Excerpt from Random Reminiscences of Men and Events
Published in 1909
John D. Rockefeller (1839-1937) was the founder and driving force behind the Standard Oil Company, one of the largest corporations of the late nineteenth and early twentieth centuries. The company's spectacular rise to domination of the oil industry in a few short decades was largely the result of Rockefeller's foresight and vision, his hard work, his demand for efficiency, and his mission to cut out competition by whatever means was available. It was Rockefeller's goal to control every aspect of the oil business, from taking it out of the earth to shipping it, refining it, selling it, and even delivering it to its end users. During Rockefeller's years as the company's president, Standard Oil was often criticized by the public for being a monopoly, which meant that the corporation had almost exclusive control of the nation's oil refining business, making it nearly impossible for other businesses to compete in the industry.
Standard Oil developed a bad reputation early in its rise. The press frequently printed stories about the underhanded tactics used by the company to squash its rivals and force small business owners to sell or give way to its steady advancement toward monopoly. Political cartoons about Rockefeller appeared in newspapers and magazines (see Chapter 13). Two best-selling books attacked Standard Oil, monopolies, and Rockefeller himself. For many years Rockefeller made it a policy never to publicly respond to any of the many accusations made against his company, but he made his views on business known. Rockefeller claimed that his company set a valuable standard for American business. Rockefeller believed that by combining the many competing refineries and associated businesses under Standard Oil's control, he had provided Americans with a ready supply of affordably priced oil and thus considerably raised the quality of life in the nation. He also argued that Standard Oil's operating practices, which included ruling its industries with scientific efficiency on a large scale and having almost unrestrained power over them, represented the future of business. Still, the papers were full of his misdeeds. In his memoirs of 1909, Random Reminiscences of Men and Events, he wrote a defense of his company and his life's work.
Although he later became one of the nation's richest men, Rockefeller was born into a modest home in Richford, New York, in 1839. He took his first job at the age of sixteen as a bookkeeper for a merchant company in Cleveland, Ohio, saving enough money to go into business on his own in just a few years. He was very successful in his wholesale grocery business, and when he saw an opportunity arise in the new industry of oil refining in 1863, he had the means to invest in it. By 1865 Rockefeller and a partner had opened a refinery and within a couple of years, thanks to the business skills of Rockefeller and his associates, Cleveland became the major center for crude oil refining. Rockefeller's refineries produced at least twice as much as any other of Cleveland's nearly thirty refineries, and it continued to grow under Rockefeller's astute supervision.
In 1870 the Standard Oil Company was chartered as a corporation in the state of Ohio. At that time, the company controlled one-tenth of American refining. Competition in the oil industry was disordered, with dramatic rises and falls occurring in the price of oil. In times when oil prices were high, hundreds of businessmen rushed to establish new production and refining businesses. With so many people producing oil, an excess of supply flooded the market, driving prices down, often to levels at which there was no longer any profit to be made. When prices continued to stay low, the small companies began to collapse. Larger companies with more money could afford to hold out longer, which had the unintended effect of keeping prices down for long periods. Thus, the industry's extreme price variations hurt even the healthiest companies.
Standard Oil survived the hard times partly because it had a supply of capital reserves (investment funds) and was able to borrow heavily from them. Rockefeller also ran a highly efficient business, cutting production costs and doing away with unnecessary expenses so he could profit at lower prices than other refiners. Despite this, he sought to stop the chaos affecting the market by gaining control of it. Rockefeller thought that free market competition—a situation in which businesses competed against each other without outside controls—was inefficient. He thought it was particularly harmful in the oil industry, with its mix of large, prosperous companies and small, weak newcomers. Rockefeller believed that the less successful companies, in their attempts to survive, drove prices down, which hurt big, efficient firms like Standard Oil.
One of the primary expenses in the oil industry was transportation. In the early years of the oil boom, oil was transported in barrels, usually by railroad or boat, from well to refinery and then again from refinery to market. By 1868 Rockefeller had figured out how to profit from this system. He made a deal with Jay Gould (1836-1892), owner of the Erie Railroad, promising him that Standard Oil would consistently ship a specific volume of oil on his railroad in return for rebates (the return of part of his freight charge payments). Rockefeller went on to make many similar deals with other shippers, forcing the rail and steamboat companies to compete with each other to offer him the lowest shipping rates.
