Titan

by Ron Chernow

  What’s most striking, both in the extensive Inglis interview and elsewhere, is that every time Rockefeller explained the rationale for Standard Oil, he resorted to patently religious imagery. “The Standard was an angel of mercy, reaching down from the sky, and saying, ‘Get into the ark. Put in your old junk. We’ll take all the risks!’ ”96 He referred to Standard Oil as “the Moses who delivered them [the refiners] from their folly which had wrought such havoc in their fortunes.” 97 Charged with destroying competition, Rockefeller was indignant: “I repeat again, it was not a process of destruction and waste; it was a process of upbuilding and conservation of all the interests . . . in our efforts most heroic, well meant—and I would almost say, reverently, Godlike—to pull this broken-down industry out of the Slough of Despond [for which] we are charged with criminal proceedings.”98 Far from being an outlaw band, Standard Oil had “rendered a missionary service to the whole world. Strong as this statement is, it is the Gospel truth.”99 Further, “Faith and work were the rocks upon which Standard Oil was built.”100 He credited Standard Oil with “the salvation of the oil business and making it a reputable pursuit instead of a disgraceful, gambling, mining scheme.” 101 While he and his partners were “missionaries of light” and tried to treat weaker competitors with compassion, there were limits to their tolerance since they could not “stop the car of salvation in their great enterprise which meant so much to the consuming public the world over.”102 If his stewardship of Standard Oil exposed him to vitriolic persecution, it was exactly the martyrdom he expected.

  Rockefeller has often been described as a social Darwinist who viewed the harsh struggle of capitalism as a salutary process that rewarded the industrious and punished the lazy. And it is true that he adamantly opposed any government program or private charity that sapped the frontier spirit of self-reliance. Yet Rockefeller could hold contradictory views on essential matters, and his philosophic justification of cooperation rested heavily upon a direct refutation of social Darwinism:

  The struggle for the survival of the fittest, in the sea and on the land the world over, as well as the law of supply and demand, were observed in all the ages past until the Standard Oil Company preached the doctrines of cooperation, and it did cooperate so successfully and so fairly that its most bitter opponents were won over to its views and made to realize that rational, sane, modern, progressive administration was necessary to success. 103

  Standard Oil was thus presented as the antidote to social Darwinism, a way to bring universal brotherhood to a fractious industry. Without Standard Oil, said Rockefeller, “there would have been the survival of the fittest—and we had proved ourselves to be the fittest, and we could have picked up the wrecks as the less fortunate brethren went down. This we did not do, but tried to call a halt and avert the impending disaster.”104 Standard Oil would be a cooperative commonwealth, open to refiners who renounced their selfish ways to join the faithful. It would be for Rockefeller a unique case of the strong showing mercy to their weaker brethren by inviting them to participate in a common effort to save the industry.

  In a critical distinction, he viewed competitive capitalism—and not capitalism per se—as producing a vulgar materialism and rapacious business practices that dissolved the bonds of human brotherhood. In a state of ungoverned competition, selfish individuals tried to maximize their profits and thereby impoverished the entire industry. What the American economy needed instead were new cooperative forms (trusts, pools, monopolies) that would restrain grasping individuals for the general good. Rockefeller thus tried to reconcile trusts with Christianity, claiming that cooperation would end the egotism and materialism abhorrent to Christian values. It was an ingenious rationalization. While religion did not lead him to the concept of trusts, it did enable him to invest his vision of cooperation with a powerful moral imperative.

  From the outset, Standard Oil was permeated by an us-versus-them attitude that emanated from the top. At moments, Rockefeller made it sound as if he and his colleagues were a band of early Christians, misunderstood by the pagans. In this moralistic frame of mind, he was bound to see his opponents as benighted, misguided people, “governed by their narrow jealousies and unwarranted prejudices” and unaware that the old gods were now obsolete.105 Rockefeller developed an inverted worldview, accusing his critics of exactly the same sins of which they accused him. Far from seeing himself as a rascal or bully, the Standard Oil chieftain presented himself as a respectable gentleman who attempted in vain to reason with wicked independents. In his correspondence, Rockefeller betrayed a characteristic manner of referring to his rivals: They were selfish people forever stirring up trouble or creating annoyances, like so many mischievous children who needed a good stiff spanking from father. Never conceding any legitimacy to dissent, Rockefeller denigrated his critics as blackmailers, sharpsters, and crooks. He was now dangerously impervious to criticism.

