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Standard Oil Company

Standard Oil Company

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Background. In the 1850s a new industry emerged when refiners discovered that refined petroleum (which up until that point had been bought chiefly for its supposed medicinal properties) made an ideal fuel for lamps. (It would not become important for fueling engines until the twentieth century.) Production boomed; wells sprang up as large oil fields were discovered in Pennsylvania and the Midwest; and hundreds of small firms sprouted. In the decades after the Civil War this buzzing, frenetic activity formed the backdrop for the emergence of a new way of organizing business on an unprecedented large scale: the business trust. The instrument that devised this innovation was the Standard Oil Company, led by John D. Rockefeller.

Growth. Rockefeller had amassed effective control over oil refining in Cleveland in the late 1860s and early 1870s (Cleveland being an important refining region) by promising railroads a regular flow of business in return for lower shipping rates. His competitors, unable to obtain the same rates, found themselves faced with the choice of being ruined or agreeing to be absorbed by Standard Oil (via stock exchanges). Rockefellers conquests, in turn, increased his leverage over the railroads and thereby magnified his advantages over remaining competitors. If you dont sell your property, Rockefeller is reported to have warned one competitor, it will be valueless because we have advantages of the railroads. By 1872 Standard Oil controlled more than a quarter of the total daily capacity of the industry.

Early Organization and Challenges. At this stage the company in fact consisted of many smaller companies that held stock in each other, often secretly. Meanwhile in the nation, the various remaining refiners engaged in intense, cutthroat competition over the 1870s, overproducing and slashing into profits. Rockefeller tried to protect Standards position by promoting pools, or associations, among refiners: agreements to set prices, secure advantageous shipping rates, and allocate production quotas and profits. The most ambitious of these was the National Refiners Association, formed in August 1872. However, nonbinding agreements proved impossible to enforce and broke down repeatedly ropes of sand, Rockefeller called them. Moreover, Standard found itself fending off challenges from the railroads, from the oil producers supplying the refiners, and (as Rockefellers tactics became more publicly known) from state and federai authorities. In 1879 a Pennsylvania grand jury indicted nine company officials for violating state antimonopoly laws.

Pipelines. The most serious challenge to Standard Oil carne from the oil producers (at this stage the company did not actually drill for oil; it merely refined it). In 1879 an association of producers completed the Tidewater Pipeline, running from oil fields in Bradford to the Reading Railroad at Williamsport, Pennsylvania. This innovation demonstrated that crude oil could be shipped cheaply over long distances by pipelinemuch more cheaply than by rail, in fact. Standard Oil quickly responded by beginning construction of its own network of pipelines. However, at this point Rockefeller and his associates found that they needed a more formal way to structure their business. Before Tidewater, Standard Oil had made good profits refining oil in Cleveland and other points and shipping it by rail. But the cost-efficiency of pipeline transport made it imperative to ship crude oil to shipping points and refine it there. Standard Oil had already acquired refineries in New Jersey; now it would have to dismantle a good portion of its refining capacity in Cleveland and at other inland points and move operations closer to the ports. In order to accomplish this restructuring, the company needed to institute more centralized administrative machinery. Out of this challenge carne the famous, and infamous, Standard Oil Trust.

The Trust. The Standard Oil Trust Agreement, signed by Rockefeller and associated investors on 2 January 1882, set up the trust as the central holding agency conglomerating forty companies. In effect this new corporate structure authorized a board of trustees to manage the properties of corporations joining the trust on behalf of their stockholders. This structurethe first of its kindpermitted the trust to work around state laws that might restrict operations in any single state while partially centralizing control over the various companies that Standard Oil comprised. To govern the trust, the agreement established an executive committee and vested it with broad administrative powers over Standards various subsidiaries. The trustees promptly began reorganizing the business, moving the companys headquarters to New York and setting up several important new subsidiariesthe Standard Oil Company of New York and what would become the companys single most important individual company within the trust: the Standard Oil Company of New Jersey. By the mid 1880s the trust had moved into new headquarters at 26 Broadway in New York, manned by an extensive staff.

