If one were to write the saga of the Standard Oil Company into a drama, it would have three major players: the “Gentleman” John D. Rockefeller (1839–1937) who co-founded and led the company from humble beginnings to a nation-wide trust; the “Lady Journalist” Ida Tarbell (1857–1944) whose “muckraking” (investigative journalist) work, The History of the Standard Oil Company in 1904, was largely responsible for the disintegration of the company in 1911 (now one hundred years ago) by the United States anti-trust law; and finally the “Company” itself.
In 1863, Rockefeller, aged 24, together with the Clark brothers and a chemist, Samuel Andrews, started an oil refinery in Cleveland, Ohio. Two years later, Rockefeller bought the Clark brothers’ shares, and named the refinery Standard Works. As the oil business grew in the region, in 1870 Rockefeller and his brother William, along with Andrews, Henry Flagler, Oliver Burr Jennings (husband to the sister of William Rockefeller’s wife), and Stephen Harkness formed a new company, the Standard Oil Company in Ohio (later Sohio). The name Standard was chosen to imply the standardization of oil refineries and products. Indeed, the oil barrel of 42 gallons was a design of Standard Oil in Pennsylvania in the 1860s; oil was stored in the wooden whiskey barrels and it was 40 plus 2 gallons per barrel because some oil was often lost during transportation.
The rise and expansion of Standard Oil occurred after the Civil War and during a period in the American history which has been dubbed as the Gilded Age, popularized in Gilded Age: A Tale of Today by Mark Twain and Charles Dudley in 1873 (in reference to the process of gilding an object with a superficial layer of gold). This was the period of rapid economic expansion, population growth, and rise of large enterprises and monopolies (over oil, tobacco, steel, beef and railroads) in the USA.
In his introduction to the abridged Norton’s edition of Tarbell’s The History of the Standard Oil Company, historian David Chalmers wrote: “John D. Rockefeller and his associates did not build the Standard Oil Company in the broad rooms of Wall Street banks and investment houses, water their stock and rig the market. They 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.”
Many of these methods were later disclosed and found to be unethical and in some cases illegal. Nevertheless, during the 1870s–1890s, Standard Oil absorbed many small and large oil companies and established regional companies across the USA. In 1882, Rockefeller and partners further consolidated their dominance by transforming Standard Oil into a trust with nine trustees managing the corporation on behalf of all shareholders. In 1885 the trust moved to New Jersey to take advantage of favorable regulations in that state, and another office in New York administered most of the Standard Oil’s overseas activities.
In 1890, Senator John Sherman of Ohio initiated an anti-trust law in Congress. Although US Presidents Grover Cleveland and William McKinley did not enforce the law in the 1890s, the Sherman Act became the source of American anti-trust policies a decade later. In response to this, the Standard Oil Trust changed its name to the Standard Oil Interests, with 20 companies, and made some cosmetic adjustments – but still the central power remained with a holding company first in New York and then in New Jersey.
Nevertheless, the 1893–97 depression, which hurt the middle and lower-income classes, and the rise of an intellectual movement against trusts and monopolies pushed the politicians to curb the economic power of corporations. It was in this ripe environment that Tarbell’s book appeared and raised the public and political consciousness against the Standard Oil. The period 1890–1914 is sometimes called the Progressive Era in American history as it spoke for reforms in support of the middle-class, science and education, women’s rights and social liberties, as well as anti-corruption and “trust-busting” policies. If Rockefeller was an icon of the Gilded Age, Tarbell and her work epitomized the Progressive Era.
President Theodore Roosevelt from the Republican Party was one of the strongest political leaders who pushed for Progressive reforms. A man of many achievements (the first American to win the Noble Peace Prize), he became President at 42 (the youngest US president ever) when President McKinley was assassinated. When Roosevelt ran for presidency in 1904, a highlight of his agenda was to limit the reign of monopolies over the American economy. Even though Standard Oil had contributed a large sum of money to the Republican Party campaign, Roosevelt ordered its return. His administration then started an investigation into the activities of Standard Oil. The company’s top managers, John D. Archbold and Henry H. Roger (Rockefeller had retired in 1897) rushed to the White House in March 1906 to talk sense to Roosevelt, but apparently it did not work, for in November 1906 U.S. Attorney General Charles Bonaparte filed an antitrust law suit against Standard Oil in a St. Louis federal court. The company was under fire from various law suits and negative press coverage. A law suit against Standard Oil of Indiana eventually brought Rockefeller himself to a federal court in Chicago in July 1907. He played like someone suffering from memory loss. Although the court imposed fines, the company remained intact. Ida Tarbell, who was then editor of The American Magazine, wrote articles titled “Roosevelt versus Rockefeller” in 1907–1908. Rockefeller, who always tried to keep a low profile, responded by publishing his memoir Random Reminiscences of Men and Events in 1909.
After three years of court proceedings, which involved 14,495 pages of 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. The Sherman Anti-Trust Act was to be implemented. Roosevelt was then out of office (he had declined to re-run for presidency) but rejoiced at the news. Standard Oil appealed the case. The next stop was the Supreme Court, which on 15 May 1911 upheld the federal court ruling. Chief Justice Edward White gave Standard Oil six months to dissolve itself as a single entity and be split into several companies with independent boards of management.
New Thirst for Oil
At that time, Standard Oil operated on a huge scale: It refined nearly 75% of all US crude and marketed over 80% of domestic kerosene. In July 1911, Standard Oil announced its new structure: It would split into 33 companies, some large and some small. In doing so, it made sure that the new companies shared the market rather than competed with one another, which was to be expected – as Financier J. P. Morgan commented, “How in hell is any court going to compel a man to compete with himself?”
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. Some people thought he would sell his shares as the company’s value would decline. But Rockefeller knew his business far better.
When oil production began in the 1860s, oil was mainly used for kerosene lamps. Thomas Edison’s invention of electric bulbs in the 1880s seemed to eclipse the oil industry. However, Henry Ford’s design of automobiles in the 1900s generated a new thirst for oil in the form of gasoline. Therefore, within a year of the dissolution of Standard Oil, the stock market value of its spin-off companies doubled. Rockefeller soon became the first American billionaire. In 1912, when Roosevelt was trying for another term of presidency (this time as the leader of the new, short-lived Progressive Party, a spinoff from the Republican Party) he remarked, “No wonder that Wall Street’s prayer now is: Oh Merciful Providence, give us another dissolution.”
Despite the dominance of Standard Oil over the American market from the 1880s through the 1900s, one important fact should not be ignored: Oil prices throughout this period remained at about $1 per barrel, lower than the prices before or after this period. It seems that it was the expansion of markets (cheap oil) rather than high oil prices that financially fuelled the growth of Standard Oil. Or as Rockefeller would tell his colleagues, “Give the poor man his cheap light, gentlemen.”
While the name Standard Oil is part of history, its godfatherly figure remains, as many of the US major oil companies operating today trace their origin to that enormous oil enterprise.