by Ron Chernow
It is impossible to comprehend Rockefeller’s breathtaking ascent without realizing that he always moved into battle backed by abundant cash. Whether riding out downturns or coasting on booms, he kept plentiful reserves and won many bidding contests simply because his war chest was deeper. Rockefeller vividly described the way that he had hastily enlisted the aid of bankers to snap up one refinery:
It required many hundreds of thousands of dollars—and in cash; securities would not answer. I received the message at about noon, and had to get off on the 3 o’clock train. I drove from bank to bank, asking each president or cashier, whomever I could find first, to get ready for me all the funds he could possibly lay hands on. I told them I would be back to get the money later. I rounded up all of our banks in the city, and made a second journey to get the money, and kept going until I secured the necessary amount. With this I was off on the 3 o’clock train, and closed the transaction. 33
To have orchestrated such a rapid campaign required a long relationship of trust with the banks.
So adroitly did Rockefeller manage his unending quest for money that he became a director of a fire-insurance company in 1866 and a director of the Ohio National Bank in 1868. By that point, he must have felt very sure of himself, even cocky, because he didn’t bother to attend bank meetings and was ejected posthaste from one board. One is again impressed by the fantastic forward motion of his career, how quickly he evolved from humble supplicant to impatient businessman. Now in his late twenties, he had little time for fuddy-duddy directors and often dispensed with the niceties. As he said of the bank’s board meetings: “I used to go at first, and there were some nice old gentlemen sitting stolidly about a table discussing earnestly the problem offered by new departures in vault locks. It was all right in its way, but I was a busy man even then and I really didn’t have the time for it. So they got rid of me speedily.”
For all his self-assurance, Rockefeller needed one associate who would share his daydreams, endorse his plans, and stiffen his resolve, and that indispensable alter ego was Henry Morrison Flagler. Nine years older than Rockefeller, with roguish good looks, Flagler was a dashing figure with luminous blue eyes, smooth black hair, and a handlebar mustache. “His clothes were of the most recent cut,” an office messenger said admiringly. “He carried himself with a confidence that was regal. He had a heavy black moustache and the most beautiful hair I had ever seen.”34 Funny and voluble, brisk and energetic, Flagler was nevertheless reticent about his motives and background and in time surpassed his tight-lipped younger partner in fending off public inquiries.
Flagler’s upbringing had some noticeable parallels to Rockefeller’s. Born in Hopewell, New York, in 1830, the son of an impecunious Presbyterian pastor, he grew up in the Finger Lakes region of upstate New York before moving to Toledo, Ohio. In a previous marriage, his mother had been married to a Bellevue, Ohio, doctor named David Harkness, who already had a son, Stephen, from his first marriage. They had a second son, Dan, before David Harkness died. Flagler’s mother, Elizabeth, then married the Reverend Isaac Flagler. Evidently a man of courage and principle, Reverend Flagler created an uproar when he officiated over the marriage in Toledo of a young mulatto man to a white woman.
Dropping out of school at fourteen, Henry made his way to Republic, Ohio, and worked in the small country store of Lamon Harkness, Dr. Harkness’s younger brother. He later spun romantic tales of this first job, where he sold molasses and dry goods by day and slept in the drafty rear of the store at night. For special customers, Flagler would dip into a keg of brandy hidden upstairs. Becoming further entangled with his Harkness relatives, Henry married Lamon’s daughter, the dark-eyed, demure Mary, in 1853.
