by Ron Chernow
As always, the greater the tumult, the cooler Rockefeller became, and a strange calm settled over him when his colleagues were most disconcerted. When pushed, he always stood his ground. The SIC episode showed that Rockefeller was now developing exalted faith in his own judgment. Like all revolutionaries, he saw himself as an instrument of higher purpose, endowed with a visionary faith. He knew that his actions would at first be resisted and misunderstood by the myopic crowd, but he believed that the force and truth of his ideas would triumph in the end.
When the petroleum producers embargoed the sale of crude oil to members of the SIC, Rockefeller professed a lack of concern. Yet this impromptu coalition, welded together by the overwhelming threat, responded with impressive unity, creating sixteen districts, each with a separate committee, that blocked oil sales to the cabal. By moonlight, the producers patrolled Oil Creek on horseback to guard against any clandestine drilling that would subvert their cause. Ida Tarbell recalled how her father had proudly spurned a lucrative contract to ship oil to the conspirators for a tempting $4.50 a barrel. In the meantime, the producers busied themselves on the legislative front, lobbying in Harrisburg to annul the SIC charter and submitting to the U.S. Congress a scroll-like, ninety-three-foot petition, demanding an industrywide investigation. While Rockefeller dodged the press, producers handed out thirty thousand copies of a polemical tract about the SIC so that “enemies of freedom of trade may be known and shunned by the honest men.”46
The uproar didn’t weaken Rockefeller’s resolve, yet for all his bravado the boycott exacted a grave toll on his operations. Ninety percent of his employees had to be temporarily laid off, leaving a skeletal staff at his refineries. In letters to Cettie in March 1872, he tried to reconcile his actions with his conscience as he became the bugbear of Oil Creek. As he wrote from New York on March 15,
It is easy to write newspaper articles but we have other business. We will do right and not be troubled about what the papers say. By and by when all are through possibly we may briefly respond (though it is not our policy) and leave future events in the business to demonstrate our intentions and plans were just & warranted—I want to act perfectly conscientiously and fearlessly in the matter and feel confident of good results. . . . I am hopeful [we] can get at least a good fraction of the N.Y. Refiners to join at an early day.47
Further, he wrote on March 21, “I am still persevering and hopeful, remember our side have not yet been in the papers. We know a few things the people generally may not, at all events we know our own intentions, and they are right and only so—but please say nothing only you know your husband will stand by and stick to the right.”48
The conspirators committed a major strategic gaffe by omitting the New York refiners, who therefore sided with the Oil Creek refiners to pressure the railroads. To head their liaison committee, the New York refiners appointed a suave thirty-two-year-old named Henry H. Rogers, who had the flashing eyes and confident air of a young buccaneer. When Rogers met Tom Scott at a Philadelphia hotel on March 18, the railroad chief struck a conciliatory note, admitting that the SIC contract was unfair and offering a similar deal to the excluded New York and Pennsylvania refiners. While Scott was backpedaling and angling for peace, Rockefeller remained uncompromising, telling his wife on March 22, “I assure you it is not my pleasure to remain all this time but a stern sense of duty to this cause—I haven’t any idea giving up ship or letting go my hold.”49
On March 25, the Rogers group held a climactic meeting with wavering railroad officials at the Erie Railroad’s offices in the ornate Grand Opera House in New York. While they conferred, an edgy Rockefeller and Peter Watson tapped at the door and asked to enter. While Watson was admitted, Rockefeller was barred and so anxiously paced the corridor. For the first time, Rockefeller appeared in The New York Times—his name was misspelled as “Rockafellow”— with the reporter noting that, excluded from the talks, Rockefeller had finally gone off looking “pretty blue.”50 The meeting dealt a blow to Rockefeller and Watson, for the railroads agreed to abrogate the SIC contract, end rebates and drawbacks, and institute uniform rates for all shippers. The serpent had been killed in the egg.
