John Davidson Rockefeller: The Richest Man in America

John D. Rockefeller, 1917 by John D. Sargent

John D. was the second child born to William Avery “Bill” Rockefeller and Eliza Davison on July 8, 1839, in Richford, New York. Eventually, the family would have six children: Lucy, William Jr., Mary and twins Franklin and Frances.

Bill was first a lumberman who later listed his occupation as a traveling salesman – a “botanic physician” who sold elixirs. Bill was known for his shady schemes and his philandering. In 1838 and 1840, Bill and his mistress (housekeeper) had two daughters. Bill once bragged, “I cheat my boys every chance I get. I want to make ‘em sharp.”  John’s mother, Eliza suffered through his double life, which included bigamy. She was thrifty and told her son, “willful waste makes woeful want.”

Rockefeller at 18
Rockefeller at 18

John was an industrious boy who earned money raising turkeys, selling candy and doing jobs for neighbors.  In 1853, when John was 14, the family moved to Strongsville, a suburb of Cleveland, Ohio where he attended Cleveland’s Central High School. He then took a 10-week business course at Folsom’s Commercial College, where he studied bookkeeping.

Every year, throughout his life, John celebrated September 26, the date he entered the business world. He called it “job day.”

In 1859, Rockefeller and a partner raised $4,000 ($100,000 in 2015) and established their own produce commission firm.

In 2863, the partners built an oil refinery in “the Flats,” Cleveland’s industrial area. The refinery was owned by Andrews, Clark & Company, which included Clark, Rockefeller and Samuel Andrews (a chemist) and M.B. Clark’s two brothers. America’s first commercial oil well was drilled in Titusville, Pennsylvania in 1859.

In 1864, Rockefeller married Laura Celestia “Cettie” Spelman (1839-1915), an Ohio native whose father was a prosperous merchant, politician and abolitionist, active in the Underground Railroad. The Rockefellers had four daughters (three of whom survived to adulthood) and one son.

While John’s brother, Frank fought in the Civil War, Rockefeller hired substitute soldiers and gave money to the Union cause – a practice many wealthy Northerners used to avoid combat.

After two years in business with the Clark brothers, John bought them out at auction for $72,000 ($1M in 2015) and renamed the company Rockefeller & Andrews. In retrospect, John said, “It was the day that determined my career.”

In 1866, John’s brother, William built another refinery in Cleveland and brought John into the partnership. In 1867, Henry Flagler became a partner and the firm became Rockefeller, Andrews & Flagler. This company was the predecessor to Standard Oil Company.

Although he was vilified in the press, Rockefeller was kept moving forward. He bought competing refiners, made his operations more efficient and pressed for oil shipping discounts. He undercut his competition, made secret deals, raised investment pools and bought out rivals. In less than four months in 1872, Standard Oil took on 22 of its 26 Cleveland competitors. This was later known as “The Cleveland Conquest” and “The Cleveland Massacre.”

Even Pratt & Rogers caved to the competition and in 1874, they made a secret deal to be acquired. Charles Pratt and Henry H. Rogers became Rockefeller’s partners and Charles Millard Pratt (Charles’ son) became Secretary of Standard Oil.

Standard continued to grow. It added its own pipelines, tank cars and home delivery network. The company kept prices low to stifle competition, made its products affordable to the average household and in some cases, sold below cost. The company developed more than 300 oil-based products from tar to paint to Vaseline petroleum jelly to chewing gum. By the end of the 1870s, Standard was refining more than 90% of the oil in the US. Rockefeller was already a millionaire ($25M in 2015).

Railroad vs. Pipeline

In 1877, Standard Oil clashed with Thomas A. Scott, President of the Pennsylvania Railroad — Standard Oil’s primary transporter. Rockefeller saw pipelines as the alternative transport system for oil and launched a campaign to build and/or acquire them. Scott saw this as infringement and decided to form a subsidiary to buy and build oil refineries and pipelines.

Standard retaliated by holding back shipments and with help from other railroads, launched a price war that substantially lowered freight payments and led to labor unrest. Rockefeller prevailed and the railroad sold its oil interests to Standard. Following that battle, however, the Commonwealth of Pennsylvania, in 1879, indicted Rockefeller on charges of monopolizing the oil trade.

By the end of the Civil War, Cleveland was one of the five main refining centers in the US. Others were Pittsburgh, PA, New York and northwestern Pennsylvania, where most of the oil originated. By 1869, there were 3 times more kerosene refining capacity that was needed to supply the market; excess capacity lasted several years.