  Charles Pratt, Sr., Rockefeller’s colleague and frequent adversary. (Courtesy of the Rockefeller Archive Center)

  CHAPTER 9

  The New Monarch

  Fresh from the South Improvement Company brouhaha and the bruising struggle over the Cleveland refineries, Rockefeller didn’t pause to catch breath. Anybody else might have consolidated his gains and proceeded cautiously, but Rockefeller, a man in a hurry, launched a new offensive instead. The SIC contretemps had stranded him in an untenable spot. Since Cleveland refiners paid the same freight rates as other refining centers, they labored under a huge competitive handicap, paying fifty cents a barrel just to ship crude oil to Cleveland before sending on the refined oil to New York; by contrast, a Titusville refiner shipped straight to the seaboard. In April 1872, Henry Flagler again extracted concessions from the Lake Shore Railroad but not enough to appease Rockefeller. Because the Pittsburgh refiners shared a similar cost disadvantage, Rockefeller decided to make common cause with them and press the railroads for new discounts.

  With unmitigated cheek, Rockefeller decided that if the Oil Regions couldn’t tolerate a small, secret consortium such as the SIC, he would confront them with a giant public consortium of refiners. In mid-May 1872—scarcely more than a month after the railroads scrapped the SIC—Rockefeller and Flagler journeyed to Pittsburgh to meet with the city’s three foremost refiners, William G. Warden, William Frew, and O. T. Waring. The group then went by train to Titusville, bearing a plan for a new National Refiners’ Association, which would be popularly dubbed the Pittsburgh Plan. This venture envisioned a new refiners’ cartel, headed by a central board that would negotiate advantageous terms with the railroads and maintain prices by assigning refining quotas to members. Eschewing subterfuge, the confederation was thrown open to all refiners, but with John D. Rockefeller serving as president.

  Before long, Rockefeller was so detested in the Oil Regions that he ceased to visit and retreated to the status of a dim, shadowy legend; no authenticated photo shows him in the rural backwater to which he owed his fortune. Though the National Refiners’ Association theoretically embraced all comers, the Titusville refiners saw the group as the old SIC in disguise, and local newspapers admonished oilmen to beware of the slippery, smooth-talking men from Cleveland. On the Titusville streets, Rockefeller was greeted with the somber respect accorded a new monarch. As always, he presented a cordial façade that disarmed people and in one office after another reassured wary refiners, “You misunderstand our intention. It is to save the business, not to destroy it that we are come.”1 At two turbulent public meetings, Flagler was hooted and jeered while Rockefeller stared impassively at the audience. One refiner left an indelible portrait of Rockefeller’s aloof, cryptic manner at a private meeting:

  One day several of us met at the office of one of the refiners, who, I felt pretty sure, was being persuaded to go into the scheme which they were talking up. Everybody talked except Mr. Rockefeller. He sat in a rocking chair, softly swinging back and forth, his hands over his face. I got pretty excited when I saw how those South Improvement m
en were pulling the wool over our men’s eyes, and making them believe we were all going to the dogs if there wasn’t an immediate combination to put up the price of refined and prevent new people coming into the business, and I made a speech which, I guess, was pretty warlike. Well, right in the middle of it John Rockefeller stopped rocking and took down his hands and looked at me. You never saw such eyes. He took me all in, saw just how much fight he could expect from me, and I knew it, and then up went his hands and back and forth went his chair. 2

  At a second big public meeting, the Pittsburgh Plan was defeated resoundingly by local refiners, yet Rockefeller still gained ground, having enlisted influential local defectors, especially his erstwhile foe, young John D. Archbold. During the following months, in a divide-and-conquer policy, Rockefeller tried to isolate the Oil Creek refiners by successfully recruiting into his Pittsburgh Plan refiners from the other major centers.