Far sooner than Rockefeller, the railroads had foreseen the political reaction and inevitable defeat. In this era before railroad regulation and antitrust legislation, the SIC contract didn’t violate any obvious laws, only a universal sense of fair play. In early April, the Pennsylvania legislature canceled the SIC charter, while a congressional committee, a month later, branded the scheme the “most gigantic and daring conspiracy” ever to confront a free nation.51 On April 8, 1872, Rockefeller capitulated and wired the oil producers that all contracts between the SIC and the railroads were now void. In his own defense, he added: “I state unqualifiedly that reports circulated in the Oil Region and elsewhere, that this company, or any member of it, threatened to depress oil, are false.” 52 On this last count, Rockefeller was probably sincere, for what he envisioned was less a conspiracy against producers than against consumers, a united effort to ensure steady prices and adequate returns on investment. Till the very end, he saw the producers’ outrage against him as shot through with envy and hypocrisy. “The producers . . . held to the view that rebates were wrong unless the rebates were given to them.”53
It always mystified Rockefeller that people made such a fuss about a phantom company. “There never was a shipment made or a rebate or drawback collected under the South Improvement plan.”54 Though only a latent threat, the scheme acquired lasting infamy for two reasons. First, Rockefeller’s fiercest critics regarded it as a dress rehearsal for the grand pageant, the place where he first revealed his master plan, to be implemented in a thousand secret, disguised, and indirect ways. The second reason for all the later attention was that during the brief interval while the SIC was alive, Rockefeller engineered his most important coup: the swift, relentless consolidation of Cleveland’s refineries, which gave him irresistible momentum. The threat of the SIC, critics alleged, was the invisible club that he had waved over Cleveland refiners, forcing them to submit to his domination. Between February 17 and March 28, 1872—between the first rumors of the SIC and the time it was scuttled— Rockefeller swallowed up twenty-two of his twenty-six Cleveland competitors. During one forty-eight-hour period alone in early March, he bought six refineries. As one refiner, John H. Alexander, recalled:
There was a pressure brought to bear upon my mind, and upon almost all citizens of Cleveland engaged in the oil business, to the effect that unless we went into the South Improvement Company we were virtually killed as refiners; that if we did not sell out we should be crushed out. . . . It was said that they had a contract with railroads by which they could run us into the ground if they pleased.55
Since petroleum output promised to shatter records in 1872 and keep prices depressed, Rockefeller increasingly sought to own as large a portion of the industry as possible and didn’t think he could afford to wait for the marketplace to prune out weak refiners by attrition. “We had to do it in self-defense,” he said of the Cleveland takeovers. “The oil business was in confusion and daily growing worse.”56
Another businessman might have started with small, vulnerable firms, building on easy victories, but Rockefeller started at the top, believing that if he could crack his strongest competitor first, it would have a tremendous psychological impact. His major rival was Clark, Payne and Company, and conquering it would give Rockefeller special satisfaction, since he had already tangled with one partner, James Clark, early in his career and now coveted his Star Works refinery. The firm also had social cachet in Cleveland: Colonel Oliver H. Payne— a Yale graduate, honored Civil War colonel, and son of politician Henry B. Payne—was extremely wealthy, lived in a Euclid Avenue mansion, and was descended from one of Cleveland’s founding families. (Commodore Matthew Perry, who opened Japan to commerce in 1854, came from a collateral branch of the family.) With an erect, military bearing and coolly formal manner, many people found the
young bachelor pompous—Flagler dubbed him the “kin of God”—but Rockefeller always paid tribute to Payne as a stalwart and capable ally.57
