by Ron Chernow
Grocers and hardware merchants resented the demand to stock only Standard Oil kerosene or be starved out of the business. Along with wholesalers rendered obsolete by the Standard marketing effort, they emerged as Rockefeller’s most potent enemies. Conveniently, Rockefeller never set eyes on these men, had no sympthy for them, and chided them for standing in the way of progress. “Of course it is natural that the man who drove the stage coach should be antagonistic to the railroad and that the man who used to keep the small inn should look with disfavor upon the big, magnificent hotels.”22
Since jobbers often adulterated Standard Oil kerosene with poor-quality product from independent refiners, Rockefeller hoped that his marketing operation would ensure a uniform quality of Standard Oil products. The 1870s witnessed five thousand to six thousand deaths annually from accidents caused by faulty kerosene.23 Far from being immune to complaints, however, Standard Oil was bedeviled by reports that its kerosene emitted an offensive odor, crusted wicks, and smoked lamps. One day in Cleveland, an angry woman pushed her way into Rockefeller’s office and demanded to know what he planned to do about his poor kerosene. Indignantly, he marched off to the lab and had the woman’s sample analyzed, the results unknown. At 26 Broadway, he tracked the activities of the manufacturing committee, which burned kerosene lamps for six hours at a time to test oil quality. Always touchy about complaints, Rockefeller often blamed poor wicks and developed the Acme wick to eliminate those complaints. To his consternation, customers still grumbled even after they switched to this allegedly foolproof article.
Standard’s marketing subsidiaries were conducted with such controlled ferocity that they became the most hated part of the entire organization. One must recall that Standard Oil was a federation of companies, not a single firm, and held only a partial interest in many affiliated companies. This invited trouble, for Standard often retained the original managers and allowed them a fair degree of autonomy. When the combine absorbed established marketing concerns, it brought into the organization several rogue proprietors who tarnished the Standard Oil name. Later on, Rockefeller feigned ignorance of their actions and disclaimed responsibility when, as we shall see, he received elaborate warnings about their methods.
In 1873, Standard secretly bought half of Chess, Carley and Company, which had a Louisville refinery and a lucrative marketing operation in the Southeast. The owner, F. D. Carley, was a lapsed Methodist minister who set a new standard for pitiless methods in oil marketing. Confidential reports informed Rockefeller that Carley was a charming scoundrel, an inveterate gambler who went straight from board meetings to his bookie’s office; even the circumspect Rockefeller referred euphemistically to Carley’s “want of balance.” 24 Although Rockefeller planned to pack Chess, Carley’s board with a majority of Standard directors, Carley blocked outright control from 26 Broadway until 1881, and another five years elapsed before Standard swallowed the firm whole and renamed it Standard Oil of Kentucky.
By then, Chess, Carley had become a byword for vicious tactics. When F. D. Carley learned that Standard Oil’s nemesis George Rice had shipped a scant seventy barrels of kerosene to a Louisville merchant, he reacted furiously. As a director of the Louisville, Nashville and Great Southern Railroad, which had granted Rice low freight rates, Carley had an underling dash off a peremptory letter to the railroad’s freight agent, telling him exactly how to treat Rice: “Please turn the screw.”25 When this quotation was revealed by investigators years later, it was emblazoned in newspaper headlines across America.