Rockefeller decided to abolish the partnership on January 10, 1870 and formed Standard Oil of Ohio, which became one of the largest shippers of oil and kerosene in the country. Railroads competed for traffic and attempted to create a cartel to control freight rates by forming the Southern Improvement Company. This company was in collusion several oil companies (including Standard Oil) outside the main oil centers. The cartel received preferential rates as a high-volume shipper, which included steep rebates of 50% for their product and the same rebate for competitors’ shipments.

https://upload.wikimedia.org/wikipedia/commons/7/73/John-D-Rockefeller-sen.jpg
Rockefeller at 36 in 1875

The announcement of increased freight charges led Independent well owners to go bonkers. They protested, boycotted, vandalized and soon found out that Standard Oil was part of the scheme. Charles Pratt & Company (a major NY refinery) led the opposition of the plan and before long, the railroads backed down. Pennsylvania revoked the cartel’s charter and non-preferential rates were restored…for the moment.

That action led to a host of new court proceedings in other states, making a national issue of Standard Oil’s business practices.

Standard Oil gradually gained almost complete control of oil refining and marketing in the US, via horizontal integration in the kerosene industry. It supplied kerosene by tank cars to local markets and tank wagons that delivered kerosene to retail customers. That way, they cut out the existing network of wholesale jobbers.

The company’s business practices were controversial. They included underselling, differential pricing and secret transportation rebates. Politicians and journalists attacked the company for its monopolistic methods and led to the antitrust movement.

According to the New York World, Standard Oil was “the most cruel, impudent, pitiless and grasping monopoly that ever fastened upon a country.” Rockefeller’s response to critics, was “In a business as large as ours…some things are likely to be done which we cannot approve. We correct them as soon as they come to our knowledge.”

It was difficult to incorporate in one state and operate in another, so Rockefeller and his associates owned dozens of separate corporations that operated in just one state. In 1882, his lawyers created the Standard Oil Trust, a corporation of corporations. Nine trustees, including Rockefeller, ran the 41 companies in the trust. The concept came under suspicion but other companies began mimicking it. Standard Oil became the richest, biggest, most feared business in the world. It was seemingly immune to the boom and bust of the business cycle and consistently made profits year after year.

The American empire included 20,000 domestic wells, 4,000 miles of pipeline, 5,000 tank cars and over 100,000 employees. At its zenith, it had 90% of the world’s refining but dropped to about 80% for the rest of the century.

Standard Oil moved its headquarters to 26 Broadway, New York City and Rockefeller became a large figure in the business community. In 1884, he purchased a residence on 54th Street at Fifth Avenue, near the mansions of other wealthy businessmen such as William Henry Vanderbilt. Despite ongoing personal threats and pleas for charity, Rockefeller took the new elevated train to his downtown office each day.

New Digs

The Sherman Act of 1890 was originally designed to control unions, but it was later used to break up the Standard Oil trust. Ohio was particularly interested in using the anti-trust laws and eventually forced Standard Oil of Ohio to separate from the rest of the company

Standard Oil moved its headquarters to 26 Broadway, New York City and Rockefeller became a large figure in the business community. In 1884, he purchased a residence on 54th Street at Fifth Avenue, near the mansions of other wealthy businessmen such as William Henry Vanderbilt. Despite ongoing personal threats and pleas for charity, Rockefeller took the new elevated train to his downtown office each day.

The Sherman Act of 1890 was originally designed to control unions, but it was later used to break up the Standard Oil trust. Ohio was particularly interested in using the anti-trust laws and eventually forced Standard Oil of Ohio to separate from the rest of the company.

In 1892, the Ohio Supreme Court dissolved the Standard Oil Trust but the businesses within the trust soon became part of Standard Oil of New Jersey, which functioned as a holding company. In 1911, after years of litigation, the U.S. Supreme Court ruled Standard Oil of New Jersey was in violation of anti-trust laws and forced it to dismantle; it was broken up into more than 30 individual companies.

Rockefeller at 46 in 1885
Rockefeller at 46 in 1885

Rockefeller survived the breakup of Standard Oil and continued to make money in mining. He also survived the 1913-14 Ludlow Massacre which began when the United Mine workers struck against coal mine operators in southern Colorado. Although Rockefeller was in the background, he was involved with the company. Once the dust settled, Rockefeller denied any responsibility and minimized the seriousness of the event. When testifying on the Ludlow Massacre (where a tent town was set on fire and 15 women and children were burned to death) Rockefeller (a director of the company), said “I would have taken no action. I would have deplored the necessity that compelled the officers of the company to resort to such measures to supplement the state forces to maintain law and order.” He later admitted that he made no attempt to bring the militiamen to justice.

