by Ron Chernow
The swift raids on the principal refining centers cost such a king’s ransom that Rockefeller’s most ticklish problem was how to bankroll this marathon buying spree. To entice refiners, he offered them the option of taking payment either in cash or stock, and he always dreaded the choice of cash. “I would whip out our check book with rather a lordly air and remark, as if it were a matter of entire indifference to us, ‘Will I write a check or would you prefer payment in Standard Oil shares?’ ”30 If they chose cash, he often had to scramble among banks to scrounge up money. By encouraging opponents to take stock, he conserved funds and also enlisted the allegiance of quondam foes in his burgeoning enterprise. But few companies followed the lead of Clark, Payne and invested in Standard Oil instead of taking payment.
It mortified Rockefeller that so few trusting souls took Standard Oil stock. Mostly, they doubted that Rockefeller and his Young Turks could realize their experimental plan. As he recalled, “So when I offered them either spot cash outright for their property or stock in the new company, they took my money and laughed in their sleeves at my folly.” 31 Rockefeller knew, with his customary certitude, that the people who took shares would be enriched. Indeed, American high society in the twentieth century would be loaded with descendants of those refiners who opted for stock. At every opportunity, Rockefeller sounded a prophetic note about the future appreciation of these shares. One Cleveland refiner who took stock later ran into Rockefeller, who asked, “Do you still hold your stock?” When told that was the case, Rockefeller entreated him, “Sell everything you’ve got even to the shirt on your back, but hold on to the stock.” 32 Not all of them did, and Rockefeller always fancied that much of the venom turned against him came from disgruntled refiners who regretted having declined the stock.
Despite his stupendous borrowing needs, Rockefeller no longer needed to truckle to bankers and defied the most fearsome of them all: Amasa Stone. Cold, stern, and unapproachable, Stone amassed a fortune building bridges and railroads and became managing director of the Lake Shore Railroad at the personal behest of Commodore Vanderbilt. Twenty years older than Rockefeller, he expected the refiner to defer to him, and this irked the younger man. To ensure a steady flow of credit, Rockefeller put Stone on Standard’s board, but when the latter grew arbitrary and domineering, Rockefeller plotted to banish him. He soon had his chance when Stone inadvertently let an option expire for buying more Standard Oil stock. Several weeks later, recognizing his error, Stone showed up at the Standard office and induced Flagler to extend the expiration date. Itching for a showdown, Rockefeller overrode Flagler and refused to sell Stone any more shares, prompting the irate banker to liquidate his stake in the company. Rockefeller now considered himself the equal of any Cleveland businessman and wouldn’t grovel to anyone.
Just as he dreamed of emancipation from his bankers, Rockefeller hoped to escape the clutches of Vanderbilt, Gould, Scott, and other railroad barons. Early on, he had demonstrated the edge possessed by large-scale shippers in haggling with railroads. Now, he went a critical step further, figuring out how to insinuate himself into the very infrastructure of the industry.
Still uneasy at the specter of the oil fields drying up, the railroads shrank from investments in custom-made facilities for handling oil, worried that this specialized equipment might someday be rendered worthless. Exploiting this fear, Rockefeller worked out a clever bargain with the Erie Railroad in April 1874. The railroad would transfer control of its Weehawken, New Jersey, terminal to Standard Oil if Standard met two conditions: First, it would have to outfit the rail yards with modern apparatuses that would help to expedite oil shipments to New England and the South; second, it would have to ship 50 percent of its western refinery output over Erie tracks. For Rockefeller, the arrangement promised multiple advantages, for he not only received preferential rates from Erie but could also chart the oil movements of competitors across the country. He could even block the export of rivals’ oil—an option that, having made this huge investment, he freely exercised. As he argued, “I know of no parallel case in other branches of business where the competitor felt injured because he could not use his rival’s capital and facilities for his own advantage and the disadvantage of the owner of the capital and facilities.”33 Rockefeller’s logic was unimpeachable—unless one accepted the still controversial proposition that railroads were common carriers and should deal with all shippers impartially.