In 1872 Rockefeller participated in the South Improvement Company scheme, a secret alliance between the railroads and a small group of the most successful Cleveland oil refiners. The railroads agreed to post their freight rates at a standard price, but then to quietly pay rebates to the large refiners participating in the agreement. The railroads would also pay the member refiners drawbacks, which were fees charged to nonmembers to ship their freight. High shipping costs would make the nonmembers unable to compete with the larger refineries, and most would go out of business.
When news of the South Improvement scheme got out, the excluded oil producers and refiners protested, and the state of Pennsylvania outlawed the agreement before it went into effect. Even though Rockefeller had not initiated the pact, his public image was badly damaged by his involvement in it. The bad press did not slow down his efforts to control the oil market. Early in 1872 he went to the owners of twenty-six Cleveland oil refineries and offered to buy them out by determining the value of their businesses and giving them stock in Standard Oil equal to that value. The rival owners would then become partners in Standard Oil, or, if they preferred, they could choose payment in cash. Twenty-one refiners sold out within three months in what came to be called the Cleveland Massacre. Some claimed they had been pressured into selling at prices less than their businesses were worth. The state had not yet overturned the South Improvement Company pact when he approached the other refineries and some feared their businesses would be worthless if the pact was in place. Though many considered his tactics ruthless, evidence shows that Rockefeller paid generously for the companies he bought, and those who chose to accept payment in Standard Oil stock became very wealthy. Rockefeller added the productive refineries to his business and closed down the weaker ones.
In the early days of oil refining, the oil from the oil fields was shipped to refiners in barrels carried by railroad. In order to cut costs, Rockefeller bought factories that made barrels and he bought acres of timberland to obtain his own wood. It soon became apparent, though, that oil pipelines, a system of underground pipes that would conduct oil from the fields directly to the refineries without railroads or barrels, were the way of the future. Standard Oil began to build an extensive pipeline system and they soon controlled almost all of the pipelines of the industry. If they dominated the pipelines, then all independent oil producers would be forced to go through Standard Oil. People who worked in the oil industry independently of Standard Oil were desperate to find ways to compete. Under the name of the Tidewater Pipe Line Company, independent oilmen got together to build two major pipelines that would allow oil producers to bypass Standard's pipeline network. Tidewater found financial backing from some of the top institutions of Wall Street.
Standard then entered an industrial war against Tidewater, a bitter and expensive push by both companies to set pipeline routes from fields to refineries and draw customers to use them. Standard bought a charter from the state of Maryland granting the company the exclusive right to build pipelines for a season, but the Tidewater group simply shifted its focus to Pennsylvania. Rockefeller sent out his agents to warn companies not to use Tidewater pipes; he bought up the lands in the path of their pipelines; he bought out the refineries that might use their services. According to Ron Chernow, author of Titan: The Life of John D. Rockefeller, Sr., he also planted stories in local newspapers warning farmers about oil leaks from Tidewater's pipes that would destroy their crops. He used his powerful connections with the railroads to push them to forbid Tidewater from crossing their tracks and to stop them from carrying necessary building supplies to the Tidewater construction sites. Standard also spent huge amounts in bribing state legislators to maintain right-of-way systems that were costly to Tidewater. When Tidewater got past all the obstacles Rockefeller had set in its path and started up its pipeline business, Standard dropped its pipeline rates so low that most of Tidewater's potential customers chose to use Standard instead. In the end, Tidewater entered into a pact, agreeing to cooperate with Standard in order to raise pipeline rates. Tidewater was then slowly absorbed into the company, and Standard Oil had the monopoly on pipelines.