Expansion and Vertical Integration. Over the next few years the trust successfully concentrated refining in Cleveland (serving the domestic market), Philadelphia, and New York-New Jersey (where the company now located 45 percent of Standards output). During the mid 1880s the company expanded its pipeline network and centralized its purchasing under a wholly owned subsidiary, the Joseph Seep Agency. By the end of the decade it was expanding its operations into crude-oil production and at the same time tightening its marketing procedures. In other words, in its first decade the trust systematically expanded Standards scope of business, extending its control up and down the chain of oil extraction, manufacturing, and distribution. This vertical integration buttressed Standards dominance of the industry. And during the same period, the company expanded overseas, setting up its first foreign affiliatethe Anglo-American Oil Company Limited of Londonin 1888. By 1899 Standard Oil controlled 90 to 95 percent of the oil refined in the United States.

Federal Legislation. The 1890 Sherman Anti-Trust Act was aimed directly at the structure that Standard Oil had set up, and in its wake the company faced a major legal assault. Within two years the Ohio Supreme Court ordered the trust to divest itself of Standard Oil of Ohio declaring in its ruling that Monopolies have always been regarded as contrary to the spirit and policy of the common law.... A society in which a few men are the employers and the great body are merely employees or servants, is not the most desirable in a republic. Standard Oil responded by shifting the core holding company to Standard Oil of New Jersey (in that state laws governing business combinations were looser) and restructuring and enlarging its other companies. By 1899 Jersey had become the sole holding company for all Standard interests. Company assets by the turn of the century had reached $300 million. Growth continued into the first decade of the twentieth century, as did hostile governmental scrutiny.

Sources

Allan Nevins, Study in Power: John D. Rockefeller, Industrialist and Philanthropist, 2 volumes (New York: Scribners, 1953);

Ida Tarbell, The History of the Standard Oil Company (New York: McClure, 1904);

Harold F. Williamson and Arnold R. Daum, The American Petroleum Industry: The Age of Illumination, 1859-1899 (Evanston, 111.: I Northwestern University Press, 1959)

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Standard Oil Company

STANDARD OIL COMPANY

STANDARD OIL COMPANY, an Ohio corporation, was incorporated on 10 January 1870 with a capital of $1 million, the original stockholders being John D. Rockefeller, with 2,667 shares; William Rockefeller, with 1,333 shares; Henry M. Flagler, with 1,333 shares; Samuel Andrews, with 1,333 shares; Stephen V. Harkness, with 1,334 shares; O. B. Jennings, with 1,000 shares; and the firm of Rockefeller, Andrews and Flagler, with 1,000 shares. The company took the place of the previous firm of Rockefeller, Andrews and Flagler (formed 1867), whose refineries were the largest in Cleveland and probably the largest in the world at that time. The company immediately made important extensions. These refineries, superior efficiency, and the threat of the South Improvement Company led Standard Oil to swallow practically all rival refineries in the Cleveland area in 1872.

Coincidentally with the conquest of Cleveland, Standard Oil began reaching out to other cities. In 1872 it bought the oil transporting and refining firmof J. A. Bostwick and Company in New York; the Long Island Oil Company; and a controlling share of the Devoe Manufacturing Company on Long Island. In 1873 it bought pipelines, the largest refinery in the oil regions, and a half interest in a Louisville refinery. The acquisition of the principal refineries of Pittsburgh and Philadelphia was carried out in 1874–1876, while in 1877 Standard Oil defeated the Pennsylvania Railroad and the Empire Transportation Company in a major struggle, taking possession of the pipelines and refineries of the latter. Another


war with the Tidewater Pipeline resulted in a working agreement that drastically limited the latter's operations. By 1879, special agreements with the railroads along with strategic use of pools allowed Standard Oil, with its subsidiary and associated companies, to control 90 to 95 percent of the refining capacity of the United States, immense pipeline and storage-tank systems, and powerful marketing organizations at home and abroad.

