Thursday, May 1, 2014

Cleveland Massacre: The Rise of Standard Oil

John D. Rockefeller (1870's)
In winter of 1871, a collusion was form between the railroads and the oil industry. As the two began to execute their devious plan to corner the railroad and oil industry under the name of South Improvement Company, the public, especially the press, protested against the monopolistic intentions of the group. As a result, the South Improvement Company disappeared with the winter. However, when spring bloom in 1872, so as a new powerful company also appeared, a bigger and stronger company of the oil mogul John Rockefeller, Standard Oil.

The enlargement of Standard Oil in 1872 was a result of a massive buyout plan dubbed the Cleveland Massacre by the Robber Baron, John Rockefeller. Rockefeller used the South Improvement Company in order to gain huge leverages in making smaller oil refineries to either join or be bought out by the oil company. 

The Cleveland Massacre was the second plan of Rockefeller to corner the oil market of the United States of America. During the early 1870’s near the oil regions of Pennsylvania, numerous oil refining companies competed with each other. The massive competition for the black oil made pricing volatile. Some companies were willing to give unprofitable prices just to get an edge on the competition. Rockefeller, having a messianic thought of himself, saw the competition as wasteful. His idea was that in order for the full potential of oil to be achieve, the competition must be stop. And so, he saw Standard Oil as the way to unite the whole oil refining industry.

Rockefeller first saw his plan to be realized with a cartel between the oil companies and the railway companies. On December of 1871, the president of the Pennsylvania Railroad Company proposed a scheme that would allow some railroad and oil players to tip the balance of the scale into their favor. And so in 1872, a charter was signed for the creation of the south Improvement Company.

The Company was heavily predatory in its nature. Three major railroads, the Pennsylvania, New York Central, and the Erie would increase freight rates for non-member companies. On the other hand, rebates on the rates would be given to member oil companies, most of which were already under Rockefeller. In addition to discounts in the freight rate, the oil companies would receive percentage from the profits that would be crated from the high freight rates charged to the non-member oil companies.

If the plan was carried out, it would have killed competition, however, fate had other plans. Words of the scheme got out of the press. A wild rampage of the public against the cartel ensued. Rockefeller was alarmed that his dreams of strengthening the oil industry under Standard Oil would not materialize. He decided that if the South Improvement Company would collapse before its full potential to be unleashed, he would just have to choose plan B.

His plan B involved a massive buy out of many competitors in the industry. Between February and March of 1872, while the public was busy bashing the South Improvement Company, Rockefeller moved in for the kill.

Rockefeller showed his ruthlessness in order to get what he wants. He used fear and intimidation in order to convince competitors to be bought by Standard Oil. He harassed oil companies by cutting storage containers, after Rockefeller bought barrel makers during the 1860’s. He also used the South Improvement Company as leverage to incite fear to the companies. He was saying that if they were not going to sell to Rockefeller, they would be devoured by bankruptcy caused by high transport rates. But alongside with fear, he also used bribery in order to persuade some companies. He used stock shares and positions to the Standard Oil once they allowed to be bought by Standard Oil. An example was John Archbold who became a leader of independent oil companies but then became a high official at Rockefeller’s company after selling out the independent players.

The result of Rockefeller’s negotiation became visible after March. 22 out of his 26 competitors were bought by Rockefeller. Among his victims was a company owned by the father of Ida Tarbell, a journalist that would criticize Rockefeller throughout her life. The cutting down of competition in Cleveland was dubbed by the press as the “Cleveland Massacre.”

Following the Cleveland Massacre, the expansionist program of Rockefeller continued. Refineries in Pittsburgh, New York, and New Jersey fell in the hands of Rockefeller. All in all 53 refineries became under Standard Oil. And with the though eyes of Rockefeller for efficiency, he closed down 22 unprofitable refineries. By 1880’s Standard Oil controls 80% of the North American oil market.

Another result of the Cleveland Massacre was the stabilization of oil prices. Prices during the entry of the 1870’s were just about 1.5 cents. By the end of the 1870’s prices were playing at .5 cents.

The Cleveland Massacre created the empire of the John Rockefeller. Standard Oil maintained its dominance of the oil industry until 1911.

See also:
John D. Rockefeller
South Improvement Company

Means, H. Money & Power: History of Business. New York: John Wiley & Sons, Inc., 2001. 

Risjord, N. Representative Americans: Populists and Progressives. Maryland: Rowman and Littlefield Publishers, Inc., 2005. 

Segall, G. John D. Rockefeller: Annointed by Oil. New York: Oxford University Press, 2001.

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