When Rockefeller was in his 50s, he suffered from moderate depression and problems with his digestion. During the stressful 1890s, he developed alopecia, a condition that causes the loss of some or all body hair. By 1901 (at 62) he did not have a hair on his body and he began wearing wigs. His hair never grew back but his other health issues subsided as he worked fewer hours.

John D. and Laura

Married 51 years, John and Laura had five children. Of Laura, John said, “Her judgement was always better than mine. Without her keen advice, I would be a poor man.” There children were:

  • Elizabeth “Bessie” (1866-1906)
  • Alice (1869 – 1870)
  • Alta (1871 – 1962)
  • Edith (1872 – 1932)
  • John D. Jr. (1874 – 1960)

Rockefeller wealth has been distributed through foundations and trusts and continues to fund family philanthropic, commercial and political aspirations. Notable grandchildren of include David, a banker who for 20+ years was CEO of Chase Manhattan (now part of JPMorgan Chase); Nelson Aldrich – NY Gov. and the 41st U.S. VP; Winthrop – ARK Gov.

John D. Rockefeller was devoutly religious, a temperance advocate and an avid golfer. His goal was to reach the age of 100; however, he died at 97 on May 23, 1937, at The Casements, his winter home in Ormond Beach, Florida.

The Richest Man in History

One of Rockefeller’s great talents was to “see” where his company and the industry were headed and hire the right people to help build it.  Still, he was hands on and said his bookkeeping background trained him to keep track of even trivial details on a daily basis.

The Midstream Advantage

The economies of scale of Rockefeller’s business positioned him to earn discounts on railway freight rates, lowering Standard Oil’s transportation costs below what their competitors bid. This led to better pricing and profits for Rockefeller. (Later, these tactics came under serious scrutiny).

However, competition was fierce for shipping by rail and rebates and discounts became common practice for anyone, especially a business that could guarantee regular shipments.

Railway rebates were just the start. Standard Oil also won “drawbacks.”  Let’s say one of his competitors paid $1 per barrel to send his product from Ohio to New York. The railroad would in turn pay $.25 of that dollar to Rockefeller – not to the shipper. This was a huge financial benefit for Rockefeller. Not only were their rates below their competitors, but they made money on their competitors’ rail shipments. In short, competitors were subsidizing Rockefeller’s company.

Overproduction caused prices to plummet and the industry dropped into a depression. From 1865 to 1870, the retail price of kerosene fell more than 50%; refining capacity was 3x market needs. In the oil regions, prices dropped to $.48 per barrel – three cents less than drinking water.

To consolidate the industry and bring in more capital without diluting control, on Jan. 10, 1870, Flagler, Rockefeller and three others established the Standard Oil Company; Rockefeller held 25% of the stock. The name was selected to reflect a “standard quality” of the product.

During the refinery depression of 1872, Rockefeller was busy controlling most of Cleveland’s refineries and some in New York City. At that time, he headed the largest refinery group in the world.

The 1870s were marked by industry disputes and questionable tactics, with Standard Oil coming out on top. By 1879, Standard Oil controlled 90% of America’s refining capacity. It also controlled pipelines and dominated transportation.

Rockefeller Philanthropy

Rockefeller’s fortune peaked in 1913 at $900 million. Today that amount translates into nearly $665 billion. He was the richest man in the world.

In his lifetime, Rockefeller helped launch the field of biomedical research by funding scientific investigations that resulted in vaccines for things like meningitis and yellow fever. He revolutionized medical training in the United States and built China’s first proper medical school. He promoted the cause of public sanitation, created schools of public health at Johns Hopkins and Harvard, and helped lead major international public health efforts against hookworm, malaria, yellow fever, and other maladies.

Higher education was the first major beneficiary of Rockefeller’s more focused philanthropic efforts. A project of lifelong interest to him was the creation of a distinguished Baptist university. Rockefeller considered several options before pairing with William Rainey Harper to establish the University of Chicago. In 1890, he made his first donation of $600,000 to the school. Over the rest of his life, he donated a total of $35 million, to the University of Chicago, making it possible for the school to instantly rank among the world’s leading institutions of higher learning.

In 1901, John D.  funded the Rockefeller Medical Research Institute in New York City.  It was modeled on the Institut Pasteur in France and the Robert Koch Institute in Germany, and was this country’s first biomedical institute, on a par with its European models. The results were dramatic. Within a decade, it created a vaccine for cerebrospinal meningitis and supported the work of America’s first winner of a Nobel Prize in medicine. Today, known as Rockefeller University, it is one of the leading biomedical research centers in the world. Twenty-four Nobel Prize winners have served on its faculty.

