by Burt Folsom
From Rockefeller's standpoint, a few large vertically integrated oil companies could survive and prosper, but dozens of smaller companies could not. Improve or perish was Rockefeller's approach. "We will take your burdens," Rockefeller said. "We will utilize your ability; we will give you representation; we will all unite together and build a substantial structure on the basis of cooperation." Many oil men rejected Rockefeller's offer, but dozens of others all over America sold out to Standard Oil. When they did, Rockefeller simply shut down the inefficient companies and used what he needed from the good ones. Officers Oliver Payne, H. H. Rogers, and President John Archbold came to Standard Oil from these merged firms.17
Buying out competitors was a tricky business. Rockefeller's approach was to pay what the property was worth at the time he bought it. Outmoded equipment was worth little, but good personnel and even good will were worth a lot. Rockefeller had a tendency to be generous because he wanted the future good will of his new partners and employees. "He treated everybody fairly," concluded one oil man. "When we sold out he gave us a fair price. Some refiners tried to impose on him and when they found they could not do it, they abused him. I remember one man whose refinery was worth $6,000, or at most $8,000. His friends told him, 'Mr. Rockefeller ought to give you $100,000 for that.' Of course, Mr. Rockefeller refused to pay more than the refinery was worth, and the man . . . abused Mr. Rockefeller."18
Bigness was not Rockefeller's real goal. It was just a means of cutting costs. During the 1870s, the price of kerosene dropped from 26 to eight cents a gallon and Rockefeller captured about 90 percent of the American market. This percentage remained steady for years. Rockefeller never wanted to oust all of his rivals, just the ones who were wasteful and those who tarnished the whole trade by selling defective oil. "Competitors we must have, we must have," said Rockefeller's partner Charles Pratt. "If we absorb them, be sure it will bring up another."19
Just as Rockefeller reached the top, many predicted his demise. During the early 1880s, the entire oil industry was in jeopardy. The Pennsylvania oil fields were running dry and electricity was beginning to compete with lamps for lighting homes. No one knew about the oil fields out west and few suspected that the gasoline engine would be made the power source of the future. Meanwhile, the Russians had begun drilling and selling their abundant oil, and they raced to capture Standard Oil's foreign markets. Some experts predicted the imminent death of the American oil industry; even Standard Oil's loyal officers began selling some of their stock.20
Rockefeller's solution to these problems was to stake the future of his company on new oil discoveries near Lima, Ohio. Drillers found oil in this Ohio-Indiana region in 1885, but they could not market it. It had a sulphur base and stank like rotten eggs. Even touching this oil meant a long, soapy bath or social ostracism. No one wanted to sell or buy it and no city even wanted it shipped there. Only Rockefeller seemed interested in it. According to Joseph Seep, chief oil buyer for Standard Oil, Mr. Rockefeller went on buying leases in the Lima field in spite of the coolness of the rest of the directors, until he had accumulated more than 40 million barrels of that sulphurous oil in tanks. He must have invested millions of dollars in buying and storing and holding the sour oil for two years, when everyone else thought it was no good.21
Rockefeller had hired two chemists, Herman Frasch and William Burton, to figure out how to purify the oil; he counted on them to make it usable. Rockefeller's partners were skeptical, however, and sought to stanch the flood of money invested in tanks, pipelines, and land in the Lima area. They "held up their hands in holy horror" at Rockefeller's gamble and even outvoted him at a meeting of Standard's Board of Directors. "Very well, gentlemen," said Rockefeller. "At my own personal risk, I will put up the money to care for this product: $2 million—$3 million, if necessary." Rockefeller told what then happened:
This ended the discussion, and we carried the Board with us and continued to use the funds of the company in what was regarded as a very hazardous investment of money. But we persevered, and two or three of our practical men stood firmly with me and constantly occupied themselves with the chemists until at last, after millions of dollars had been expended in the tankage and buying the oil and constructing the pipelines and tank cars to draw it away to the markets where we could sell it for fuel, one of our German chemists cried 'Eureka!' We ... at last found ourselves able to clarify the oil.22
The "worthless" Lima oil that Rockefeller had stockpiled suddenly became valuable; Standard Oil would be able to supply cheap kerosene for years to come. Rockefeller's exploit had come none too soon: the Russians struck oil at Baku, four square miles of the deepest and richest oil land in the world. They hired European experts to help Russia conquer the oil markets of the world. In 1882, the year before Baku oil was first exported, America refined 85 percent of the world's oil; six years later this dropped to 53 percent. Since most of Standard's oil was exported, and since Standard accounted for 90 percent of America's exported oil, the Baku threat had to be met.23
At first glance, Standard Oil seemed certain to lose. First, the Baku oil was centralized in one small area: this made it economical to drill, refine, and ship from a single location. Second, the Baku oil was more plentiful: its average yield was over 280 barrels per well per day, compared with 4.5 barrels per day from American wells. Third, Baku oil was highly viscous: it made a better lubricant (though not necessarily a better illuminant) than oil in Pennsylvania or Ohio. Fourth, Russia was closer to European and Asian markets: Standard Oil had to bear the costs of building huge tankers and crossing the ocean with them. One independent expert estimated that Russia's costs of oil exporting were one-third to one-half of those of the United States. Finally, Russia and other countries slapped high protective tariffs on American oil; this allowed inefficient foreign drillers to compete with Standard Oil. The Austro-Hungarian empire, for example, imported over half a million barrels of American oil in 1882; but they bought none by 1890. What was worse, local refiners there marketed a low-grade oil in barrels labeled "Standard Oil Company." This allowed the Austro-Hungarians to dump their cheap oil and damage Standard's reputation at the same time.