Carley went to extravagant lengths to stop competitors. When he learned that Rice planned to sell kerosene in Columbus, Mississippi, he sent local grocers an unambiguous letter: “If you do not buy our oil we will start a grocery store and sell goods at cost and put you all out of business. ” 26 No bluffer, Carley set up a store that sold Standard Oil kerosene at cut-rate prices, as well as oats, meat, sugar, coffee, and other household items at or below cost. In many localities, grocers gladly took a 5 percent discount offered on foodstuffs by Carley in exchange for an agreement to carry only Standard kerosene, one of many anticompetitive practices perfected by Standard Oil that shaped future antitrust legislation. Notwithstanding the public uproar, Rockefeller claimed to be unaware of Carley’s practices. Yet at one point, Colonel Thompson confidentially told Rockefeller that Carley was a “secret, surreptitious” man with “mysterious, dishonest secrets” who even cheated on his agreements with Standard Oil. 27
In 1878, Standard Oil boldly expanded its marketing territory by acquiring a 40 percent stake in the Waters-Pierce Company, which was based in Saint Louis and dominated a wide swatch of territory from Arkansas to Texas. It was decided that Chess, Carley would monopolize the oil trade east of the Mississippi, while Waters-Pierce would control the area southwest of the river. The Waters-Pierce deal brought another patent scoundrel into the trust, Henry Clay Pierce, who made F. D. Carley look like a cherub in comparison. By age nineteen, this country doctor’s son monopolized the kerosene trade in Saint Louis, and then he mounted a pony and branched out into Arkansas and Texas. Even Standard Oil people never defended Henry Clay Pierce. One executive recalled him as a gifted businessman but added, “He couldn’t do a thing straight if it could be done crooked. He was cordial and polite enough, and it was only when he got into a jam with people that he became nasty. Then they knew they were fighting someone. He was the greatest fighter you ever saw.”28
Once again, Rockefeller self-servingly disclaimed knowledge of the rough-house tactics used by the Waters-Pierce salesmen and portrayed Pierce as a loose cannon who operated on his own initiative. He said that he never gave “a minute in a month to this local trade” and that any marketing excesses, when exposed, were condemned by the executive committee, but his files show that he received a full accounting of Pierce’s high crimes and misdemeanors.29 When Pierce made a highly profitable foray into the Mexican market in 1880, Colonel Thompson reported to Rockefeller that this had been accomplished “largely by evasion of the enormous duty placed upon Refined oil by Mexico.”30 Enriched by this operation, Pierce declared a 100 percent dividend on capital the next year. Thompson repeatedly warned Rockefeller about Pierce, branding him “a man not without designs” and relaying a letter “showing great duplicity on the part of Mr. Pierce.”31 Far from rebuking Pierce, in 1892 Rockefeller extended him a personal loan for $200,000—a king’s ransom—and patiently carried him for eight years. Clearly, he had no qualms about the buccaneering spirit of the Waters-Pierce business.
The Standard Oil marketing subsidiaries fanned out across the remaining sections of the continent. In 1878, the Consolidated Tank Line Company took over the territory north of the Missouri River, spread across Michigan and Minnesota, then expanded westward into the Dakotas. Formed in 1884, the Continental Oil Company covered the Rocky Mountain states. In the mid-1870s, the trust sent a young executive to California, Wesley H. Tilford, who foresaw the state’s potential as both an oil producer and consumer; a decade later, Standard Oil of Iowa developed this West Coast trade. Many frustrated customers of Waters-Pierce turned, in revenge, to Republic Oil, a New York–based company that specialized in cultivating retailers who loathed the trust. Of course, Republic was secretly owned by Standard Oil.
Around 1886, 26 Broadway divided the continent into eleven marketing districts, with boundary disputes to be resolved by a domestic-trade committee. As subsidiaries raided each other’s territories, their clashes were arbitrated by headquarters. Nothing so clearly reveals the trust’s imperial character than its deliberations about marketing territories, where exclusive rights to entire states and countries were dispensed like so many royal charters. At one point, when Chess, Carley; Waters-Pierce; and Consolidated Tank Line tangled over the virgin southwestern territory, Colonel Thompson explained to Rockefeller, “I have, for a long time, waited for the opportunity of defining the western limits of all these connections and take the liberty of saying on behalf of Standard Oil Co. that we had never co
nceded to any one the right to go and occupy Colorado, New Mexico, Arizona or Mexico.”32 In the end, Standard Oil ceded Mexico to Henry Pierce in a swap for the state of New Mexico.