By 1879 Standard Oil Company controlled between 90 and 95 percent of the American refining capacity, dominating the country's petroleum industry. Because all the transactions had been done in secret, many people were surprised to suddenly find that Standard Oil had become an industrial giant. Standard Oil continued to grow during the 1880s. Under the direction of Rockefeller's brother, William (1841-1922), the firm also expanded into the international market. Standard Oil products became well-known in Asia, Africa, South America, and even Central Europe, where Standard Oil encountered stiff competition from cheap Russian oil. By the 1890s Standard Oil had pioneered a nationwide system to deliver oil directly to homes and businesses in almost every American town. Although consumers benefited greatly from this practice, which made heating fuel and gasoline for their cars affordable and easy to get, criticism of Standard Oil's business tactics increased. One major complaint was that the company required the stores that sold its products to agree to sell only Standard products.
The Standard Oil Company (Ohio) was the center of the richest and most powerful industrial organization in the nation. Under its charter with the state of Ohio, however, it had no legal right to own property or stock beyond the state's borders. To get around this limitation, between 1873 and 1879 Standard Oil bought stock in other companies, often buying enough to own or control the companies, or to get a seat on their boards of directors. The Standard Oil partners, such as Rockefeller, Henry M. Flagler (1830-1913), and William Rockefeller, then acted as trustees of the new stocks. Each of them sat on the boards of the companies Standard had purchased or had a controlling interest in, and thus they were able to dictate the company's practices so that all would cooperate with Standard Oil, reducing competition. In effect, all companies were part of the same organization. This trustee device gave the company a flexible means of expanding well beyond the borders of Ohio and also permitted Rockefeller and his associates to hide their activities. Holding to a strict legal interpretation of the nature of the trustees, which stated that they were acting on behalf of the stockholders and not the Standard Oil Company, Standard Oil officials, including Rockefeller himself, repeatedly denied publicly and under oath that the company owned or controlled certain companies that they did in fact hold.
By 1879 Standard Oil had outgrown this informal arrangement, and in 1882 the Standard Oil Trust was created. Under this agreement all properties owned or controlled by the Standard Oil Company were placed in the hands of a board of nine trustees, one of which was John D. Rockefeller. Standard Oil Company (Ohio) stock was exchanged for trust certificates. The nine trustees exercised general supervision over all Standard Oil companies and the many other Standard organizations whose stock was held in the trust. This included the assets of all regional Standard Oil companies, one of which was Standard Oil of New Jersey, the third largest U.S. refinery at the time. The Standard Oil Trust created a giant new centralized company and gave Rockefeller and his associates the administrative flexibility to operate and to direct their worldwide activities effectively.
By the late 1880s, the public had become uncomfortable with the power that big business held over the nation and soon the Standard Oil monopoly gained attention. The New York legislature investigated the company's holdings and practices in 1879 and again in 1888. Editorial writer Henry Demarest Lloyd (1847-1903) fought a lifelong campaign against monopolies, starting with Standard Oil. His 1881 Atlantic Monthly article, "Story of a Great Monopoly," focused the attention of the nation on the company's questionable business methods. In writing this article Lloyd became one of the first muckrakers, journalists who investigated and exposed business or government misconduct in order to promote reform. Lloyd's most important book, Wealth Against Commonwealth (1894), spoke strongly against Standard Oil. The best-known critical work about the company, however, was Ida M. Tarbell's (1857-1944) History of the Standard Oil Company, written in 1904 (see Chapter 12). Rockefeller refused to respond directly to these attacks, believing the quality of his products was good enough to justify Standard's operating practices.
In 1890 Congress passed the Sherman Antitrust Act, which made unfair restraint of trade illegal and outlawed monopolies. On March 2, 1892, the Ohio Supreme Court convicted Standard Oil of violating the Sherman Act. The court decision led to the breaking up of the Standard Oil Trust back into its independent parts. Standard responded by taking advantage of favorable state laws in New Jersey, and the New Jersey refinery became the trust's parent holding company, a company whose primary function is to own the stocks of other corporations. Rockefeller remained president, and the management of the trust was joined together under the same directors sitting on the boards of the more than thirty subsidiary companies (companies that were controlled by the parent company). The supposedly separate companies were therefore able to act as a single unit.