Rockefeller was embraced no less warmly by the New York Central, which was controlled by the Vanderbilt family. Commodore Vanderbilt reportedly said that Rockefeller was the one man in America who could dictate terms to him; meanwhile, his son, William H. Vanderbilt, discreetly purchased Standard Oil stock for his own account.34 It was the younger Vanderbilt who said presciently of Rockefeller in the 1870s: “He will become the richest man in the country,” thus inheriting the title from his father. 35 Standard Oil eventually became so enmeshed in the railroad business that it controlled virtually all the oil traffic that traveled over the Erie and the New York Central tracks.
Standard Oil also profited immeasurably from the revolution in oil transport as barrels gave way to tank cars. As Rockefeller later testified, “We soon discovered as the business grew that the primary method of transporting oil in barrels could not last. The package often cost more than the contents, and the forests of the country were not sufficient to supply the necessary material for an extended length of time.”36 Once again, the railroads balked at investing in rolling stock that couldn’t also transport general freight, so Rockefeller stepped boldly into the breach. In 1874, Standard Oil—with that kindly solicitude for the railroads’ welfare that artfully tied them up with myriad strings—began to raise tens of thousands of dollars to build oil-tank cars, which they would then lease to the roads for a special mileage allowance. Decades later, Armour and Company, the Chicago butcher, mimicked the same strategy by buying up refrigerator cars.
As the owner of almost all the Erie and New York Central tank cars, Standard Oil’s position grew unassailable: At a moment’s notice, it could crush either railroad by threatening to withdraw its tank cars. It also prodded the railroads into granting favors for tank cars not enjoyed by the small refiners who shipped by barrel. For instance, railroads levied a charge for the return of empty barrels, while tank cars traveled free on the return route from the East Coast to the Midwest refineries. Tank-car clients also received the exact same leakage allowance received by barrel shippers, even though the tank cars didn’t leak—which effectively allowed Standard Oil to carry sixty-two gallons gratis in every tank car.
In this impregnable position, Rockefeller fulfilled a longtime wish and abolished forever the freight advantage of the Oil Creek refiners. In high-level talks with railway officials at Long Branch, New Jersey, and Saratoga Springs in the summer of 1874, he made them equalize rates for all refiners shipping to the East Coast. Crude oil would now effectively travel free on the 150-mile stretch between Oil Creek and Cleveland, destroying the advantage of owning a refinery in the oil fields and creating parity for Cleveland. When this shocking news surfaced in the so-called Rutter Circular of September 9, 1874, it sparked mass meetings and howls of protest along Oil Creek, where Rockefeller was universally execrated. Unlike the situation with the SIC, the railroads didn’t tremble at the uproar but reacted with cool intransigence, knowing the independent refiners were now doomed. Three weeks passed before A. J. Cassatt of the Pennsylvania Railroad issued a curt, unrepentant letter in defense of the new uniform rates. For a long time, the independents had fought a valiantly unequal contest with Standard Oil, but now that the railroads had fallen under Standard’s spell, the contest was over.
Had oil been found in scattered places after the Civil War, it’s unlikely that even Standard Oil could have mustered the resources to control it so thoroughly. It was the confinement of oil to a desolate corner of northwest Pennsylvania that made it susceptible to monopoly control, especially with the emergence of pipelines. Pipeline
s unified the Pennsylvania wells into a single network and ultimately permitted Standard Oil to start or stop the flow of oil with the turn of a spigot. In time, they relegated collaboration with the railroads into something of a sideshow for Rockefeller.
Only belatedly did Rockefeller discern the full potential of pipelines, and his entry into the business seemed somewhat of a defensive, rearguard action. He knew that the railroads felt threatened by the pipelines, and for a time he thought it worthwhile to help them safeguard their interests by delaying the introduction of this new technology. Then, one of the railroads forced him to modify his plans. During the summer of 1873, he was taken aback when the Pennsylvania Railroad expanded into pipelines through an aggressive, fast-freight subsidiary known as the Empire Transportation Company, which integrated two of the largest Oil Creek pipelines into its railroad network. Thus far, pipelines had only pumped oil short distances from the wellhead to the railroads, but this move presaged a time when pipelines would span great distances and supplant railroads altogether. Even worse from Rockefeller’s viewpoint, Empire seemed the harbinger of a pipeline monopoly under the thumb of his rival and sometime coconspirator Tom Scott of the Pennsylvania Railroad. Rockefeller’s paranoia was fully justified. In the perpetual game of shifting alliances, Tom Scott had made his tactical compromises with Rockefeller, but he generally feared Standard Oil and sought to shatter its refining monopoly, presumably to replace it with his own.