While Standard Oil of Ohio remained legally a small company with no manufacturing operations outside its state, it was the nucleus of an almost nationwide industrial organization, one of the richest and most powerful in the country. Its articles of incorporation had not authorized it to hold stock in other companies nor to be a partner in any firm. After trying a variety of other methods to skirt the company's articles of incorporation, Standard Oil finally overcame this restriction by acquiring stocks not in the name of Standard Oil of Ohio but in that of a prominent stockholder named as trustee. Flagler, William Rockefeller, Bostwick, and various others served from 1873 to 1879 as trustees. Then, in 1879, the situation was given more systematic treatment. All of the stocks acquired by Standard Oil and held by various trustees, and all of the properties outside Ohio in which Standard Oil had an interest, were transferred to three minor employees as trustees. They held the stocks and properties for the exclusive use and benefit of Standard Oil's stockholders and distributed dividends in specified proportions. But while this arrangement was satisfactory from a legal point of view, it did not provide sufficient administrative centralization. On 2 January 1882, therefore, a new arrangement, the Standard Oil Trust Agreement, set up the first monopoly trust in American history. All stock and properties, including that of the Standard Oil proper as well as of interests outside Ohio, were transferred to a board of nine trustees, consisting of the principal owners and managers, with John D. Rockefeller as head. For each share of stock of Standard Oil of Ohio, twenty trust certificates of a par value of $100 each were to be issued. The total of the trust certificates was therefore $70 million, considerably less than the actual value of the properties. Standard Oil's huge network of refineries, pipes, tanks, and marketing systems was thus given a secret, but for the time being satisfactory, legal organization, while administration was centralized in nine men, with John D. Rockefeller at their head. The new arrangement allowed Standard Oil Trust to integrate the industry horizontally by combining competing companies into one and vertically by controlling petroleum from its production to its sale.

Standard Oil's growth in wealth and power drew the awe of other corporations and the criticism of social critics, most notably muckraker Ida Tarbell, who wrote the scathing "History of the Standard Oil Company" in McClure's magazine in 1902. By the time of Tarbell's publication, social criticism was just one of many forces checking Standard Oil's power. The gusher at Spindletop in Texas in 1901 had prompted a flood of new oil companies along the Gulf coast, and they, along with new companies in California and the Plains states, reduced Standard Oil's dominance. Legal challenges beset Standard Oil as well. In 1892, as a result of a decree by the Ohio courts, the Standard Oil Trust dissolved, and the separate establishments and plants were reorganized into twenty constituent companies. But by informal arrangement, unity of action was maintained among these twenty corporations until 1899 when they were gathered into a holding company called Standard Oil of New Jersey. In 1906 the federal Bureau of Corporations filed a report on Standard Oil's operations in Kansas that led directly to a federal antitrust suit against Standard Oil in the U.S. Circuit Court for the Eastern District of Missouri. Three years later, the court ruled against Standard Oil, and in 1911 a decree of the U.S. Supreme Court upheld the ruling. The historic 1911 decision broke up Rockefeller's company into six main entities: Standard Oil of New Jersey (Esso, now Exxon), Standard Oil of New York (Socony, now Mobil), Standard Oil of Ohio, Standard Oil of Indiana (now Amoco, part of BP), and Standard Oil of California (now Chevron). Rockefeller remained nominal head of Standard Oil until 1911, but by 1895 he had surrendered more and more of the actual authority to his associates.

BIBLIOGRAPHY

Hidy, Ralph W. History of Standard Oil Company (New Jersey). New York: Arno Press, 1976.

Wall, Bennett H., et. al. Growth in a Changing Environment: A History of the Standard Oil Company (New Jersey),1950–1972 and Exxon Corporation, 1972–1975. New York: Harper and Row, 1988.

Williamson, Harold F. The American Petroleum Industry. Evanston, Ill.: Northwestern University Press, 1959.

Yergin, Daniel. The Prize: The Epic Quest for Oil, Money, and Power. New York: Simon and Schuster, 1991.

AllanNevins/f. b.

See alsoAntitrust Laws ; Free Trade ; Petroleum Industry ; Standard Oil Company of New Jersey v. United States ; Trusts .

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Standard Oil Company

STANDARD OIL COMPANY


The origins of the Standard Oil Company date from 1863 when John D. Rockefeller (18391937), son of a modest businessman, and two others purchased a refinery in Cleveland, Ohio. Rockefeller foresaw the potential of refining Pennsylvania crude oil, which would revolutionize the way people lighted their homes, fueled their vehicles, and powered their industries. With easy access to railroads and the Great Lakes, Rockefeller's home city of Cleveland, Ohio, soon became the hub for crude oil refining, thanks to the business acumen of Rockefeller and his partners.

