Rockefeller: The Richest Man In America

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The years following the American Civil War were a golden age for capitalism. This period, later known as the Gilded Age, saw the rapid rise of the US economy as factories, railroads and massive corporations sprang up across the Continent. A handful of men, the ‘Great Captains of Industry’, such as Vanderbilt, Carnegie and Morgan were able to exploit this moment of history to create for themselves vast financial empires which made them absurdly wealthy. Of all these economic titans, however, the most successful was John D. Rockefeller, the founder of Standard Oil. Through a combination of financial acumen, a relentless drive for efficiency and underhanded business dealings, Rockefeller was able to rise from humble beginnings to dominate the American petroleum market, eventually becoming perhaps the richest man in four centuries.

John Davidson Rockefeller was born in 1839 in upstate New York. He was the eldest son of Eliza Davison and William Rockefeller Sr, a con artist and a snake oil salesman who made money by selling potions and elixirs to gullible strangers. Perhaps unsurprisingly given the nature of his work, William was forced to permanently be on the move, and so John spent his first years travelling America with his five siblings.

William was far from a paternal figure; he took every opportunity he could to swindle his own children, allegedly in an attempt to toughen them up. On one occasion, William urged John to jump off a chair into his arms, only to then watch him crash to the ground in an effort to teach him never to trust anyone. Eventually, the Rockefellers settled in Cleveland Ohio, but this did not make family life much easier. When his father left home, John, aged sixteen, dropped out of school to begin working as an assistant bookkeeper. Though he only earned 50 cents a day, Rockefeller would come to view these years as the beginning of his rise to prominence – throughout his life he annually celebrated the day he first became employed as “Job Day”. 

As a young bookkeeper, Rockefeller was diligent, precise and possessed a keen mathematical mind. Most of his time was spent calculating the costs of transporting various goods, a skill he quickly became highly proficient in. Two years later, however, a dispute over his pitiful pay led to Rockefeller striking out on his own. Aged eighteen, he began his first enterprise, a produce brokerage – a commission business dealing hay, grain, meats and other perishable goods. Business was slow at first, but the advent of the American Civil War provided him with his first opportunity. The Union required massive quantities of food to supply its soldiers, and Rockefeller was able to expand his business off the back of provisioning the US Army. Rockefeller himself did not serve in the Civil War; although he was a lifelong abolitionist, he received an exemption as the primary source of income for his family and instead hired substitute soldiers in his place, a common practice at this time. 

Rockefeller’s fortunes were truly transformed during the Civil War. The first American petroleum well had been discovered just 100 miles east of Cleveland and, eager to make their fortunes, speculators quickly began flooding into Pennsylvania, beginning an oil rush. There was a huge market for Kerosene (one of several components of crude oil), which was then used as a fuel for lamps. Realising the cessation of hostilities would end his lucrative produce brokerage, Rockefeller began taking an interest in the oil craze. However, he had little interest in drilling, where the only difference between striking oil and bankruptcy was luck, and where most speculators returned home empty-handed. Instead, Rockefeller was drawn to refining – the process by which useless crude oil is separated into its useful components.

By 1863, Rockefeller had created a partnership, assembled a team of scientists and built his first refinery in Cleveland. Before Rockefeller, the refining process had been enormously inefficient – more than 40% of crude was regularly wasted – but the team in Cleveland began experimenting with more efficient methods. They also started to discover various uses for the (previously deemed worthless) byproducts of the refining process; gasoline was used to fuel the refinery, whilst other products were sold as lubricating oil, paraffin war, tar and naphtha. By constantly reducing waste and cutting costs, Rockefeller expanded relentlessly and, within two years, his was the largest refinery in the area.

On 10 January 1870, Rockefeller dissolved the partnership and formed Standard Oil of Ohio. Standard Oil was just one of the dozens of companies founded during the petroleum craze, and it was entering a heavily saturated market; refineries were producing some 40,000 barrels a year, but the country consumed a mere 16,000. Standard Oil’s only edge was Rockefeller’s relentless drive for efficiency. To cut costs, Rockefeller sought to control all parts of his supply chain, even to the extent of purchasing an entire forest to provide the wood needed for company barrels. Whenever other petroleum companies attempted to build pipeline networks, Rockefeller bought up strategically positioned stretches of land to block their efforts. He then proceeded to strike a deal with the railroad barons; known as the South Improvement Company, the pact saw Standard Oil pledge to use each railway company to transport an agreed amount of oil. In return, Rockefeller received a massive rebate, meaning that transporting oil only cost Standard Oil 60% of what other petroleum producers had to pay.

