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In 1870, a man, with an ambition to earn a $100,000 and live for a hundred years, embarked on his journey with the establishment of Standard Oil Co. Inc. in Ohio. Set up jointly by John D. Rockefeller and Henry Flagler, it was the largest oil refinery in the world of its time. At the turn of the 20th century, the Standard Oil Trust had established itself as the world’s first and largest multinational company. In 1904, it was estimated that it controlled around 91% of the oil production and 85% of domestic sales of the United States of America. However, by 1911, this magnanimous corporation ceased to exist as the Supreme Court ruled that it was an illegal monopoly.
The Trust, which made Rockefeller the world’s first billionaire and perhaps the richest man in world history with an unfathomable wealth of about US $400 billion, adjusted as per the modern day inflation, had a controversial story. It re-shaped the US oil industry, fell under the attack of progressive leaders and antitrust laws, brought into scrutiny the US industries of steel, tobacco and shipping and railroads but above all, it changed the role and position of monopolies in the American economy.
Rise Of The Oil Mogul
The man who was never afraid to give up the ‘Good’ to go for the ‘Great’ started the Oil Juggernaut when he sensed an opportunity in 1863 amidst the Ohio Oil Rush. Being the shrewd man he was, he decided to enter into the business of refining rather than drilling which was less risky and would prove to be a steadier source of income. He was convinced that the Kerosene he produced would turn out to be “The Poor Man’s Light” and its soaring demand would make him the richest ever.
He set up a refinery along the rail line connecting Cleveland to the oil region and to ensure his success, he entered into a secret alliance with railroads which he called “The South Improvement Company” to combat the challenge of massive transportation costs and to practically destroy his competitors. This, along with a series of acquisitions and Rockefeller’s ruthless business tactics, in merely 20 years, made Standard Oil the world’s biggest and the most profitable organisation which controlled over 90% of the world’s oil market. Standard Oil’s vast empire at its peak included 20,000 domestic wells, 4,000 miles of pipeline, 5,000 tank cars, and over 100,000 employees.
The Empire Begins To Crumble
Historian David Chalmers once wrote: “John D. Rockefeller and his associates …fought their way to control by rebate and drawback, bribe and blackmail, espionage and price cutting, and perhaps even more important, by ruthless, never slothful efficiency of organization and production.” He often used to undercut his competition by predatory pricing , acquiring plants and firms to simply shut them down and soon stepped into a world full of illegal and unethical means, which he was convinced, served the purpose of higher efficiency.
Investigative journalist, Ida Tarbell, sought to bring these unethical practices into light in 1902. Her astonishing and bewildering reports, released from 1902 to 1904, focused on how the company had monopolised the industry through illegal methods. These reports spread like wildfire and Standard Oil and John D Rockefeller became the most hated names of the time. They created a chaotic America, where half of the people wanted to lynch Rockefeller while the other half wanted a loan from him. Ida became the root cause for the intense legal scrutiny and criticism which the company was about to confront in the years to come.
In 1906, the US Attorney General Charles Bonaparte filed a suit against the Standard Oil Company under the Sherman Antitrust Law of 1890. After three years of court proceedings, 14,495 pages of legal documents and the testimony of 444 witnesses, in 1909 a four-judge Federal Court Panel ruled for the Attorney General’s suit and against Standard Oil that ‘The Sherman Antitrust Act’ was to be implemented. On May 15, 1911, the Supreme Court upheld the decision of the federal court and it was ruled that the company should be divested into 34 different units .
Rockefeller’s Rise From The Ashes
Standard Oil was split into several large and small companies, called ‘Baby’ Standards, often determined by geographical regions, so that these companies shared the market. The stock shares in the ‘Baby’ Standards were distributed in proportion to the original shares to the shareholders of Standard Oil. Rockefeller himself owned about one-fourth of Standard Oil stock.
With the advent of Henry Ford’s new design of automobiles, there was a renewed thirst for oil in the market. Within a year of the dissolution of Standard Oil, the stock value of its spin-off companies doubled. It is often remarked that the dissolution of the Oil Standard actually made Rockefeller richer. Though he became a billionaire after the downfall of the Trust, it was actually the new market conditions and an exorbitant and unprecedented demand for gasoline that paved his way to fortune.
A Hundred Years And Beyond
You may hate him or you may admire him. You may think of him as the demonic face of monopoly or the prophet of the new world order. But, there is no denying that he was one of the greatest business minds to ever walk on the face of the earth. The man who single-handedly changed how the world does business today. Even the remains of his once all-powerful Standard Oil have taken new shapes today in the form of Exxon Mobil, British Petroleum, Chevron, Marathon Petroleum which continue to be the Oil Giants and still dominate the contemporary markets. Although dying at the age of 97, he wasn’t able to fulfill his dream of living a 100 years but his genius, along with his philanthropic efforts ensured that he lives forever in the books of history.
The evolution of standard oilBy: Ashima Makhija and Kshitij Maheshwari for D-Street.