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by
Ron Chernow
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January 28 - February 9, 2020
his career became the focal point for a debate about the proper role of government in the economy that has lasted until the present day.
John D. Rockefeller already seemed a perfect specimen of homo economicus. Even as a boy, he bought candy by the pound, divided it into small portions, then sold it at a tidy profit to his siblings. By age seven, encouraged by his mother, he was dropping gold, silver, and copper coins that he earned into a blue china bowl on the mantel. John’s first business coup came at age seven when he shadowed a turkey hen as it waddled off into the woods, raided its nest, and raised the chicks for sale.
“He was a quiet boy,” said one Moravia resident. “He seemed always to be thinking.”10 In many respects, John was forgettable and indistinguishable from many other boys. When he later dazzled the world, many former neighbors and classmates struggled to summon up even a fuzzy image of him. He was a slow learner but patient and persistent
Rockefeller later cited his mother’s altruism as the genesis of his philanthropy. Early in life, he learned that God wanted his flock to earn money and then donate money in a never-ending process. “I was trained from the beginning to work and to save,” Rockefeller explained. “I have always regarded it as a religious duty to get all I could honorably and to give all I could. I was taught that way by the minister when I was a boy.”15 The low-church Baptists didn’t prohibit the accumulation of wealth but did oppose its vain, ostentatious display,
Baptist Church at a fateful moment. In May 1845, in a schism over the issue of slaveholders serving as missionaries, Baptist delegates from nine southern states seceded from the national body to create the Southern Baptist Convention. Northern Baptists fervently believed that abolitionism was consistent with their opposition to ecclesiastical hierarchy, their populist spirit, and their broad-based campaign to purge sin from society. The Second Great Awakening had explicitly linked personal conversion with community reform, spawning political activism.
The Civil War accelerated the North’s economic development, setting the stage for its postwar industrial prowess. It greatly enlarged its industrial capacity, broadening the infrastructure of railroads and telegraphs, coal mines and iron mills as the economy became more mechanized to meet the unprecedented demand for materials. Sewing machines stitched uniforms for soldiers while reapers harvested grain to feed them. As both sides swiftly conveyed huge armies from one theater of battle to the next, the railroad network had to be modernized and expanded accordingly. To encourage further
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While the locals found Drake charming and sociable and supplied with a good repertoire of stories, they also mocked him as a harebrained dreamer, seized by a wild obsession. When he tried to dig for oil, the walls caved in. Then, borrowing a method used for salt wells, he started to drill for oil. In this inhospitable setting, choked with underbrush, it was a feat just to assemble the necessary machinery and erect a strange, tall, wooden structure known as a derrick. On Sunday, August 28, 1859, Drake’s folly was rewarded when oil bubbled up from a well drilled a day earlier. It was less a
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Within a year of Drake’s discovery, a dozen ramshackle refineries sprang up along the creek’s steep, secluded banks. Inevitably, this tumultuous activity attracted notice in Cleveland, which had the advantage of proximity to northwest Pennsylvania. Even in those days of slow transport, one could travel from Titusville to Cleveland in a day.
Rockefeller and Maurice Clark pledged $4,000 for half the working capital of the new refining venture, Andrews, Clark and Co., placing the twenty-four-year-old Rockefeller squarely in the oil business in 1863, the year of the Emancipation Proclamation and the stunning Union victories at Gettysburg and Vicksburg. Of the initial $4,000 investment, he said dryly, “It seemed very large to us, very large.”4 Scarcely dreaming that oil would ever supersede their main commodity business, they considered it “a little side issue, we retaining our interest in our business as produce commission
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The spot chosen for the new refinery tells much in miniature about Rockefeller’s approach to business.