Before the Civil War, Henry earned good money in Lamon’s grain business in Bellevue, in the corn and wheat belt of Sandusky County, where he shipped much produce through Cleveland. “John D. Rockefeller was a commission merchant in Cleveland, and I sent him a good many carloads of wheat, which he sold as my agent,” he recalled.35 In a lucrative sideline, Flagler and his Harkness relatives took an interest in a whiskey distillery, which also provided an outlet for surplus grain. Like Rockefeller, Flagler was a prudish young man who never swore an oath stronger than “Thunder!” As a teetotaler, Sunday-school teacher, and minister’s son, Flagler’s liquor venture didn’t square with his principles—though the profits evidently provided balm to his conscience. “I had scruples about the business and gave it up,” he confided, “but not before I made $50,000 in Bellevue.”36 Awash with cash, he built a stately Victorian mansion, the Gingerbread House, that was brightly illuminated with coal-oil lamps. Among the visitors was John D. Rockefeller, then canvassing accounts for his partnership with Maurice Clark. “He was a bright and active young fellow full of vim and push,” said Rockefeller, as if Flagler were the younger of the two.37
During the Civil War, Flagler, like Rockefeller, hired a substitute. His firm was a major contractor for grain purchases by the Union army and in 1862, brimful of wartime profits, he cast about for a fresh opportunity. At this point, Flagler stumbled into the sole business blunder of his career when he took a sizable stake in a salt company in Saginaw, Michigan, and moved his family there. When the war ended, slashing demand for salt, his firm went bankrupt, the victim of a classic boom-and-bust cycle. Losing everything, he had to be bailed out by a giant loan from the Harkness family. “At the end of three years, I had lost my little fortune and owed $50,000 to about 50,000 Irishmen who had been working in the salt factory,” said Flagler.38 He had much occasion to ponder the contradictions of a market economy in which dynamic industries swiftly expand during prosperity only to find themselves overextended during downturns. To cope with excess production, many Saginaw salt companies opted for cooperation over competition and joined a cartel arrangement to try to prop up salt prices, providing a precedent for Standard Oil.
After his sobering reversal of fortune, Flagler entered a despondent period in which he sometimes skipped lunch to save money. Returning to Bellevue, he tried to market felt wool as well as a machine he had invented that would supposedly produce the perfect horseshoe. Deciding to try his luck in Cleveland (where Stephen V. Harkness had moved in 1866), he took a job selling grain with Rockefeller’s ex-partner, Maurice Clark, and by coincidence filled the post recently vacated by Rockefeller. Perhaps to tweak Clark, Rockefeller invited Flagler to rent desk space in his office suite in the Sexton Block. As Flagler prospered, he settled his debts, bought a fine house on Euclid Avenue, and joined the First Presbyterian Church.
As they strolled to and from work together, Flagler and Rockefeller must have soon discovered their remarkable affinity as businessmen. Chafing at his dependence on loans and wondering when he might deplete the capital of local banks, Rockefeller now scouted out large individual investors and was probably acutely aware of the wealth of Flagler’s relatives. Through Flagler’s introduction, Rockefeller solicited money from Stephen V. Harkness, by now one of Cleveland’s richest men. A bearish man with thick, slightly unkempt hair, fluffy sideburns, and a walrus mustache, Harkness had capitalized on inside political information to make a fortune during the war. As an ally of U.S. senator John Sherman of Ohio, he had received timely word in 1862 of an upcoming government move to levy a two-dollar tax on every gallon of malt and distilled liquor. Before the tax took effect, he busily stockpiled wine and whiskey and even raided the deposits of a local bank he owned to pour more money into this operation.39 When the tax was enacted in July 1862, he sold his enormous cache of spirits for a fast $300,000 profit. It is deeply ironic that Rockefeller, a staunch temperance advocate, got one of his most significant cash infusions from questionable gains in liquor.
While Rockefeller was negotiating a large loan from Stephen V. Harkness during an hour-long talk in 1867, the latter saw an excellent opportunity to set up Henry in business and instead of extending a loan asked for a large block of stock in the company. Investing $100,000—a third of the new firm’s capital—Harknes
s made it a precondition of his investment that Henry become treasurer and his personal deputy in the firm. As Harkness said to Rockefeller, “Young man, you can have all the money you want. You are on the right track and I am with you.” As to Henry’s part, he added, “I’ll make Henry my watchdog.”40 Since Harkness was also a director of banks, railroads, mining, real estate, and manufacturing companies, the tie ushered Rockefeller into a new universe of business connections.