In 1902, Rockefeller created the General Education Board, to improve rural education for both whites and blacks in the South. He wanted to modernize agricultural practices and improve public health, primarily through efforts to eradicate hookworm, which debilitated many Southerners and dragged down productivity.

The 1913 the campaign against hookworm was exported globally and led to similar efforts against malaria, scarlet fever, tuberculosis, and typhus. Rockefeller funded the International Health Commission.

In 1918, Rockefeller created the first school of public health and hygiene at Johns Hopkins University, which he then duplicated at Harvard in 1921. In all, he spent $25 million introducing public health programs at scores of universities across the globe.

By 1909, he had given away $158 million in his personal funds to various causes. In 1913, he donated 73,000 shares of Standard Oil, worth $50 million to establish the Rockefeller Foundation with a mission “to promote the well-being of mankind throughout the world.”

It has been said that John D. Rockefeller is one of the greatest philanthropists in American history; he gave away approximately $540 million before his death in 1937 at the age of 97.

Today, the Rockefeller Foundation continues to support causes around the world.


The Break-up

On May 15, 1911, The U.S. Supreme Court upheld the lower court judgment and declared Standard Oil an “unreasonable” monopoly under the Sherman Antitrust Act of 1890. The Court ruled that Standard Oil must be dissolved and broken into 33 companies.

While the description of Standard Oil as an unreasonable monopoly may have been accurate in 1880 (when it controlled 90% of the American refining capacity) by 1911, the economic and political world had changed.

Industry Domination

For decades, Standard Oil dominated the industry. It was vertically integrated and began with well drilling (upstream), transporting oil through pipelines, on railroads and in barges (midstream) to refineries where it was transformed into various products (downstream). Some critics said the company created a “monopoly” through interlocking trusts to control regions.

Demand for oil products was greater than Standard Oil could deliver. The 1901 discovery of the Spindletop oil field led to new huge oil supply that launched the oil boom in the west and south, where Standard Oil had much less control.

By 1911, Standard Oil’s 60% – 65% market share was declining while demand for oil was growing. Standard Oil dominated older oil regions but only controlled 44% of the total mid-continent production. (California produced 29% and the Gulf Coast produced 10%).

Regional players included Pure Oil in the east, Texaco and Gulf Oil on the gulf coast, Cities Service and Sun were in the midcontinent and Union Oil was in California.

 

Overseas Opportunities

Standard Oil’s efficiencies enabled it to take advantage of overseas opportunities. In the 1890s it began marketing kerosene and shipping bulk oil in tankers to China, where it was re-packaged into five gallon tins.

Standard Oil also supplied fuel, lubricating oil and paraffin to countries in Europe. The company’s European competitors included Branobel, owned by Ludvig and Alfred Nobel. In 1901, Branobel, Royal Dutch Shell and the Rothchilds were major players in Russia’s Baku oil field, which was producing more than 50% of the world’s oil.

Rockefeller built Standard Oil during the recession following the Civil War (the 1870s and 1880s). By 1900, electricity and the combustion engine created a new industrial revolution, while deflation, corruption and uneven economic growth launched the Populist Party and the Progressive movement.

Rockefeller’s motto of turning disasters into opportunities led his company to perform well in poor economic times. Following the company’s break-up, the successor companies also performed well.*

 

Upstream and Downstream Companies

Below are most of Standard Oil’s upstream and downstream companies.

      Exxon-Mobil

  • Standard of NJ (Esso)
  • Mobil (Vacuum)
  • Imperial Oil (Canada)
  • Standard of NY (Socony)
  • Standard of LA
  • Standard of Brazil
  • Anglo-American Oil
  • Humble Oil & Refining

     BP

  • Standard of OH (SOHIO)
  • Standard of IN
  • Standard of MN
  • Standard of IL
  • Standard of KS
  • Fleet-Wing

     Chevron

  • Standard of CA
  • Standard of KY
  • Standard of IA

     Others

  • Marathon (formerly Ohio Oil)
  • Atlantic
  • Conoco (Continental Oil)
  • Standard of NE
  • Prairie Oil & Gas
  • Solar Refining

Mid-stream companies include:

Transportation – Buckeye Pipe Line, Crescent Pipe Line, Cumberland Pipe Line, IN Pipe Line, Eureka Pipe, National Transit, NY Transit and Northern Pipe.

Lubricants – Galena-Signal, Swan & Finch Co.

Others – Union Tank Lines – manufacturers of rail tanker cars (Standard Oil owned 10,000 tankers in 1911), Cheesebrough Manufacturing Co. (petroleum jelly-Vaseline) and Atlas Tires (replacement parts/tires sold by service stations).

* Sources: Wikipedia, The Prize by Daniel Yergin and Oil 101 by Morgan Downey.

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