In a deft countermove, Rockefeller called upon Daniel O’Day, one of the most colorful figures in Standard history, to lay down a pipeline system. Born in County Clare, O’Day was a profane, two-fisted Irishman who tempered ruthless tactics with wit and charm. He inspired loyalty among subordinates and raw terror among adversaries. On his forehead O’Day bore a scar from an old Oil Creek brawl that was a constant reminder of his bare-knuckled approach to business. In 1874, under O’Day’s tutelage, Standard launched the American Transfer Company to construct a pipeline network. Jockeying for position, Rockefeller also acquired a one-third interest in Vandergrift and Forman, controlled by Jacob J. Vandergrift, the steamboat captain who had merged his refining interests with Standard Oil. The Vandergrift pipelines formed the core of a new venture, the United Pipe Lines, that pretended to be free of Standard Oil control. By giving small stakes in United to William H. Vanderbilt of the New York Central and Amasa Stone of the Lake Shore, Rockefeller tightened his grip over friendly railroads. This set him up to extract maximum advantage from both the railroads and pipelines so long as these two means of transport coexisted in the oil business. When the owners of the first pipeline systems established a pool to set rates and allocate quotas among putatively competing networks in the summer of 1874, Rockefeller’s pipelines gained an impressive 36 percent market share.
Between American Transfer and United Pipe Lines, Rockefeller now sat astride nearly a third of the crude oil flowing from Oil Creek wells. Henceforth, Standard’s influence in petroleum transport would be no less pervasive and even more profitable than its unmatched position in refining. This power offered many temptations for abuse. An oilman could make a tremendous strike and suddenly feel fabulously rich, but if he couldn’t hook up the gushing black liquid to a pipeline, it was worthless. The drillers had always credited Rockefeller with a life-and-death hold over them, and as the Standard Oil pipelines encroached upon the oil fields, snaking across the slopes of Oil Creek, that power took on a frighteningly tangible form.
CHAPTER 10
Sphinx
In April 1874, as befitted the status of this new oil colossus, Standard Oil moved into a new four-story building that Rockefeller and Harkness had erected at 43 Euclid Avenue, east of the Public Square. Behind a heavy stone façade, the two Standard Oil floors were roomy and airy, drawing extra light from a skylight above the central stairway. Every morning at 9:15 sharp, Rockefeller arrived, elegantly attired, with the letter R neatly incised in his black onyx cuff links; for someone from a frugal, rural background, he was unexpectedly fastidious. “Mr. Rockefeller came in with an air of calm dignity,” recalled one clerk. “He was immaculately dressed—he looked as if he had been turned out of a bandbox. He carried an umbrella and his gloves, and wore a high silk hat.” 1 He placed such faith in polished shoes that he provided, free of charge, a shoe-shining kit for each office unit. Tall and pale, with neatly trimmed reddish gold side-whiskers, he had a barber shave him each morning at the same hour. Extremely punctual for all appointments, he said, “A man has no right to occupy another man’s time unnecessarily.”2
In his imperturbable style, Rockefeller quietly bid his colleagues good morning, inquired after their health, then vanished into his modest office. Even within the Standard Oil kingdom, his employees found his movements as wraithlike as his most paranoid Titusville antagonists did. As one secretary remarked, “He is sly. I never have seen him enter the building or leave it.”3 “He’s never there, and yet he’s always there,” echoed an associate.4 Rockefeller seldom granted appointments to strangers and preferred to be approached in writing. Ever alert against industrial espionage, he never wanted people to know more than was required and warned one colleague, “I would be very careful about putting [someone] into a position where he could learn about our business and be troublesome to us.”5 Even close associates found him inscrutable and loath to reveal his thoughts. As one wrote, “His long silences, so that we could not locate even his objections, were sometimes baffling.” 6 Schooled in secrecy, he trained his face to be a stony mask so that when underlings brought him telegrams, they couldn’t tell from his expression whether the news was favorable or not.