After seven years of local success the company was incorporated in 1870. Rockefeller then began a series of shrewd business maneuvers, which included several mergers, the absorption of the next three largest refiners in the nation, and the use of favorable railroad rebates. (Rockefeller was such a hard-nosed negotiator that he talked the railroads not only into giving Standard Oil rebates; they even paid him rebates on his competitors' shipping!) In ten years, Rockefeller controlled $33 million of the $35 million annual refining capacity of the United States. By 1878 Rockefeller and partner Henry Flagler (18301913) had consolidated most of the oil refining in the nation, and Rockefeller became one of the five wealthiest men in the country.

The already gigantic company was growing at such an remarkable pace that it alarmed the "muckraker" exposé journalists of the late nineteenth century, like Ida Tarbell (18571944), who denounced Standard Oil as an "octopus," or a monopoly, strangling the forces of competitive capitalism, ruining the small businessman, and trampling on the rights of labor.

Standard Oil was, as the muckrakers said, a monopoly. Because it was able to establish dominance over its competitors in the field of refining, it was a "horizontal monopoly." And because it branched out from its original concentration on refining into the drilling of crude oil and the sale of petroleum products, it also became a "vertical monopoly."

One of Rockefeller's main contributions was in devising ways to structure this economic power. In 1882 Rockefeller and his associates established the first trust in the United States, which consolidated all of the company's assets under the New York Company, in which Rockefeller was the major shareholder. The 30 companies in the trust controlled 80 percent of the refineries and 90 percent of the oil pipelines in the country.

In an effort to check the monopolization of the economy, Congress passed the Sherman Anti-Trust Act in 1890. In 1892 the Ohio Supreme Court dissolved the Standard Oil Trust. The company, however, took advantage of the newly liberalized laws in New Jersey and incorporated there under a consolidated corporate structure. This maneuver enabled Standard Oil to continued to operate as a Trust.

Standard Oil accumulated $830 million in profits from 1899 to 1911. In 1906 a federal lawsuit against Standard Oil broke up the New Jersey trust. While Jersey Standard retained a number of smaller companies, it lost the largest refineries held in other states and its monopoly on production of oil and pipelines. Jersey Standard, still handling Rockefeller's trusts, acted quickly to acquire oil supplies in other states, particularly Texas. Although it eventually lost its domination of the oil market, the company was still huge and ripe for criticism.

In 1888 the first foreign affiliate of Standard Oil was created. The Anglo-American Oil Company Ltd. of London allowed Standard to begin securing interests outside the United States. It acquired companies in Latin America in the 1920s, particularly in Venezuela, and also expanded marketing companies abroad.

As more and more automobiles and trucks began to dominate transportation in the 1920s, Standard Oil's sales shifted from kerosene to gasoline. By 1950, however, the top-selling products were still fuel oils used as substitutes for coal to power ships and industrial plants; distillates used for home heating and diesel engines were also important products. The big profit earner, even in the early 1990s, remained crude oil, and not gasoline sales.

The legal confrontation finally came to a head in the United States Supreme Court in 1911. The Court ordered Standard Oil of New Jersey to divest itself of its 33 subsidiaries. Later the company changed its name to Esso, using the abbreviation from Standard Oil (S. O.). This caused protest from the companies that were still using the Standard Oil name, so the company officially changed its name to Exxon in 1972.

See also: Exxon, Monopoly


FURTHER READING

Adelman, M. A. The Genie Out of the Bottle: World Oil Since 1970. Cambridge, MA: MIT Press, 1995.

Brown, Anthony Cave. Oil, God and Gold: The Story of ARAMCO and the Saudi Kings. Boston: Houghton Mifflin Co., 1999.

"Exxon Corporation," [cited April 14, 1999] available from the World Wide Web @ www.exxon.com/exxoncorp/index2.html/.

Henderson, Wayne. Standard Oil: The First 125 Years. Stillwater, MN: Motorbooks International, 1996.

Karl, Terry Lynn. The Paradox of Plenty: Oil Booms and Petro-States. Studies in International Political Economy, No 26. Berkeley and Los Angeles: University of California Press, 1997.

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"Standard Oil Company." Gale Encyclopedia of U.S. Economic History. . Retrieved August 16, 2017 from Encyclopedia.com: http://www.encyclopedia.com/history/encyclopedias-almanacs-transcripts-and-maps/standard-oil-company