Rockefeller retired from Standard Oil in 1896 at the age of fifty-six. After that he gave over the daily management of the company to his successor and remained president in name only. Because of this, the criticisms that were aimed at Standard Oil continued to be directed at him. All his life, Rockefeller had been strongly tied to his church and the Baptist religion. He was a very moral man in his personal dealings, and a proud and caring husband and father. He led a fairly modest life (for being the richest man in the world); he did not drink alcohol or have expensive hobbies. He managed to separate his ruthless business dealings from his personal life. In several interviews he stated his belief that he was selected by God to become extremely wealthy and powerful. And he believed that monopolies such as the one he had built were the most efficient form of business and that they could make the American standard of living higher. In these respects, it is clear he felt that he was doing constructive work rather than being greedy and brutal to other business owners. Rockefeller never dealt with the many specific accusations of his under-handed methods of advancing his monopoly; in the excerpt from Random Reminiscences, the reader can sense his pride as well as his defensiveness when he speaks of his company in very general and glowing terms.
Things to remember while reading the excerpt from Random Reminiscences of Men and Events:
- Economic conditions in the post-Civil War United States were extremely favorable for the rise of giant, powerful corporations that made their executives very wealthy. There were no federal income taxes, few corporate taxes, and almost no regulation of business. Many of the country's leaders had adopted the views of English economist Adam Smith (1723-1790), who, in his noted book An Inquiry into the Nature and Causes of the Wealth of Nations (1776), reasoned that economies should be regulated only by competition among businesses, without interference from the government. This hands-off policy of the government was called laissez-faire, an economic doctrine that opposes government regulation of commerce and industry beyond the minimum necessary.
- Many industrialists of the period regularly purchased the favors of elected officials either with money, gifts, or more often, with shares of their company stock.
- Although in Random Reminiscences Rockefeller claimed Standard Oil was not a monopoly, in other discussions he freely acknowledged his efforts to gain control over the industry by combining companies. In an interview quoted by biographer Ron Chernow in Titan: The Life of John D. Rockefeller, Sr., Rockefeller stated: "The oil business was in confusion and daily growing worse. Someone had to take a stand…. This movement was the origin of the whole system of economic administration. It has revolutionized the way of doing business all over the world…. The day of the combination is here to stay."
- Rockefeller was not the first to try to form a business combination, or to merge leading companies into an organization that could take control of an entire industry. Corporate combinations had begun during the 1860s with business pools—agreements among rivals within an industry to share their profits or divide up territories in order to avoid destructive competition and maintain higher prices. Salt producers were among the first to create a successful pool in the United States. Under the Michigan Salt Association, formed in 1869, the salt companies agreed to divide up their territories. Since there were no other competitors within these assigned territories, they were immediately able to double the price of salt, and all participating companies profited. Other industries soon formed similar pools. The lack of competition in the market hurt consumers, who had to pay higher prices.
- From the 1870s on, the trend in business was toward consolidation, a process in which companies purchased other companies and folded them into one large combination. There were two general ways to consolidate. One was horizontal expansion, in which the primary company purchased as many of its rival companies as possible. The end result would be a monopoly, or ownership of all companies in the industry. The other way to consolidate was vertical expansion, in which the primary company bought up the companies that provided the services it needed, thus avoiding paying competitive prices for equipment, transportation, and manufacturing. Rockefeller expanded Standard Oil both horizontally, by buying his competitors, and vertically, by buying businesses that made barrels, provided oil transportation, and built pipelines.
- By 1890 monopolies and trusts controlled the production of such products as whiskey, sugar, cigarettes, and lead, as well as dominating the nation's railroad industry. Citizens of the United States were divided between two very different views of these corporate organizations. Some accepted trusts as a natural result of modern industry. Among those who were in favor of trusts, some wanted general government oversight of the large monopolies, while others preferred no interference outside the market. A second group of Americans believed monopolies were unfair and hurt the country by concentrating wealth and political power in the hands of only a few businessmen. This group called for the dissolution (breaking apart) of all monopolies in the interest of restoring and preserving a competitive market system.