Rockefeller pulled out all stops to meet the Russian challenge. No small refinery would have had a chance; even a large vertically integrated company like Standard Oil was at a great disadvantage. Rockefeller never lost his vision, though, of conquering the oil markets of the world. First, he relied on his research team to help him out. William Burton, who helped clarify the Lima oil, invented "cracking," a method of heating oil to higher temperatures to get more use of the product out of each barrel. Engineers at Standard Oil helped by perfecting large steamship tankers, which cut down on the costs of shipping oil overseas.
Second, Rockefeller made Standard Oil even more efficient. He used less iron in making barrel hoops and less solder in sealing oil cans. In a classic move, he used the waste (culm) from coal heaps to fuel his refineries; even the sweepings from his factory he sorted through for tin shavings and solder drops.
Third, Rockefeller studied the foreign markets and learned how to beat the Russians in their part of the world. He sent Standard agents into dozens of countries to figure out how to sell oil up the Hwang Ho River in China, along the North Road in India, to the east coast of Sumatra, and to the huts of tribal chieftains in Malaya. He even used spies, often foreign dipomats, to help him sell oil and tell him what the Russians were doing. He used different strategies in different areas. Europeans, for example, wanted to buy kerosene only in small quantities, so Rockefeller supplied tank wagons to sell them oil street by street. As Allan Nevins notes:
The [foreign) stations were kept in the same beautiful order as in the United States. Everywhere the steel storage tanks, as in America, were protected from fire by proper spacing and excellent fire-fighting apparatus. Everywhere the familiar blue barrels were of the best quality. Everywhere a meticulous neatness was evident. Pumps, buckets, and tools were all clean and under constant inspecti
on, no litter being tolerated. . . . The oil itself was of the best quality. Nothing was left undone, in accordance with Rockefeller's long-standing policy, to make the Standard products and Standard ministrations, abroad as at home, attractive to the customer.24
Rockefeller's focus on quality meant that, in an evenly balanced price war with Russia, Standard Oil would win.
The Russian-American oil war was hotly contested for almost thirty years after 1885. In most markets, Standard's known reliability would prevail, if it could just get its price close to that of the Russians. In some years this meant that Rockefeller had to sell oil for 5.2 cents a gallon—leaving almost no profit margin—if he hoped to win the world. This he did; and Standard often captured two-thirds of the world's oil trade from 1882 to 1891 and a somewhat smaller portion hi the decade after this.
Rockefeller and his partners always knew that their victory was a narrow triumph of efficiency over superior natural advantages. "If," as John Archbold said in 1899, "there had been as prompt and energetic action on the part of the Russian oil industry as was taken by the Standard Oil Company, the Russians would have dominated many of the world markets. . . ."25
At one level, Standard's ability to sell oil at dose to a nickel a gallon meant hundreds of thousands of jobs for Americans in general and Standard Oil in particular. Rockefeller's margin of victory in this competition was always narrow. Even a rise of one cent a gallon would have cost Rockefeller much of his foreign market. A rise of three cents a gallon would have cost Rockefeller his American markets as well.