Once Rockefeller controlled a marketing territory, he protected it fiercely and quickly dispatched troops to fend off the smallest incursion. If Standard Oil spotted even one carload of outside oil entering its territory, it traced its source through railroad agents and moved swiftly to halt it. Standard Oil marketing men were known to trail competitors’ wagons and undersell them if necessary. This unceasing drive, this implacable need to win, emanated from Rockefeller himself. When told that competitors had appeared in Saint Louis, he exhorted Oliver Payne, “Regret to hear that those parties have established an agency in St. Louis. We must not let them get the business. Why not make a good, hard, vigorous fight with the view of taking it all back again and not let them retain a foothold there, and the same in St. Paul.”33
As the capstone of this system, Rockefeller fostered an extensive intelligence network, assembling thick card catalogs with monthly reports from field agents, showing every barrel of oil sold by independent marketers in their territory. From 26 Broadway, the titan could peer into the most distant corners of his realm. Standard Oil spies collected much of this information from grocers and railway-freight agents. One Cleveland refiner discovered that Standard paid his bookkeeper twenty-five dollars a month to provide information on his shipments, mailing these trade secrets to Box 164 at the Cleveland post office. Standard’s reputation as a pervasive, all-seeing presence was richly deserved.
The manic vigor of Standard’s salesmen becomes understandable in light of a secret policy that Archbold enunciated to Rockefeller in an 1891 letter. Station managers were expected to command at least 85 percent—and, if possible, much more—of the oil trade in their district, a punishing standard that goaded them into aggressive tactics.34 Because they had carte blanche to reduce prices and use any other means necessary to hold the trade, they created pitched battles in many cities. One repentant Standard Oil marketer named Charles Woodbury recalled a favorite scare tactic. “Substantial rumors that the few independents surviving might not much longer be able to supply oil at all continually alarmed their customers.”35
Rockefeller found nothing reprehensible about this intelligence network and could never understand the eternal fuss. “The practice of the Standard Oil Company in this regard brings no credit or discredit to the Standard Oil Company,” he later told William O. Inglis. “It was following out a method in universal use by the largest and most intelligent distributors of goods the country over.”36 Some Standard Oil people, however, refused to stoop to these methods. When Charles Woodbury protested eavesdropping on competitors, his superior gruffly insisted, “We do not intend merely to grasp the situation—we must control it.” Woodbury replied, “But this is espionage. I cannot stand over these men and make them go after these details.” 37 After being censured for such squeamishness, he quit in protest. Recounting this in 1911, Woodbury left some tart comments about Rockefeller’s assumed innocence. “Results were what the master asked for,” he explained. “Details [Rockefeller] need not know. He could be left to his own self-effacement. He had selected his staff.”38 In short, Rockefeller posted the sales targets, whipped up the fervor, then foreswore any knowledge of the inevitable consequences.
To square his actions with his conscience—always a necessity for Rockefeller—he needed to invoke an overarching theme: vouchsafing cheap light to humanity. Touring a well drilled on Oil Creek in the early days, he stared at it silently and then intoned, “This is the poor man’s light.”39 Such remarks weren’t just for public consumption but were commonplaces in his correspondence. In 1885, he instructed a young colleague, Henry C. Folger, “Let the good work go on. We must ever remember we are refining oil for the poor man and he must have it cheap and good.”40 Having grown up in secluded farmhouses, reading by candelight, he understood the revolutionary impact of cheap kerosene.
Rockefeller never had a single motive for any action and was surely motivated by more than altruism in championing cheap kerosene. He was obsessed with high-volume, low-cost production to maintain market share, even if he temporarily sacrificed profit margins. As he noted, “This fact the Standard Oil Company always kept in mind: that they must render the best service and be content with a largely increasing volume of business, rather than increase the profit so as to tempt others to compete with them.” 41 When discussing prices with subordinates, he frequently reminded them, “We want to continue, in reason, that policy which will give us the largest percentage of the business.”42
The public tolerated the trust’s brawny tactics for a long time because it believed that it had, over the long run, cheapened kerosene and exercised a relatively benevolent dictatorship. As journalist Henry Demarest Lloyd wrote scornfully to George Rice in 1891, “Thus the public—dear fools—believe, and it entirely reconciles them—knavish fools—to the piracies, treasons and murders by which the fabled cheapness has been brought to them.”43 Befuddled reformers assailed the trust for selling both too high and too low, for fleecing consumers and underselling rivals. As John Archbold summed up the paradox, “It is usually alleged that whenever the Standard, for whatever reason, advances its prices, it is oppressing the consumer, and when if, on the other hand, it lowers its prices, it is then oppressing its competitors.”44 Of course, both things were often true, since Standard Oil kept prices high where it faced no competition and low where it had to keep rivals at bay. On balance, the trust wielded its monopolistic power to keep prices artificially low to forestall competition.