One afternoon in December 1871, Rockefeller asked Payne, an old high-school friend, to meet in the parlor of a downtown Cleveland bank, where Rockefeller outlined his plan for a vast, efficient industry under Standard Oil control. Telling Payne about the impending capital increase at Standard Oil, he asked point-blank: “If we can agree upon values and terms do you want to come in?”58 As Clark, Payne’s largest shareholder, Colonel Payne gave his qualified approval, but he first wanted to examine Rockefeller’s books before selling his company. That afternoon, when he surveyed Standard Oil’s ledgers, he was thunderstruck by the profits. Whether he was impressed by the railroad rebates or operating efficiencies is unclear, but he eagerly told Rockefeller, “Let us get the appraisers in and see what the plant is worth.”59 After conferring with his partners, Payne consented to a $400,000 price for his refinery. Rockefeller knew that he was overpaying but couldn’t resist a deal that would certify his position as the world’s largest oil refiner at age thirty-one. Though Rockefeller stipulated that James Clark wasn’t welcome at Standard Oil, he wanted to enlist Payne’s services, and the latter soon shared a private office with Rockefeller and Flagler. James Clark later told Ida Tarbell that he sold out only from fear of the SIC contract. As Tarbell’s assistant reported, “He stated positively that Clark, Payne & Co. did not sell out before the organization of the SIC, and that it never considered selling out to the Standard before the SIC was formed.” 60
According to later lawsuits, whenever Rockefeller suggested that rivals sell out to him, the SIC formed the burden of his appeal. Some old Cleveland refiners told Ida Tarbell that his menacing pitch ran as follows:
You see, this scheme is bound to work. It means an absolute control by us of the oil business. There is no chance for anyone outside. But we are going to give everybody a chance to come in. You are to turn over your refinery to my appraisers, and I will give you Standard Oil Company stock or cash, as you prefer, for the value we put upon it. I advise you to take the stock. It will be for your good.61
Stung by charges that he had used coercion, Rockefeller retorted that he had been unfailingly friendly and courteous and never mentioned the SIC in negotiations. Strictly speaking, this was probably true, yet the timing of his twenty-two takeovers suggests strongly that the SIC was a prime factor and that the deals were done amid an atmosphere of well-timed intimidation. Several rivals alleged that Rockefeller orchestrated a chorus of terrifying rumors about his secret pact with the railroads. Even without direct threats, he knew his opponents’ imaginations would embellish these stories and conjure up a conspiracy of unfathomable scope. “In 1872 reports were purposely circulated to the effect that the Standard Oil Company had entered into agreement with the railroads, whereby no outside refiner could bring crude oil to Cleveland and manufacture it without a loss,” rival refiner J. W. Fawcett of Fawcett and Critchley told Ida Tarbell in the early 1900s.62 “The refiners became prematurely alarmed at the reports of destructive competition and inability to secure crude oil, and they ‘fell over each other’ in their haste to sell out. Had they refused to be coerced, and had they held together, there never would have been a Standard Oil Company.”63 When Fawcett received word that he should see the Standard people and dispose of his refinery, he was told “that they had the railroads in a position where they would control the rates, that Fawcett and Critchley would not ever ship any oil.”64 Like many vanquished refiners, Fawcett surrendered his independence and went to work for Rockefeller, but he never quite overcame his anger at what he perceived as clever manipulation.
Rockefeller dismissed as “an absolute lie” the idea that he had stampeded the Cleveland refiners and added that the vast majority of those refiners “were already crushed by the competition which had been steadily increasing up to this time” and were staring at ruin. For these concerns, he insisted, the opportunity to sell to Standard Oil and receive stock instead “was a godsend to them all.”65 Had Standard Oil not existed, he asserted, these refiners would simply have gone bust—which would have been true for many of them. Even Fawcett conceded that “at that time some of the refineries were not making money, and they were the first to ‘run to cover’ and sell out. Eventually all sold out.”66
Several Cleveland refiners claimed that Rockefeller had directly threatened them. John H. Heisel of Bishop and Heisel remembered telling Rockefeller that he wasn’t afraid of him, to which Rockefeller supposedly replied, “You may not be afraid to have your hand cut off, but your body will suffer.” 67 Yet it seems unlikely that Rockefeller menaced refiners quite so blatantly, for it didn’t serve his purpose. Gifted with persuasive powers, he preferred to talk earnestly to his rivals, tapping them on the knee or gesturing with his hands, reasoning with them in richly cadenced, evangelical tones. As one refiner said of Rockefeller, “He knew that he and his associates had a better knowledge of the business and a better command of the business than anyone else. You never saw anyone so confident as he was.” 68 He liked to make Standard Oil sound like a philanthropic agency or an angel of mercy, come to succor downtrodden refiners. “We will take your burdens,” he remembered telling his weaker brethren in 1872. “We will utilize your ability; we will give you representation; we will unite together and build a substantial structure on the basis of cooperation.” 69 Similarly, he said, “We here at Cleveland are at a disadvantage. Something should be done for our mutual protection. We think this plan of ours is a good scheme. Think it over. We would be glad to consider it with you if you are so inclined.”70 Sure of his mission, Rockefeller castigated those who resisted Standard Oil as foolish and shortsighted. “Take Standard Oil stock,” he urged them, “and your family will never know want.”71