Excerpt from Random Reminiscences of Men and Events
The Standard Oil Company
For years the Standard Oil Company has developed step by step, and I am convinced that it has done well its work of supplying to the people the products frompetroleum at prices which have decreased as the efficiency of the business has been built up. It gradually extended its services first to the large centers, and then to towns, and on to the smallest places, going to the homes of its customers, delivering the oil to suit the convenience of the actual users. This same system is being followed out in various parts of the world…. Do you think this trade has been developed by anything but hard work?
This plan of selling our products direct to the consumer and the exceptionally rapid growth of the business bred a certainantagonism which I suppose could not have been avoided….
I have often wondered if the criticism which centred upon us did not come from the fact that we were among the first, if not the first, to work out the problems of direct selling to the user on a broad scale. This was done in a fair spirit and with due consideration to every one's rights. We did not ruthlessly go after the trade of our competitors and attempt to ruin it by cutting prices or instituting a spy system. We had set ourselves the task of building up as rapidly and as broadly as possible the volume of consumption. Let me try to explain just what happened.
To get the advantage of the facilities we had in manufacture, we sought the utmost market in all lands—we neededvolume. To do this we had to create selling methods far in advance of what then existed; we had to dispose of two, or three, or four gallons of oil where one had been sold before, and we could not rely upon the usual trade channels then existing to accomplish this. It was never our purpose to interfere with a dealer who adequatelycultivated his field of operations, but when we saw a new opportunity or a new place for extending the sale by further and effective facilities, we made it our business to provide them. In this way we opened many new lines in which others have shared. In this development we had to employ many comparatively new men. The ideal way to supply material for higher positions is, of course, to recruit the men from among the youngest in the company's service, but our expansion was too rapid to permit this in all cases. That some of these employees wereover-zealous in going after sales it would not be surprising to learn, but they were acting in violation of the expressed and known wishes of the company. But even these instances, I am convinced, occurred so seldom, by comparison with the number of transactions we carried on, that they were really the exceptions that proved the rule.
Every week in the year for many, many years, thisconcern has brought into this country more than a million dollars gold, all from the products produced by American labour. I am proud of the record, and believe most Americans will be when they understand some things better. These achievements, the development of this great foreign trade, the owning of ships to carry the oil in bulk by the most economical methods, the sending out of men to fight for the world's markets, have cost huge sums of money, and the vast capital employed could not be raised nor controlled except by such an organization as the Standard is to-day….
The 60,000 men who are at work constantly in the service of the company are kept busy year in and year out. The past year has been a time of greatcontraction, but the Standard has gone on with its plansunchecked, and the new works and buildings have not been delayed on account of lack of capital or fear of bad times. It pays its workmen well, it cares for them when sick, and pensions them when old. It has never had any important strikes, and if there is any better function of business management than giving profitable work to employees year after year, in good times and bad, I don't know what it is….
It is a common thing to hear people say that this company has crushed out its competitors. Only the uninformed could make such an assertion. It has and always has had, and always will have, hundreds of active competitors; it has lived only because it has managed its affairs well and economically and with greatvigor. To speak of competition for a minute: Consider not only the able people who compete in refining oil, but all the competition in the various trades which make and sell by-products—a great variety of different businesses. And perhaps of even more importance is the competition in foreign lands. The Standard is always fighting to sell the American product against the oil produced from the great fields of Russia, which struggles for the trade of Europe, and the Burma oil, which largely affects the market in India…. Every time we succeeded in a foreign land, it meant dollars brought to this country, and every time we failed, it was a loss to our nation and its workmen….
I think I can speak thus frankly and enthusiastically because the working out of many of these great plans has developed largely since I retired from the business fourteen years ago.
The Standard has not now, and never did have a royal road to supremacy, nor is its success due to any one man, but to the multitude of able men who are working together. If the present managers of the company were to relax efforts, allow the quality of their product todegenerate, or treat their customers badly, how long would their business last? About as long as any other neglected business. To read some of the accounts of the affairs of the company, one would think that it had such a hold on the oil trade that the directors did little but come together and declaredividends. It is a pleasure for me to take this opportunity to pay tribute to the work these men are doing, not only for the company they serve, but for the foreign trade of our country; for more than half of all the product that the company makes is sold outside of the United States. If, in place of these directors, the business were taken over and run by anyone but experts, I would sell my interest for any price I could get. To succeed in a business requires the best and most earnest men to manage it, and the best men rise to the top.