Standard Oil  went on the offensive, buying up less efficient corporations and acquiring their refineries. Rockefeller’s rivals couldn’t compete and, in just six weeks during February and March 1872, twenty-two of standard’s oil competitors were bought out, bankrupted or otherwise dissolved in an event known as the ‘Cleveland Massacre’. Now the most powerful oil baron in America, Rockefeller could strangle his competitors. Standard Oil quickly became known for its price wars, in which it would drive the price of kerosene down by as much as 80%. Selling oil at this rate was unprofitable even for Standard Oil, but Rockefeller had the reserves to simply wait until his competitors went broke before ratcheting up prices again. By 1880, Standard Oil refined 90% of all petroleum in America. 

In the aftermath of the Civil War, America was still a highly decentralised nation, and legislation made it extremely difficult for a company which had been established in one state to operate in another. Technically, Standard Oil was forbidden from doing business outside Cleveland, a condition of his charter Rockefeller had managed to ignore by owning numerous different corporations which did business in different states. In 1882, Rockefeller’s lawyers devised a novel way to circumvent these laws, the Trust. Effectively, the thirty-seven existing men who held stock in the myriad Standard Oil Companies secretly agreed to place their shares “in trust” to a nine man board, headed by Rockefeller. The virtue of the legal sophistication of the Trust was that it made Standard Oil extremely difficult to investigate, and even more difficult to regulate effectively. 

In the 1880s, Standard Oil was at the height of its power, possessing 20,000 oil wells, owning 4,000 miles of pipeline and employing 100,000 people. To celebrate his successes, Rockefeller built an impressive headquarters in Manhattan. Yet at the end of the decade, massive oil deposits were discovered in Russia, eroding Standard’s market share. To make matters worse, the Federal Government passed the Sherman Anti-Trust Act in 1890, designed to put a hold to the price-fixing, cartelism and other anti-competitive practices that had made Standard Oil so successful. 

For the next two decades, politicians and the media attempted to bring down Rockefeller’s colossus. However, the complex legal structure of Standard Oil made it almost impervious to such assaults and, although the investigations of the journalist Ida Tarbell (herself the daughter of one of the Ohioan refiners Rockefeller had bankrupted in his early years) shed light on its shady practices, the company remained its status as a behemoth of American industry. Whenever politicians attempted to enforce the Sherman Antitrust Act, Standard Oil was usually able to simply bribe their way out of trouble, or drowned their opponents in a sea of legal technicalities. Rockefeller eventually retired from daily operation in 1896, but remained in a figurehead role as President and was still a major shareholder.

Once he had stepped back from the day to day running of his oil empire, Rockefeller was able to focus on his philanthropic measures. As a boy, Rockefeller’s pious mother had instilled in him the importance of charity, and from very young age he had tithed 10% of his earnings to the Church. Now that Rockefeller was one of the wealthiest men in America, he was able to fund extremely ambitious ventures, such as establishing the University of Chicago. He created the Rockefeller foundation, which later contributed to achievements such as the development of a yellow fever vaccine. Under Rockefeller’s leadership, the foundation organised incredible humanitarian efforts, delivering more than $22 million of aid to devastated Belgium, Serbia and Armenian after the First World War. During the 1930s, it also helped to remove more than three-hundred Jewish scientists and researchers from Nazi Germany.  

Rockefeller’s greatest philanthropic venture, however, was in the uncharted territory of medical research. He established the Rockefeller Institute for Medical Research (RIMR), which made numerous breakthroughs on the syphilis microbe and the anti-meningitis serum. In the early 20th Century, more than 40% of the population of the Southern States suffered from hookworm infections, but by mapping out high risk areas, treating those infected and educating people on the need for improved sanitation systems, the RIMR almost eradicated the disease. Rockefeller’s projects were enormously expensive, and over the course of his life, he gave away more than $540 million.

In 1911, Rockefeller finally faced an implacable foe that could not be bought off. At the direction of President Theodore Roosevelt, the US Justice Department sued Standard Oil for violating the Sherman Antitrust Act. The case went before the Supreme Court, which ordered Standard Oil be split into thirty-four independent companies. Overtime, these fragment corporations regrew, and today the oil market is dominated by descendants of Standard Oil, such as Chevron, Conoco, ExxonMobil and Amoco. At the time of the breakup, Rockefeller still held 25% of Standard’s stock, and so received proportionate shares in the smaller companies. Since the new companies’ combined net worth rose fivefold following the split, the Supreme Court’s decision was a financial windfall for Rockefeller. In this way, he became America’s first billionaire and by 1937, his total assets equalled 2% of America’s GDP. He died that year, aged 98.

As a young man, Rockefeller had said his two ambitions were to earn $100,000 and live to a hundred. While he didn’t quite manage to attain a century, he achieved his former objective several hundred times over. Rockefeller was, ultimately, a man of his times; the expansion of Standard Oil and its domination of the petroleum market was an incredible, albeit somewhat unethical, feat. Yet Rockefeller was not merely content counting his coins, and instead set a standard for the tycoons of the future with his vast contributions to philanthropy. 

Chernow, R., 2013. Titan: The Life of John D. Rockefeller, Sr. Vintage