Rockefeller equated silence with strength: Weak men had loose tongues and blabbed to reporters, while prudent businessmen kept their own counsel. Two of his most cherished maxims were “Success comes from keeping the ears open and the mouth closed” and “A man of words and not of deeds is like a garden full of weeds.”7 Big Bill’s deaf-and-dumb routine curiously prefigured his son’s habit of hearing as much as possible and saying as little as possible to gain a tactical edge. When bargaining, he employed his Midwest taciturnity to effect, throwing people off stride and keeping them guessing. When angry, he tended to grow eerily quiet. He liked to tell how a blustering contractor stormed into his office and launched into a snarling tirade against him while he sat hunched over his writing desk and didn’t look up until the man had exhausted himself. Then, spinning about in his swivel chair, he looked up and coolly asked, “I didn’t catch what you were saying. Would you mind repeating that?”8
Much of the time, he was closeted in his office, where he had oil prices chalked on a blackboard. He paced this spartan office, hands laced behind his back. Periodically, he emerged from his lair, mounted a high stool, and studied ledgers, scribbling calculations on pad and paper. (During meetings, he was a restless doodler and note taker.) Frequently, he stared out the window, motionless as an idol, gazing at the sky for fifteen minutes at a stretch. He once asked rhetorically, “Do not many of us who fail to achieve big things . . . fail because we lack concentration—the art of concentrating the mind on the thing to be done at the proper time and to the exclusion of everything else?”9
Rockefeller adhered to a fixed schedule, moving through the day in a frictionless manner. He never wasted time on frivolities. Even his daily breaks—the midmorning snack of crackers and milk and the postprandial nap—were designed to conserve energy and help him to strike an ideal balance between his physical and mental forces. As he remarked, “It is not good to keep all the forces at tension all the time.”10
In the early days, Rockefeller knew the name and face of each employee and occasionally perambulated about the office. He walked with a measured gait, steady as a metronome, always covering the same distance in the exact same time. He had the soundless movements and modulated voice of an undertaker. Gliding about with silent footfalls, he startled people by materializing at their desks and politely asking, in a mellow voice, to inspect their work. Since he
was seldom seen, people often wondered about his whereabouts. “His was the least known face in the offices,” one employee recalled fifty years later, still perplexed about Rockefeller’s daily schedule. “He was reported to inhabit them three hours a day, but his appearances and disappearances were curtained, suggested private approaches, withdrawn stairways and corridors.” 11
A photograph of John D. Rockefeller that clearly shows his keen determination as a young businessman. (Courtesy of the Rockefeller Archive Center)
As a former bookkeeper, Rockefeller devoted special attention to ledgers. One accountant recalled him stopping by his desk and saying courteously, “Permit me,” then flipping quickly through his books. “Very well kept,” he said, “very, indeed.” Then his eye leaped to a tiny error. “A little error here; will you correct it?” The accountant was flabbergasted by the speed with which Rockefeller had scanned so many dense columns of figures. “And I will take my oath,” he reported, “that it was the only error in the book!”12
Everybody noted the man’s preternatural calm. Though he had honed his will into a perfect instrument, he was even-tempered by nature. As he remarked, “You could do or say the most outrageous thing at this moment and I would not show the least sign of excitement.”13 He was always proud of the fact that he had an abnormally low pulse of fifty-two. Many employees said he never lost his temper, raised his voice, uttered a profane or slang word, or acted discourteously. He defied many stereotypes of the overbearing tycoon and generally received excellent reviews from employees who regarded him as fair and benevolent, free of petty temper and dictatorial airs. This was nicely illustrated by an anecdote. As a fitness buff, Rockefeller placed in the accounting department a wood-and-rubber contrivance that he pushed and pulled for exercise. When he showed up one morning for exercise, a junior accountant didn’t recognize him, called the gadget a damned nuisance, and demanded that it be carted off. “All right,” said Rockefeller and had the contraption removed. Somewhat later, to his horror, the young man realized that he had berated the chief executive, yet he never endured one word of reprimand. Rockefeller even hesitated to punish serious offenses and instead of prosecuting the occasional embezzler simply dismissed him.