By 1900, John D. Rockefeller was worth $200 million. He
would hit $1 billion in 1913. Actually, Rockefeller stopped
going to his Standard Oil office in 1897 to play golf. He also
began giving away his money in earnest, $530 million by the
time of his death in 1937.
Like all successful tycoons, the Rockster (sorry, as I write this
it”s gorgeous outside and I wouldn”t mind being on the golf
course myself) was a stickler for detail, probably best
exemplified by the following anecdote.
It seems John D. was observing the production line one day
when he counted the number of drops of solder being used to
seal finished cans of oil, making the suggestion that 39 drops be
used instead of 40. With 38 drops the cans leaked, but with 39
they were perfect, and several thousand dollars were saved.
Last week we discussed some of the bigger picture issues which
allowed Rockefeller to monopolize the oil industry. But here is
what the old man had to say, himself, in testimony given in 1899.
His words could apply to any monopoly case, yesterday or today.
“I ascribe the success of the Standard to its consistent policy to
make the volume of its business large through the merits and
cheapness of its products. It has spared no expense in finding,
securing, and utilizing the best and cheapest methods of
manufacture. It has sought for the best superintendents and
workmen and paid the best wages. It has not hesitated to
sacrifice old machinery and old plants for new and better ones. It
has placed its manufactories at the points where they could
supply markets at the least expense. It has not only sought
markets for its principal products, but for all possible by-
products.It has not hesitated to invest millions of dollars in
methods of cheapening the gathering and distribution of oil by
pipe lines, special cars, tank steamers and tank wagons. It has
erected tank stations at every important railroad station to
cheapen the storage and delivery of its products. It has spared no
expense in forcing its products into the markets of the world
among people civilized and uncivilized. It has had faith in
American oil, and has brought together millions of money for the
purpose of making it what it is, and holding its markets against
the competition of Russia and all the many countries which
are.competitors against American oil.”
Left unsaid was the fact that Standard exploited its position to
obtain rebates from the railroads on published freight rates,
something his competitors could not achieve.
As we covered in our initial articles on the Sherman Antitrust
Act, Theodore Roosevelt had become President upon the
assassination of William McKinley in 1901. T.R. quickly gained
a reputation as a trustbuster, instituting more antitrust
prosecutions than his predecessors, combined, but he was not
against big business. Rather he wanted to reaffirm federal
authority once and for all, then go back to a laissez-faire policy
of benign regulation.
But there”s no doubt Roosevelt could be difficult to deal with.
J.P. Morgan once observed upon hearing that T.R. was going on
a big game hunt, “I hope the first lion he meets does his duty.”
In 1903 Congress formed the Department of Commerce and
Labor, including the Bureau of Corporations. The latter had no
direct regulatory powers, but it did have a mandate to study and
report on the activities of interstate corporations. Its findings
could lead to antitrust suits, but its purpose was rather to help
corporations correct malpractices and thus avoid lawsuits.
Mammoth companies like U.S. Steel and International Harvester
worked closely with the Bureau, but others held back. Standard
Oil refused to turn over any records and this proved costly on the
road to its breakup in 1911.
Historian Paul Johnson has the following take on Rockefeller”s
monopoly.
“The story of Standard seems to illustrate the argument, now
better understood than it was then, that temporary monopolies
may benefit the public interest. The per-barrel cost of refined oil
at a plant with a 500-barrel daily throughput was $0.06 gallon.
With a 1,500-barrel throughput it fell to $0.03 a gallon.In the
first big phase of expansion, Rockefeller”s company was able to
reduce the retail price of kerosene, used by every household in
the U.S. by 70%.”
But Johnson adds that what worried Americans in this era was
“fear of size, something new in America, where bigness and
scale had hitherto been seen as unmitigated benefits. It was
inherent in much of the regulation from the 1880s onwards, by
state and eventually by federal governments, and it drove on the
muckraking journalism. If the reformers were asked what they
hated most about Standard Oil, they replied: ”It”s size.” There
was no answer to that criticism.”
In 1906, at the behest of Roosevelt, the Justice Department filed
suit, charging that Standard engaged in monopoly practices by
attempting to control trading and commerce in petroleum and its
by-products, thus setting the stage for the first titanic battle
between government and big business.
A decision was handed down against the company by a Missouri
circuit court in 1909. Shades of Microsoft and Bill Gates, John
D. Rockefeller himself testified in a “well-rehearsed performance
but to no avail.” [Charles Geisst]. The court ordered the breakup
of the trust. Standard immediately appealed to the Supreme
Court but lost.
Next week the conclusion of the case against Standard Oil,
complete with exciting opinions from the Justices themselves.
Note: Attention baseball fans, in 1907 District Judge Kenesaw
Mountain Landis (the future first commissioner of
baseball.1920) assessed a fine of $29.2 million against
Standard Oil for accepting railroad freight rebates, but the
sentence was set aside by a higher court.
Sources:
“Monopolies in America,” Charles Geisst
“The Pursuit of Wealth,” Robert Sobel
“A History of the American People,” Paul Johnson
“America,” George Brown Tindall and David Shi
“The Growth of the American Republic, Vol. II,” Morison,
Commager, Leuchtenburg
Brian Trumbore