  But before long, this cartel was bedeviled by cheaters exceeding their quotas. It also grappled with what economists call the “free rider” problem—that is, opportunistic refiners stayed outside the plan and enjoyed the higher prices it produced without being bound by its production limits. As Rockefeller later said in a comparable situation, “These men who claimed that they had been ‘crushed’ and ‘ruined’ by the Standard Oil Company were existing under its shelter and protection.”3 And he was besieged by problems closer to home. After Standard Oil bought decrepit old refineries in Cleveland to cut back on capacity, many sellers violated their covenants and started up new plants with improved equipment. They were drawn back, Rockefeller argued, only because he had markedly improved conditions and boosted prices. To complicate matters, new refiners now entered the business expressly to blackmail him into buying them out.

  In the end, frustrated by rampant cheating and freeloaders, Rockefeller gathered refiners in Saratoga Springs, New York, on June 24, 1873, and dissolved the short-lived Pittsburgh Plan. He was momentarily disheartened by this failure, which again confirmed his preference for outright fusion rather than an unwieldy federation of firms. “There are some people whom the Lord Almighty cannot save,” he later said wearily of the Oil Creek refiners. “They don’t want to be saved. They want to go on and serve the devil and keep on in their wicked ways.”4

  In her influential polemic, Ida Tarbell evoked a paradise of free, independent producers in western Pennsylvania, “ruddy and joyous” men, enamored of competition, who were snuffed out by the sinister Standard Oil. In her morality play, Rockefeller was the venomous toad in this garden of earthly delights. In fact, the producers didn’t respond to Rockefeller by advocating freer competition but by forming their own counterconspiracy. In the summer of 1872, under the aegis of the Petroleum Producers’ Association, they approved a moratorium on new drilling to steady prices and briefly called for a complete halt to production. The producers terrorized each other, meting out noctural punishment to noncooperators by setting their wells ablaze or smashing their pumping engines with sledgehammers. The producing end of the industry was populated by thousands of freebooting, high-spirited speculators who were far harder to organize than the more sober refiners, concentrated in a few urban centers—something that gave Rockefeller a decided edge.

  So long as he could maintain ample spreads between crude and refined prices, Rockefeller blessed the producers’ efforts to impose higher prices and control output. It was a common misconception along Oil Creek—and one that fed anti-Rockefeller demonology—that he was trying to drive drillers to the wall to keep prices low. In reality, he was fully prepared to deal with a strong producers’ cartel so long as they capped production. On December 19, 1872, Rockefeller met with producers at the Fifth Avenue Hotel in New York and signed the so-called Treaty of Titusville. Under this agreement, the refiners’ association pledged to buy oil from the producers’ association at five dollars a barrel—nearly twice the spot market rate—in exchange for tightly enforced production limits. The agreement crumbled not because of Rockefeller but because producers couldn’t enforce discipline in their ranks. Instead of throttling the oil flow, they scrambled to pump more, with wholesale cheating driving the price as low as two dollars a barrel on the crude-oil market. Many small drillers outside the producers’ association took advantage of the pact to undersell their bigger competitors.

  This behavior ratified Rockefeller’s low opinion of the producers as dissolute, unreliable men who couldn’t contain a “wild and uncontrollable element” that “would sneak out at midnight and start the pumps going so that the oil might flow before the songs of the birds were heard.” 5 With the the oil industry drowning in another glut, Rockefeller terminated the agreement in January 1873, chiding the recalcitrant producers: “You have not kept your part of the contract—you have not limited the supply of oil—there is more being pumped today then ever before in the history of the region.”6 While uncontrollable drilling was to blame, the producers found it easier to scapegoat Standard Oil. After the agreement fell apart, the disorganized producers lost all incentive to curtail production, feeding another downward spiral in oil prices.

