis, who documented Rockefeller’s memoirs and his comments on certain events – these records were then used by many biographers.

As indicated by numerous friends of Rockefeller, he did not lose interest in business, but his entrepreneurial activity was reduced to advising his son, John Rockefeller, Jr., and the leaders of other companies. John Davison Rockefeller died in 1937.

John D. Rockefeller's grave

The influence of Rockefeller on the history of the United States is difficult to overestimate. He built the country’s oil industry alone. His Standard Oil gave life to most of the modern US oil companies. He created the capital, which concerning modern money will be according to various sources, from $190 to $320 billion. Contemporaries called the businessman a monopolist and spoke of him as a cruel businessman. But now he is acknowledged as one of the best entrepreneurs, one of the founding fathers of the United States, which influenced the unprecedented growth of the oil industry.

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