John D Rockefeller

John D. Rockefeller is the icon of the American Businessman. He, along with several other individuals, established the Standard Oil in 1870 (Geisst, 2000).

He was born July 8, 1839 in New York but moved to Cleveland, Ohio in 1853 with his family. His success in life and as a businessman can be immediately traced back to the influence of his parents. His father, William Avery Rockefeller, was commonly termed in that period as a pitch man, or an individual who convinced people they could accomplish miraculous feats (Flynn, 1941).

Rockefeller’s mother was an extremely religious person and imparted this religiosity to Rockefeller through discipline and strict beliefs of work, more work, save, more savings, and to give to charities. Rockefeller took these early lessons to heart and went on during his childhood to save what would have been considered substantial amounts of money for any age and to even make money on his money by loaning it and charging interest on it (Flynn, 1941).

After the family’s move to Cleveland, Rockefeller attended a small college, Folsom’s Commercial College where he acquired additional skills that he would use to his advantage (Josephson, 1949).

However, in the meantime at Folsom, he learned double-entry bookkeeping and other business related skills. At 16 years of age, Rockefeller had trouble locating employment as a bookkeeper and finally landed a job at a company called Hewitt & Tuttle as an assistant bookkeeper (Josephson, 1949).

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Being honest, detailed, and meticulous earned him the respect, not only of Hewitt & Tuttle, but eventually of the local business community as a whole. After working in the industry for several years, and on his own commodities deals on the side, Rockefeller and a business partner, Maurice Clark, went into business forming a company called: Clark & Rockefeller just prior to his 20th birthday. Clark & Rockefeller were in the business of acting as commission merchants in such commodities as hay, meats, and other items. Rockefeller’s business acumen proved very successful and by the beginning of the Civil War, Clark & Rockefeller was uniquely situated with high profits by the increased commodity movements as well as the higher prices for which they received a commission off of. This may be the first instance that Rockefeller’s critics have pointed out of his avarice and greed and the fact that he was essentially profiteering on the war (Latham, 1949).

Yet, while some aspect of this might true, Rockefeller was already in that line of business and certainly was only capitalizing on business that was presented to him. While the Civil War was playing out across the country, Rockefeller began to search for an alternative business or industry possibilities.

Rockefeller’s next enterprise business was petroleum. Oil had been known throughout and even in the US it had been found in Pennsylvania by Edwin Laurentine Drake in 1859. Drake’s discovery of oil was not necessary revolutionary, but its location in Pennsylvania made it a surprise for that region. What was revolutionary was that fact that Drake had discovered the ability to drill for oil as one would for water. This discovery opened up all sorts of possibilities for the oil industry. The petroleum industry at the time was confined to some industrious individuals who would package it in small amounts as a medicine or a curative for all types of illnesses. While the petroleum industry was still in its infancy stage, there were several applications that were in wide use by Rockefeller’s time such as coal oil lamps which were fueled by distilled petroleum products.

Once the Civil War ended he was faced with the certain decline of his commission merchant business and decided to enter the oil refining business in 1862 and formed a company called Andrews, Clark & Company the following year (Geisst, 2000).

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Rockefeller knew that the presence of reliable transportation was central to the industry and the A&GW railroad company had opened up lines into Pennsylvania’s oil regions. Since the oil in the region was of a higher quality than in other regions, Rockefeller knew it was ideal for capitalizing on this market. From the very beginning Rockefeller created his own processes in his own facilities to develop his own refining and distribution networks. He manufactured his own barrels for transportation including the purchase of timber tracts for the barrels raw material. He manufactured and built his own piping systems, purchased his own wagons for transportation and generally tried to integrate the entire distillation operation into his own operation (Josephson, 1949).

Rockefeller was so successful that in 1865 he bought out his partners at the relatively young age of 24. The following year Rockefeller introduced his brother, William Rockefeller, into the business and together they founded a new refinery in Cleveland called: Standard Works. Additionally, with the introduction of his brother, Rockefeller began the growth that would greatly expand the scope of not only his business, but of the industry in general that was destined to dominate global affairs (Morse, 1999).

Together they opened an office in New York City that managed the export business and would in fact become the larger aspect of the business Nationally.

In 1865 Rockefeller joined with Henry Flagler who had rebuilt a fortune in Cleveland on a business manufacturing oil barrels for the nascent industry (Akin, 1991).

Rockefeller, Flagler, as well as a silent partner Stephen Harkness, invested in Rockefeller’s refining business. The new company, Rockefeller, Andrews & Flagler, became the largest refiner in the world in 1868 (Geisst, 2000).

Thereafter, Rockefeller became ever more intent on increasing profits through growth and the reduction of waste from the refining process. At that time the refining process was simple and provided very little efficiency since a refinery for the production of kerosene, could be setup for as little as $10,000. Yet, since Rockefeller owned what was essentially a vertical enterprise consisting of the barrel making production, refinery, and part of the distribution network, he was able to capitalize on the cost savings and build more intricate refineries producing higher amounts of each product for less (Geisst, 2000).

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Rockefeller’s company manufactured its own sulfuric acid, necessary for the refinement process, and also found a way to reuse it. Rockefeller, Andrews & Flagler expanded its operations to include proprietary warehouses in New York City and other locations, its own rail cars for oil transportation, and became the first company to transport petroleum products by water in its own ships (Josephson, 1949).