In general, Standard Oil did an excellent job at providing kerosene at affordable prices. It boasted far lower unit costs than competitors and relentlessly drove down costs over the years. Between 1880 and 1885, its average cost of processing a gallon of crude oil went from 2.5 to 1.5 cents. In a rare 1890 newspaper interview, a supremely confident Rockefeller said that since Standard’s birth twenty years before, the retail price of kerosene had plunged from 23.5 to 7.5 cents per gallon. Only half that drop, he contended, had resulted from the steep fall in crude-oil prices, and he credited the tank-wagon system for much of the savings. In the early 1900s, the Bureau of Corporations attributed most of the drop in kerosene prices to a sharp dip in crude-oil prices, not to Standard’s superefficient management. Whatever the truth, the resulting low prices inoculated the public for a long time against the anti-Standard venom.
Many of Rockefeller’s foes contended that routine underselling was his most lethal weapon, even more destructive than railroad rebates. As the industry’s low-cost producer, Standard merely had to dump oil at cost to stamp out competitors. The practice of selling at or below cost, which started in the 1870s, intensified with the tank-wagon system, which permitted the trust to set retail prices. Hesitant to initiate price wars, which smacked of the old, Darwinian competition, Rockefeller said that he cut prices only defensively—that is, when forced to retaliate against price-cutting independents. When he did so, he showed no mercy against these reprobates and said with righteous indignation, “These people did not want cooperation. They wanted competition. And when they got it they didn’t like it.” 45
Allan Nevins cited a federal study of predatory pricing that found that Standard Oil practiced it in only 37 of 37,000 towns serviced by its tank wagons and then only in response to cuts by competitors. Yet Rockefeller’s files are so rife with references to this practice as to refute Nevins’s verdict. In an 1886 letter, Colonel Thompson told Rockefeller that Standard sold at cost wherever competition appeared and compensated for the lost profits by raising prices in less competitive locales: “We find the outsiders mainly from Pittsburgh and the Oil Region had 2,000 barrels of oil in Cincinnati. . . . We have lowered the Cincinnati market an additional half cent temporarily to meet that competition and forced them to sell their oil without a profit.” In contrast, he noted that with independents now banished from Chicago, “we ja
cked that price up a quarter or so, without multiplying instances, we are doing all around. The system is working well, better than any other we can devise and our feeling is to hold along on this basis—I beg you and the other gentlemen will keep in mind the fact that we are selling ¼ of all the oil we handle without a farthing of profit to this department.” 46
If Standard Oil sold one-quarter of all its oil at cost, as Thompson alleged, that would have meant anticompetitive price cuts in more than 9,000 towns— quite different from the 37 cited by Nevins. The trust used such infinite sleight of hand in setting prices, obscuring the real price through secret discounts, that a definitive accounting is impossible. Though many states had already outlawed predatory pricing, they found such a ban difficult to enforce. On this issue, Rockefeller remained an unreconstructed monopolist, defending Standard Oil’s price-cutting years later by commenting, “If in doing so they were losing money, which they made up on some of the specialties—they made up the difference—would it be a crime?”47 Eventually, a national ban on such predatory pricing formed an integral component of antitrust legislation.
Standard’s policy of differential pricing also proved expedient in the global marketplace. During the 1880s and 1890s, trying to stem the tide of Russian and East Indian oil, the organization charged lower prices in Europe and compensated with higher American prices. Its tight control of the home market enabled it to prosecute savage price wars against the Nobels, Rothschilds, Royal Dutch, and Shell. For this reason, Standard Oil always considered its domestic monopoly a necessary precondition for its overseas conquests.
But Standard Oil never sought a perfect monopoly because Rockefeller realized that it was politically prudent to allow some feeble competition. As he admitted, “We realized that public sentiment would be against us if we actually refined all the oil.”48 The combine ceded about 10 percent of the refining and marketing business to a tiny group of fringe rivals. Even in the mid-1880s, ninety-three mostly marginal refineries were allowed to operate. A very smart monopolist, Rockefeller kept prices low enough to retain control of the market but not so low as to wipe out all lingering competitors.