  By 1873, Standard Oil was shipping about a million barrels of refined oil per year and earning about a dollar a barrel, yet the business remained on an unsure footing. Rockefeller had clarified one thing in his own mind, however: Voluntary associations couldn’t move with the speed, unity, and efficiency he wanted. “We proved that the producers’ and refiners’ associations were ropes of sand,” he said.7 He was now through with ineffectual alliances and ready to bring the industry to heel under Standard Oil control. “The idea was mine. The idea was persisted in, too, in spite of the opposition of some who became fainthearted at the magnitude of the undertaking, as it constantly assumed larger proportions.”8 By early 1873, he had crossed his own Rubicon and never looked back. Once embarked on a course of action, he wasn’t a man to be hobbled by doubts.

  In 1873, the mad dash for riches that followed the Civil War ended in a prolonged slump that ground on for six interminable years. On Black Thursday— September 18, 1873—the august banking house of Jay Cooke and Company failed because of problems in financing the Northern Pacific Railway. This event ignited a panic, leading to a stock-exchange shutdown, a string of bank failures, and widespread railroad bankruptcies. During the next few years, deflated by massive unemployment, daily wages plunged 25 percent, exposing many Americans to the horror of downward mobility. The six lean years accelerated the process of consolidation that had gathered force in many economic sectors.

  This depression especially exacerbated the problems of the oil industry. Soon after Black Thursday, crude prices touched a shocking low of eighty cents a barrel; within a year, prices had tumbled to forty-eight cents—cheaper than the cost of hauling water in some towns. Just as Carnegie expanded his steel operations after the 1873 panic, so Rockefeller saw the slump as a chance to translate his master blueprint into reality. To capitalize on rival companies selling at distress-sale prices, he slashed Standard Oil’s dividend to increase its cash reserves. Standard Oil weathered the six-year depression magnificently, a fact Rockefeller attributed to its conservative financial policy and unparalleled access to bank credit and investor cash.

  The oil-refining industry staggered under so much surplus capacity that even Standard Oil, comprising a quarter of the industry, operated only two of its six main Cleveland plants. For all that, it managed to post such creditable profits that it sometimes wooed competitors simply by giving them a privileged peek at its books. Rockefeller was acquiring unstoppable momentum and, having subdued Cleveland, he soon began his march from city to city in an unrelenting campaign of national consolidation.

  As his operations grew, Rockefeller made a fetish of secrecy, flavored with paranoia, a legacy of his self-conscious boyhood. One day, he saw an office employee talking to a stranger and later inquired after the man’s identity. Although the subordinate said the man was a friend, Rockefeller lectured him, “Well, be very careful what you sa
y. What does he want here? Don’t let him find out anything.” “But he is just a friend,” the employee replied. “He doesn’t want to know anything. He has just come to see me.” “Quite so,” said Rockefeller, “but you can never tell. Be careful, be very careful.”9

  In absorbing competitors, Rockefeller was equally secretive and asked them to continue operating under their original names and not divulge their Standard Oil ownership. They were instructed to retain their original stationery, keep secret accounts, and not allude on paper to their Cleveland connection; internal correspondence with Standard Oil was often conducted in code or with fictitious names. Rockefeller also did this as a necessary legal expedient, for under existing law Standard Oil of Ohio couldn’t own property outside the state, a situation that invited deception by companies that operated nationally.

  Rockefeller warned refiners joining Standard Oil not to parade their sudden wealth, lest people wonder where they got the cash. After striking a deal with one Cleveland refiner, he invited him to his Euclid Avenue home one night and said: “But you must keep this contract secret even from your wife. When you begin to make more money, don’t let anybody know it. Don’t put on any more style. You have no ambition to drive fast horses, have you?”10 With such thoroughgoing stealth, Standard Oil executives worried that if some newly acquired refiner died, his heirs might mistakenly claim ownership of the refinery.