If these refiners had surrendered faith in oil’s future, as Rockefeller insisted, then why did they so bitterly resent him after he bought them out? Why didn’t they regard him as their savior, as he preferred to depict himself? The answer lies partly in the way their plants were appraised. Since so many refiners were losing money, Rockefeller paid them a pittance, typically a quarter of their original construction costs, or what the plants might have fetched if auctioned off for scrap; he paid little or nothing for goodwill—that is, the intangible value in a thriving business, such as its reputation or client list. If this was hard policy, it wasn’t necessarily unscrupulous. “No, the good will of a business which is losing money is not worth much,” said Rockefeller.72 “If there isn’t work for an oil refinery to do, it has less value than ships or railroad property, which can be used on other lines.”73 One must also remember that Rockefeller was in the anomalous position of taking over many plants not to operate them but to shut them down and eliminate excess capacity. He ridiculed many of the refineries he bought as “old junk, fit only for the scrap heap.”74 Rockefeller probably paid a fair price for many antiquated plants, but it was a bitter pill for the ruined owners to swallow. And he operated in a climate of fear that gave his rivals little choice in the matter.
Whether by chance or design, Rockefeller’s 1872 business papers have vanished, and we aren’t privy to his thoughts during these crucial negotiations. But in later years, he was a fair-minded bargainer who often paid too much for properties that served a strategic purpose. Indeed, his papers are chock-full of lamentations about how he overpaid for properties. When it came to mergers, he didn’t fight for the last dollar and tried to conclude matters cordially. Since he aimed to convert competitors into members of his cartel and often retained the original owners, he preferred not to resort to naked intimidation. As Rockefeller said, he and his colleagues weren’t “so short-sighted as to antagonize these very men whom they were eager to have come into a close and profitable relationship with them.”75 He wasn’t a sadistic man, but he had a hard, unyielding sense of purpose that brooked no opposition. If Rockefeller expressed elation, it was behind closed doors. According to one le
gend, after taking over a new refinery, he would rush into the office, perform a little dance, and shout joyously to Sam Andrews, “We’ve got another refinery, Sam. One more in the fold!”76
During the Cleveland Massacre, Rockefeller savored a feeling of sweet revenge against some of the older men who had patronized him when he started in business. This was especially true of his negotiations with Alexander, Scofield and Company, whose partners included his original boss, Isaac L. Hewitt. After Hewitt came to Rockefeller’s Euclid Avenue home to plead for mercy, they strolled down Euclid Avenue together, and Rockefeller told him his firm would never survive if it didn’t sell out to Standard Oil. He made a cryptic statement to Hewitt that entered into Rockefeller folklore: “I have ways of making money you know nothing about.”77 Disconcerted by such assertions, Hewitt and his partners finally sold out for $65,000, though they believed their business was worth $150,000. Rockefeller felt merciful toward Hewitt and loaned him money to buy Standard stock, but he despised Hewitt’s partner, John H. Alexander, who still viewed him, he thought, as Hewitt’s former clerk. As Rockefeller put it, “How could this conceited Englishman ever conceive it possible that a young man who had been a bookkeeper, and especially at a time when he had been employed in an oil refinery, be qualified to lead in a movement of this kind?” 78
Rockefeller’s most controversial purchase—and one that resulted in a bitter lawsuit—was the takeover of Hanna, Baslington and Company. When Robert Hanna, the uncle of Mark Hanna, was summoned to Standard Oil’s offices, he bluntly told Rockefeller that he wouldn’t sell. In response, Rockefeller sighed and wearily shrugged his shoulders, as if expressing regret that this benighted sinner hadn’t seen the light. “You will stand alone,” he warned Hanna. “Your firm can never make any more money in Cleveland. No use trying to do business in competition with the Standard Oil Company. If you do it will end in your being wiped out.”79 What seemed a barefaced threat to Hanna was later interpreted by Rockefeller as a timely warning and sincere advice.