On March 4, 1867, the Cleveland Leader announced the formation of a new partnership, Rockefeller, Andrews and Flagler, with offices in the Case Building, a solid masonry structure with rounded, Romanesque windows and a prestigious address on the Public Square. “This firm is one of the oldest in the refining business and their trade already a mammoth one. . . . Their establishment is one of the largest in the United States. Among the many oil refining enterprises, this seems to be one of the most successful; its heavy capital and consummate management having kept it clear of the many shoals upon which oil refining . . . houses have so often [been] stranded.” 41 From reading this description, one would have thought the firm was run by gray, reverend men, whereas Rockefeller, the boy wonder of Cleveland business, was just twenty-seven.
Starting with Flagler’s recruitment, Rockefeller began to assemble the team of capable, congenial executives who would transform the Cleveland refiner into the world’s strongest industrial company. Both Rockefeller and Flagler had nimble minds for numbers and infinite dexterity with balance sheets. Neither was interested in a modest success, and they were both prepared to go as far and as fast as the marketplace allowed. As Flagler boasted, “I have always been contented, but I have never been satisfied.” 42 Rockefeller found his partner’s enthusiasm a tonic, noting that Flagler “was always on the active side of every question, and to his wonderful energy is due much of the rapid progress of the company in the early days.”43 Given their exalted goals, it probably helped that Flagler had been chastened by failure and was acquainted with the perils of complacency.44
Rockefeller loved Flagler’s dictum that a friendship founded on business was superior to a business founded on friendship, and for several decades they worked together in an almost seamless fashion. In the early years, the two men were bound by a common dream, lived near each other, and seemed virtually inseparable. As Rockefeller said in his memoirs, “We met and walked to the office together, walked home to luncheon, back again after luncheon, and home again at night. On these walks, when we were away from the office interruptions, we did our thinking, talking, and planning together.” For a man as reserved as Rockefeller, this picture suggests an unbuttoned exchange of ideas of a sort he permitted with few people.
In the office, their intimacy was patent to visitors, for they had back-to-back desks and shared many duties. They even developed a collective letter-writing style, passing drafts back and forth with each making minor improvements until they expressed what was wanted but not one syllable more. At this point, the letters were ready to be vetted by the severest judge, Mrs. Rockefeller, who was, said one office worker, “known to be the most valued adviser.”45 Endowed with considerable verbal skill, Flagler had such a gift for drawing up legal documents or sniffing out hidden pitfalls in contracts that Rockefeller insisted he could have taught the fine points of contract law to lawyers—no small edge for a firm that would be engaged in running legal battles.
In his later years, Flagler developed into a grandee of such rich tastes that it is instructive to note his austere early style. Not only did he labor six days a week, but he shunned bars and theaters as the devil’s playgrounds and became superintendent of the First Presybterian Church. Like Rockefeller, he advocated self-discipline and deferred gratification. As he said of his first threadbare days in Cleveland: “I wore a thin overcoat and thought how comfortable I should be when I could afford a long, thick Ulster. I carried a lunch in my pocket until I was a rich man. I trained myself in the school of self-control and self-denial. It was hard on [me], but I would rather be my own tyrant than have some one else tyrannize me.” 46 After his wife, Mary, gave birth to a son, Henry Harkness Flagler, in 1870, she never regained her health and turned into an invalid. For the next seventeen years, Flagler stayed home at night so he could read to her for hours on end, with John and Laura Rockefeller often stopping by to mitigate the gloom.
That Flagler was his most valuable partner was always unquestioned dogma for Rockefeller, yet one wonders whether the influence was altogether benign. An ebullient man, Flagler wouldn’t stop to quibble over legal niceties when taken by a powerful idea, and even Rockefeller hinted obliquely at the dangers posed by Flagler’s headstrong nature. “He was a man of great force and determination,” said Rockefeller, “though perhaps he needed a restraining influence at times when his enthusiasm was roused.” 47 On his desk, Flagler kept a quote from a popular novel, David Harum, which said, “Do unto others as they would do unto you—and do it first.”48 What makes Flagler’s ethics consequential for Rockefeller’s career was that he was the mastermind of many negotiations with the railroads—the single most controversial aspect of Standard Oil history. It’s not clear that anyone could have tempered the fiercely irrepressible drive of John D. Rockefeller, but the swashbuckling Flagler had especially little interest in transposing the lessons of his Sunday-school classes to the profane, turbulent world of oil refining. As far as Rockefeller was concerned, however, Flagler’s arrival was providential, for the oil industry was about to be thrown into unprecedented turmoil, making relations with the railroads all-important.