Kingsbury Run, which flowed into the Cuyahoga River and thus provided passage to Lake Erie. A mile and a half from downtown Cleveland, it seemed at first glance an inauspicious site for the new refinery, christened the Excelsior Works.
it would soon adjoin new railroad
Able to ship by water or over land, Rockefeller gained the critical leverage he needed to secure preferential rates on transportation—which
By mid-1863, twenty refineries operated in the Cleveland area and shipped a quarter of their kerosene abroad. At first, the profits came in so thick and fast that everybody—big and small, clever and inept—made handsome profits without the fierce winnowing of adversity, the stern lash of marketplace discipline. Rockefeller sarcastically alluded to these palmy days as “the harvest time in which such large profits were reaped by the saloonkeepers and preachers and tailors and men from all the walks of life who were fortunate enough to find an oil still.”6 Oil was put to myriad uses during the
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(The Pennsylvania barrel, equal to forty-two gallons, remains the industry standard to this day.)
“Lots of oil was lost by the capsizing of barges and smashing of barrels in the confusion and crush of the rafts,” said Rockefeller.16 By 1863, the Allegheny, befouled with oil, actually caught fire and burned a bridge in Franklin.
Rockefeller represented the second, more rational stage of capitalist development, when the colorful daredevils and pioneering speculators give way, as Max Weber wrote, to the “men who had grown up in the hard school of life, calculating and daring at the same time, above all temperate and reliable, shrewd and completely devoted to their business, with strictly bourgeois opinions and principles.”
The triumph of the North meant the ascendancy of urbanization, immigration, industrial capitalism, and wage labor over an agrarian southern economy doomed to stagnate for decades. The war markedly accelerated the timetable of economic development, promoting the growth of factories, mills, and railroads. By stimulating technological innovation and standardized products, it ushered in a more regimented economy. The world of small farmers and businessmen began to fade, upstaged by a gargantuan new world of mass consumption and production.
As a self-made man in a new industry, Rockefeller wasn’t stultified by precedent or tradition, which made it easier for him to innovate. He continued to value autonomy from outside suppliers. At first, he had paid small coopers up to $2.50 for white oak barrels before he showed, in an early demonstration of economies of scale, that he could manufacture dry, tight casks more cheaply himself; soon his firm made thousands of blue-painted barrels daily for less than a dollar per barrel. Other Cleveland coopers bought and shipped green timber to their shops, whereas Rockefeller had the oak sawed in
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By the late 1860s, this dynamic produced a pervasive slump in the oil industry, keeping it depressed for the next five years.
Rockefeller estimated, 90 percent of all refineries were operating in the red. At this bleak impasse, a leading Cleveland rival, John H. Alexander, offered to sell his interest to William Rockefeller at ten cents on the dollar, as the entire industry faced ruin.
“So many wells were flowing that the price of oil kept falling, yet they went right on drilling.”3 The industry was trapped in a full-blown crisis of overproduction with no relief in sight.
replace competition with cooperation in the industry.
Standard Oil controlled 10 percent of American petroleum refining, as well as a barrel-making plant, warehouses, shipping facilities, and a fleet of tank cars. From the outset, Rockefeller’s plans had a wide streak of megalomania. As he told Cleveland businessman John Prindle, “The Standard Oil Company will some day refine all the oil and make all the barrels.”9
His strategy would be to subjugate one part of the battlefield, consolidate his forces, then move briskly on to the next conquest. His victory over the Cleveland refiners would be the first but also the most controversial campaign of his career.
Rockefeller struck a clandestine and richly ironic deal with Tom Scott, the overlord of the Pennsylvania Railroad. As noted, the Pennsylvania had threatened to blot out Cleveland as a refining center, prompting Rockefeller to solidify his ties with the Erie and New York Central systems.
the railroads also had an economic interest in greater consolidation among refiners to streamline their own operations. One other factor tempted the railroads to come to terms with Rockefeller: In a farsighted tactical maneuver, he had begun to accumulate hundreds of tank cars, which would be in perpetually short supply.
One of Rockefeller’s strengths in bargaining situations was that he figured out what he wanted and what the other party wanted and then crafted mutually advantageous terms. Instead of ruining the railroads, Rockefeller tried to help them prosper, albeit in a way that fortified his own position.
he adamantly opposed any government program or private charity that sapped the frontier spirit of self-reliance.