It also increased production to such a degree that it was necessary to build huge holding tanks to store the various products. The products that the company refined quickly expanded as well to include high quality lubricating oils, increased quantities of gas which the company used to fuel its operations, benzene, paraffin, naphtha, as well as white petrolatum which later would become world famous Vaseline. Essentially Rockefeller instituted processes that created products and revenue out of what other smaller refineries considered waste. Because of its size and production quantities, Rockefeller, Andrews & Flagler was able to negotiate huge discounts for transportation rates from the railroads. Rockefeller methodically laid the groundwork for what would soon become the basis for global economy.

In 1870 Rockefeller, with his brother William, Henry Flagler, Samuel Andrews, Stephen Harkness, and O.B. Jennings, formed a new refining enterprise based on the existing refining business and called it: The Standard Oil Company. In terms of total output at the time The Standard Oil Company owned approximately 10% of the refining business across North America. At this point, Rockefeller’s reputation as a Robber Baron, seemed destined to be permanently fixed with the formation of this new company he alighted on a new strategy for growth based on the monopolization of the industry through consolidation (Johnson, 1999).

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This became known as the master plan for the entire industry and only fueled later criticism of Rockefeller’s business methods and moral turpitude. This master plan to control and consolidate the industry, led to perhaps the greatest criticism of Standard Oil and Rockefeller. The South Improvement Scheme which was set up to monopolize the entire industry ultimately failed leading to the more avid execution of Rockefeller’s master plan as the Standard Oil Company began buying all of its competitors in the Cleveland region. In 1874 Standard Oil began building its own pipeline network for oil transportation which would cause a seismic shift in the industry and forever engrave it in the global economy (Geisst, 2000).

With the introduction of pipelines, the oil industry’s economies of scale improved even further and whatever barriers the industry faced evaporated with its newfound cost-efficiencies. By 1879 Standard Oil had succeeded in buying most of its larger competitors such as the Imperial Refinery, Warden, Frew & Co., and a host of other regional and out of state refineries. By building more and more pipelines and purchasing more rail cars and negotiating transportation deals with the railroads, Standard Oil managed to monopolize the entire industry and by 1879, Standard Oil owned 90% of the oil refinery business in the US, of which 70% of its productive output was exported to overseas markets (Geisst, 2000).

By this time, Standard Oil’s business case and structure was so complex Rockefeller was only managing the broader strategic relationships and decisions; he was still only 40 years of age. The only competition for Standard Oil was Tidewater Pipeline Company which would later become the Tidewater Oil Company which gained prominence from 1879 to 1883. Rockefeller was not prepared for this little competitor that all his efforts to acquire it failed. Although this was a serious competitor, it only had 10% of the market in the petroleum industry.

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Judson Wright Microeconomics The Greatest Oil Man The majority of people in the world dislike monopolies. People do not like monopolies because they are allocatively inefficient and because they produce less than consumers want. John D. Rockefeller was a good example of a monopolist from 1880 to 1911. Most people in that time period did not like his company, Standard Oil, and wished for an end to ...

In 1882 Rockefeller was convinced to form a Trust to oversee the growth and operation of Standard Oil. The Standard Oil Trust controlled all the properties of Standard Oil and each stockholder of Standard Oil received 20 trust certificates (Latham, 1949).

The trust had nine trustees who controlled the profits and distribution of dividends with Rockefeller being the leading member. While the trust might have been well intentioned, it led to the further appearance of a fixed monopoly with the intent on maximizing profits at the expense of the common consumer and by demanding that retailers carry only its products. After the Attorney General of Ohio brought suit against the trust in 1890 the trust was formally dissolved in 1892.

In the early 1890s Rockefeller was suffering from illnesses and had suffered some sort of nervous breakdown. Though he was a millionaire, he had made many other investments, each of which were worth millions in their own right. In 1901 Rockefeller sold his iron-ore business to J.P. Morgan for $80m. While Rockefeller occasionally worked up until 1899, he quit completely thereafter. Immediately following his retirement until his death in 1937, Rockefeller proceeded to give away, through active charity or the foundation of certain trust funds and organizations, the vast majority of his fortune. He is credited largely with the foundation of the University of Chicago which received a donation of $75m. In addition to the Rockefeller Foundation, numerous other rewards and foundations received substantial sums of monies. Upon his death, Rockefeller’s personal estate was worth a mere $26m which pales in comparison to his estimated wealth of almost $1b at one time (Johnson, 1999).

The fact remains that Rockefeller seems to have contributed a lasting positive legacy to mankind for which he tends to be overlooked most often in lieu of his reputation for greed.

References

Akin, Edward N. Flagler: Rockefeller Partner and Florida Baron Florida: University Press of Florida, 1991

Flynn, John T. Men of Wealth: The Story of Twelve Significant Fortunes from the Renaissance to the Present Day. New York, Simon and Schuster, 1941.

Geisst, Charles R. Monopolies in America: Empire Builders and Their Enemies, from Jay Gould to Bill Gates. Oxford: Oxford University Press, 2000

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Johnson, Paul. The Prospering Fathers. Commentary. New York: Knopf, 1999

Josephson, Matthew. The Robber Barons. Boston: D. C. Heath, 1949

Latham, Earl. John D. Rockefeller: Robber Baron or Industrial Statesman?, Boston: D. C. Heath, 1949

Morse, Edward. L. A New Political Economy of Oil?. Journal of International Affairs, 1999