Transportation assumed a pivotal place in the petroleum business for an elementary reason: Drake had discovered oil in a distant, inaccessible spot that was, at first, poorly served by the railroads. For several years, teamsters—the wagoners who hauled out the barrels—exercised a brutal tyranny and charged exorbitant sums. Since oil was a relatively cheap, standardized commodity, transportation costs inevitably figured as a critical factor in the competitive struggle. The logical and elegant solution—to construct a comprehensive pipeline network—encountered harsh resistance from the threatened teamsters. During the 1865 Pithole frenzy, Samuel Van Syckel laid a two-inch iron pipeline from Oil Creek to railroad tracks six miles away. Defying armed guards, roaming gangs of teamsters descended each night and tore up sections of the pipeline. When Henry Harley launched a second pipeline, they again dug up pipes and set storage tanks ablaze, forcing Harley to field a small army of Pinkerton detectives to squash the revolt. The teamsters must have known they were fighting a rearguard action, but for a time they managed to delay the installation of a pipeline system.
Between the benighted rule of the teamsters and the future domination by efficient pipelines, there arose an interregnum in which the railroads exercised pervasive influence over everything that happened in the industry. At first, they tried to ship barrels on open flatcars, but the swaying, jolting ride splintered the containers and spilled their contents. After the Civil War, this hazardous method was superseded by primitive tank cars—twin pine tubs mounted on flatcars—that were soon replaced, in turn, by single iron tanks that became the industry norm. Such technical advances allowed the railroads to speed oil across the continent and vastly expanded the market for petroleum products.
During the first few years, the oil business was so effortlessly profitable that refineries sprang up in six competing centers. The inland centers (the Oil Regions, Pittsburgh, and Cleveland) and the seaboard centers (New York, Philadelphia, and Baltimore) engaged in pitched battles to control the business. Favored by proximity to the wells, the western Pennsylvania refiners seemed to possess an incalculable edge, but they had to import chemicals, barrels, machinery, and labor and therefore labored under distinct handicaps. Nonetheless, these refiners saved so much on transportation that they fancied they would emerge supreme in the oil business. Later, Rockefeller admitted that he’d been tempted to switch operations to Pennsylvania, yet he and his partners didn’t wish to uproot their fami
lies or write off their considerable investment in Cleveland. They also feared that the glory of the Oil Regions might soon fade into history, as Rockefeller later noted in a statement reminiscent of Percy Bysshe Shelley’s poem “Ozymandias”:
You have seen Pithole and Petroleum Center—the places where once stood big, prosperous cities in which men made millions of dollars out of oil. Now they are bits of wilderness, overgrown with weeds, and with nothing left to tell of their greatness but a few scattered parts of old houses and the memory of a few aged men. Prudent men did not want to place all their capital into business in such places.49
Even late in life, Rockefeller was loath to confess, for political reasons, the overriding reason for his attachment to Cleveland: It was the hub of so many transportation networks that he had tremendous room to maneuver in freight negotiations. During the summer months, he could send oil by water, greatly enhancing his bargaining power with the railroads. His firm “could load their oil in the season of lake navigation and canal navigation, upon vessels at Cleveland and from Buffalo by the Erie Canal [and] could deliver the oil to their warehouses in New York at a cost lower than the current rates at which the railway companies had been seeking the business.” 50 Armed with this potent weapon, Rockefeller obtained such excellent railroad rates that it compensated for having to ship the crude oil to Cleveland before sending refined oil to the Atlantic coast—a far more circuitous route than shipping from Titusville straight to New York. Fed by rail links to Chicago, Saint Louis, and Cincinnati, Cleveland also served as a natural gateway to western markets. Other Cleveland refiners evidently made the same calculation, and by late 1866 the city supported fifty refineries, ranking second only to Pittsburgh. Cleveland’s refineries were so numerous that their foul, acrid atmosphere enveloped the outskirts, tainting the beer from local breweries and souring the milk.