Friday, March 28, 2014

John D. Rockefeller: Robber Baron, Oilman, Billionaire

John D. Rockefeller
Oil is one of the most treasured and valuable commodity in the world. Many countries, especially China, want to get a hold of it. Most of the oil reserve is owned by great billion-dollar companies such as Chevron, Mobil, and Exxon. But during the 1800’s, the advent of the black gold, a company was formed that became the root of the mentioned companies and from a man that is known as the richest person ever.

John D. Rockefeller (July 8, 1834 - May 23, 1937) was an American industrialist during the time of uncontrolled and mostly abusive capitalism, otherwise known as the Gilded Age. He was a very influential and wealthy business titan and was among the so-called Robber Barons, along with Andrew Carnegie and J.P. Morgan, who utilized predatory tactics to crush competition and to get most of the workers. The company that is synonymous to him and his abusive business practices was one of the biggest corporate companies in American history - Standard Oil. To redeem himself from a public image of a blood-sucking monster, he engaged in philanthropic work by founding several institutions.

What was inspiring about Rockefeller was that he is another story of rags to riches. He was born from humble beginnings. Born on July 8, 1834, in Richford, New York, he was the second among six siblings. His parents were William Rockefeller, who sold lumber and a very infamous man for his shady dealings, and Eliza Davison, who taught the young John Rockefeller to be a devout Baptist and raised her children in a somewhat puritanical and strict way. While Rockefeller was just fourteen years old, his family moved to Cleveland, Ohio where he continued his education. He studied at Cleveland’s Central High School and excelled, not surprisingly, in math. After high school, he attended classes for three months in Folsom Mercantile College where he learned some knowledge about business.

In 1859, John D. Rockefeller entered his first business venture.  With help from his father and with a partnership with a friend, Maurice Clark, he entered the retail business, selling consumer goods to customers. Eventually, the business seemed to be very successful, with the first year earnings reaching to about $450,000. The business further prospered during the onset of the bloody Civil War in the early 1860’s.

While Rockefeller worked himself tirelessly in his retail business, a world-changing event had hit Pennsylvania and Ohio. In Pennsylvania, black gold spewed out ofthe drills of wells; triggered the oil industry in the area. In Ohio, railroad tracks were laid that connected the state to Pennsylvania. The partners, Rockefeller and Clark, saw an opportunity for oil. They collaborated with a chemist, Samuel Andrew, to establish an oil refining business. They built the largest oil refinery in Cleveland that produce kerosene. Kerosene replaced expensive candles in lighting the dark nights and became an instant hit. In 1865, a shake-up in the management happened. Rockefeller bought out Clark for $72,500 and led to the creation of the Rockefeller & Andrews. During the late 1860’s, the two formed a partnership with William Rockefeller (John Rockefeller’s brother), and Henry Flagler, in addition to non-controlling investments of Stephen Harkness. The expanded partnership created the company Rockefeller, Andrews, & Flagler.

The new company was very successful. With the persuading skills of Harkness and Flagler, they managed to acquire rebates or discounts from railroad companies to freight their kerosene to the markets. The discounts in freight rates helped to reduce the price of their products in the market. In 1870, to alleviate the fears of the people on kerosene, because of the fire hazard that it causes, Rockefeller and company decided to change the name of their oil venture to Standard Oil. The name explained that they were creating a standard oil product that was safe and trustworthy for the consumers. The company’s capital worth estimated to about $1 million. It also controlled one-tenth of the supply of kerosene across the US. 

Anxious to expand his Standard Oil, in 1871, Rockefeller planned an ingenious scheme to take over the US oil market. He opted for collusion with the Pennsylvania Railroad and other oil companies; and formed the South Improvement Company. The South Improvement Company aimed for the creation of a monopoly of the oil industry by several oil companies, with very much under the leadership of Standard Oil. The plan also called for Pennsylvania Railroad to give large freight rate rebates to oil companies. This would help the companies to corner most of the US market with their low price products.

Eventually, the plan was abandoned. The press heard rumors about the monopolistic plan and spread it to the masses. Condemnation of the plan by the people and other small companies dragged down the South Improvement Company towards its abandonment. Standard Oil started to receive its negative criticisms. 

Not willing to give up in a massive expansion of Standard Oil, Rockefeller went for a plan B – a buy-out. In 1872, Standard Oil began to devour all of its competitors in Cleveland. The buy-out became known as the “Cleveland Massacre”. Then in 1873, luck sided more with Rockefeller, a great panic in the stock market dropped all of the stock prices of many companies, including in the oil industry. Rockefeller being a good investor, instead of selling during a panic, he took the opportunity to devour more oil companies outside Ohio and integrated them to Standard Oil. He managed to acquire oil companies in New York, Pittsburgh, and Philadelphia.

Standard Oil was growing very fast, but the railroads cannot keep up with the phase of growth of the oil industry; so Rockefeller devised a new strategy to transport his products and to bring crude oil to his refineries in a faster and cheaper way. During the late 1870’s and early 1880’s, Rockefeller constructed miles of pipeline. It connected the oil wells to his refineries. The construction was costly but worth it, because it took the railway companies out of the oil industry and lessen the cost of transportation. The railways, especially the owner of Pennsylvania Railroad, Thomas Scott, took it as a threat.