- Oil and oil products.
- Large quantities.
- Prepared to be productive.
- Too eager.
- Rockefeller refers here to his company, Standard Oil.
- Decrease in the country's business activity and economic growth.
- Shares in the company's surplus or income.
What happened next …
In November 1906 the Federal Circuit Court of the Eastern District of Missouri brought charges against Standard Oil for creating a monopoly and restraining trade. In 1909 the Missouri court found Standard Oil guilty of violating the Sherman Antitrust Act in two ways: by forming a holding company and by restraining competition by fixing transportation rates, supply costs, and output prices. Standard Oil appealed the decision, but in 1911 the Supreme Court upheld the Missouri decision and ordered the Standard Oil Trust to be broken up, separating the parent holding company, Jersey Standard, from its thirty-three major subsidiaries. Many of the individual companies continued to operate under the name Standard Oil. These included the Standard Oil Company of Indiana (later American), the Standard Oil Company (Ohio), Standard Oil Company of California (later Chevron), Standard Oil of New Jersey (later Exxon), and Standard Oil of New York (later Mobil).
The Standard Oil case of 1911 significantly changed the course of American business history. The victory of the government against a powerful trust proved that regulation could be accomplished. Although the successor companies to the trust, particularly the New Jersey unit, maintained considerable market power in their regional territories, the dissolution of Standard Oil into many independent companies effectively increased competition in the oil industry. Companies that were able to share in the oil profits included Shell, Gulf, and Sun.
Did you know …
- When Rockefeller retired from the daily management of Standard Oil in 1896, his personal fortune was an estimated $900 million. (This was after he had already donated hundreds of millions in his efforts to promote human welfare and the arts; thus he was often considered America's first billionaire.) His interests turned toward philanthropy (the voluntary giving of money or other assets by an individual or group to promote the good of others). He became one of the great leaders in American philanthropy as well as in business. He virtually created the University of Chicago with a founding donation in 1889 of $600,000 and later gifts (some from his son) totaling $80 million. He founded the Rockefeller Institute for Medical Research in 1901 and the General Education Board in 1902. His philanthropy was further regulated with the creation of the Rockefeller Foundation in 1913. At the time of his death, he had given away more than $500 million, and the influence of his philanthropic institutions was still growing.
- The Rockefellers never let the public see any of the harmful effects that the constant public criticism of Rockefeller had on their family. Ron Chernow notes: "Rockefeller, his wife, his son, and two of his three daughters were afflicted by serious medical problems or nervous strain" due to the public exposure of Rockefeller as a corporate criminal and the attacks on him personally.
Consider the following …
- John D. Rockefeller's Standard Oil monopoly introduced many new business practices to the United States and changed the nature of commerce in the country forever. In this excerpt, what arguments does he make for being viewed as an American hero? Do you believe he was a heroic captain of industry, an unscrupulous robber baron only interested in his own profits, or both?
- Why do you think free market competition has been considered so important in American history? Should monopolies exist to organize the various industries?
For More Information
Chernow, Ron. Titan: The Life of John D. Rockefeller, Sr. New York: Vintage Books, 2004.
Lloyd, Henry Demarest. Wealth Against Commonwealth. New York: 1894.
Nevins, Allan. John D. Rockefeller: The Heroic Age of American Enterprise. New York: Charles Scribner's Sons, 1940.
Rockefeller, John D. Random Reminiscences of Men and Events. New York: Doubleday, Page & Company, 1909.
Poole, Keith. "John D. Rockefeller Senior, 1839-1937: The Rockefellers." American Experience, PBS. http://www.pbs.org/wgbh/amex/rockefellers/peopleevents/p_rock_jsr.html (accessed on July 6, 2005).