Scott retaliated to Rockefeller by entering the oil industry in 1877. He acquired an oil refinery and constructed pipelines as well. Rockefeller heard news of the trespassing of Tom Scott in his industry and launched a counterattack. In Scott side, his Pennsylvania Railroad remained profitable as long as it still ships kerosene from Rockefeller's Pennsylvania refineries. Rockefeller took the opportunity on this weakness to cut the throat of his competition. He decided to shut down his refineries in Pennsylvania, eventually halting any shipments via railroad. The lost cargo had devastating effects on Scott’s company. He had to cut wages and jobs to save the company. The workers, who lost their jobs or got their wages cut, rioted over the company property. The rioters damaged or destroyed many company properties, including locomotives and stations. With the chaos on his company, Scott had no choice but to withdraw from the oil industry.

After the war with Pennsylvania Railroad, Rockefeller’s company and wealth continued to grow. By 1879, Standard Oil already controlled almost 90% of US market supply of refined oil and virtually became a monopoly. In 1882, because of the large and still growing company, the Standard Oil Trust was established to allow Standard Oil to expand and establish companies or trusts outside Ohio. In form of trustees outside the state, they manage the companies. Because ownership of shares outside the home state was illegal back then, the State of Ohio prosecuted Standard Oil in 1889, for violating anti-trust laws. After a long court battle, the court decided that Standard Oil was guilty and ordered the break-up of the Standard Oil Trust. Because of the setback, Rockefeller decided to move their headquarters to New Jersey because of its less strict laws on trust. 

In 1896, John D. Rockefeller decided to retire from Standard Oil but remained as president of the company. Over the years, Standard Oil continued its monopolistic practices in the oil industry and received more criticisms. Rockefeller was not immune of the criticisms and was widely blamed for the hardship of the workers. At this point, the press began to label him as a Robber Baron.

The days of Standard Oil monopoly was numbered at the dawn of the 20th-century. Theodore Roosevelt, the US President, dedicated himself in crushing the monopolies and their illegal and abusive practices. One of these monopolies was Standard Oil. In 1906, the US Federal Government sued Standard Oil for its violation of the Anti-Trust Law. After five years of court battle, the US Supreme Court decided that Standard Oil violated the anti-monopoly laws and ordered the breakup of the company into 33 smaller entities.

The break-up of Standard Oil became an irony for Rockefeller. Instead of being broke because of the breakup, Rockefeller became even richer because he has stock on every single 33 companies that formed from Standard Oil. Companies from his monopoly included major oil companies of today: Exxon, Mobil, and Chevron. As these companies grew to a very large conglomerate, his stocks on the companies grew as well, leaving him a huge sums of money.

With his vast wealth, and with persuasion from his fellow tycoons, Andrew Carnegie, Rockefeller tried to redeem himself from his bad image. He engaged on massive philanthropic works. Back when Standard Oil just started to take off, Rockefeller had a personal dedication. He donated one-tenth of his profits to charity and especially, to his Baptist Church. He also donated money in establishing educational institutions. In 1892, he gave $80 million for establishing of the University of Chicago. After he retired from Standard Oil, he became more active in his charitable activities.  In 1901, he founded the Institute of Medical Research; in 1902, the General Education Board. But, the largest and most famous charitable foundation that he established was the Rockefeller Foundation in 1913. He made a personal endowment of $250 million. The foundation aimed in promoting hygiene and improving sanitation around the world. Until 1937, he continued to fund the establishment of charities and schools.

John D. Rockefeller met his end in Ormond, Florida on May 23, 1937 at the age of 97.

Rockefeller lived an incredible life. From a humble beginning, he became the riches man on the planet. However, his path to riches was deemed by the way he did it and gave him huge criticisms. To improve his image, he made a large effort to engage in charitable foundations. By the time of his demise, the Rockefellers remained an influential and wealthy family in the US.

See also:
Andrew Carnegie: Steel Man and Philanthropist
Cornelius Vanderbilt: Ferry Owner Turned Railroad King
J.P. Morgan: The Giant of Financial World

Bibliography:
Ciment, J. The Home Front Encyclopedia: United States, Britain, and Canada in World Wars I and II. California: ABC-CLIO, 2007. 

Geisst, Charles. Encyclopedia of American Business History. New York: Facts On File, 2006. 

Northrup, C. The American Economy: A Historical Encyclopedia. California: ABC-CLIO, 2003. 

"John D. Rockefeller Biography."  Encyclopedia of World Biography. Accessed on May 16, 2013. http://www.notablebiographies.com

"Short Biography of John D. Rockefeller." BiographyShelf.com. Accessed on May 16, 2013.http://www.biographyshelf.com.

1 comment:

  1. ayy m8 he made dem dank memes i like dis robba baryon

    ReplyDelete