At another level, oil at almost a nickel a gallon opened new possibilities for people around the world. William H. Libby, Standard's foreign agent, saw this change and marveled at it. To the governor general of India he said:
I may claim for petroleum that it is something of a civilizer, as promoting among the poorest classes of these countries a host of evening occupations, industrial, educational, and recreative, not feasible prior to its introduction; and if it has brought a fair reward to the capital ventured in its development, it has also carried more cheap comfort into more poor homes than almost any discovery of modern times.26
In Standard Oil, Rockefeller arguably built the most successful business in American history. In running it, he showed the precision of a bookkeeper and the imagination of an entrepreneur. Yet, in day-to-day operations, he led quietly and inspired loyalty by example. Rockefeller displayed none of the tantrums of a VanderbUt or a Hill, and none of the flamboyance of a Schwab. At board meetings, he would sit and patiently listen to all arguments. Until the end, he would often say nothing. But his fellow directors all testified to his genius for sorting out the relevant details and pushing the right decision, even when it was shockingly bold and unpopular. "You ask me what makes Rockefeller the unquestioned leader in our group," said John Archbold, later a president of Standard Oil. "Well, it is simple. In business we all try to look ahead as far as possible. Some of us think we are pretty able. But Rockefeller always sees a little further ahead than any of us—and then he sees around the corner!"27
Some of these peeks around the corner helped Rockefeller pick the right people for the right jobs. He had to delegate a great deal of responsibility, and he always gave credit—and sometimes large bonuses—for work well done. Paying higher than market wages was Rockefeller's controversial policy: he believed it helped slash costs in the long run. For example, Standard was rarely hurt by strikes or labor unrest. Also, he could recruit and keep the top talent and command their future loyalty. Rockefeller approached the ideal of the "Standard Oil family" and tried to get each member to work for the good of the whole. As Thomas Wheeler said, "He managed somehow to get everybody interested in saving, in cutting out a detail here and there. . . ."He sometimes joined the men in their work, and urged them on. At 6:30 in the morning there was Rockefeller "rolling barrels, piling hoops, or wheeling out shavings." In the oil fields, there was Rockefeller trying to fit nine barrels on a eight-barrel wagon. He came to know the oil business inside out and won the respect of his workers. Praise he would give; rebukes he would avoid. "Very well kept—very indeed," said Rockefeller to an accountant about his books before pointing out a minor error and leaving. One time a new accountant moved into a room where Rockefeller kept an exercise machine. Not knowing what Rockefeller looked like, the accountant saw him and ordered him to remove it. "All right," said Rockefeller, and he politely took it away. Later, when the embarrassed accountant found out whom he had chided, he expected to be fired; but Rockefeller never mentioned it.28
Rockefeller treated his top managers as conquering heroes and gave them praise, rest, and comfort. He knew that good ideas were almost priceless: they were the foundation for the future of Standard Oil. To one of his oil buyers, Rockefeller wrote, "I trust you will not worry about the business. Your health is more important to you and to us than the business." Long vacations at full pay were Rockfeller's antidotes for his weary leaders. After Johnson N. Camden consolidated the West Virginia and Maryland refineries for Standard Oil, Rockefeller said, "Please feel at perfect liberty to break away three, six, nine, twelve, fifteen months, more or less. . . . Your salary will not cease, however long you decide to remain away from business." But neither Camden nor the others rested long. They were too anxious to succeed in what they were doing and to please the leader who trusted them so. Thomas Wheeler, an oil buyer for Rockefeller, said, "I have never heard of his equal in getting together a lot of the very best men in one team and inspiring each man to do his best for the enterprise."29
Not just Rockefeller's managers, his fellow entrepreneurs thought he was remarkable. In 1873, the prescient Commodore Vanderbilt said, "That Rockefeller! He will be the richest man in the country." Twenty years later, Charles Schwab learned of Rockefeller's versatility when Rockefeller invested almost $40 million in the controversial ore of the Mesabi iron range near the Great Lakes. Schwab said, "Our experts in the Carnegie Company did not believe in the Mesabi ore fields. They thought the ore was poor. . . . They ridiculed Rockefeller's investments in the Mesabi." But by 1901, Carnegie, Schwab, and J. P. Morgan had changed their minds and offered Rockefeller almost $90 million for his ore investments.30
That Rockefeller was a genius is widely admitted. What is puzzling is his philosophy of life. He was a practicing Christian and believed in doing what the Bible said to do. Therefore, he organized his life in the following way: he put God first, his family second, and career third. This is the puzzle: how could someone put his career third and wind up with $900 million, which made him the wealthiest man in American history? This is not something that can be easily explained (at least not by conventional historical methods), but it can be studied.
Rockefeller always said the best things he had done in life were to make Jesus his savior and to make Laura Spelman his wife. He prayed daily the first thing in the morning and went to church for prayer meetings with his family at least twice a week. He often said he felt most at home in church and in regular need of "spiritual food"; he and his wife also taught Bible classes and had ministers and evangelists regularly in their home.31
Going to church, of course, is not necessarily a sign of a practicing Christian. Ivan the Terrible regularly prayed and went to church before and after torturing and killing his fellow men. Even Commodore Vanderbilt sang hymns out of one side of his mouth and out of the other he spewed a stream of obscenities.
Rockefeller, by contrast, read the Bible and tried to practice its teachings in his everyday life. Therefore, he tithed, rested on the Sabbath, and gave valuable time to his family. This made his life hard to understand for his fellow businessmen. But it explains why he sometimes gave tens of thousands of dollars to Christian groups, while, at the same time, he was trying to borrow over a million dollars to expand his business. It explains why he rested on Sunday, even as the Russians were mobilizing to knock him out of European markets. It explains why he calmly rocked his daughter to sleep at night, even though oil prices may have dropped
to an all-time low that day. Others panicked, but Rockefeller believed that God would pull him through if only he would follow His commandments. He worked to the best of his ability, then turned his problems over to God and tried not to worry. This is what he often said:
Early I learned to work and to play. I dropped the worry on the way. God was good to me every day.32
Those who heard him say this may have thought that he was mouthing platitudes, but the key to understanding Rockefeller is to recognize that he said it because he believed it.
When the Russians sold their oil in Standard's blue barrels, Rockefeller did not get into strife. He knew that the book of James said, "Where strife is there is confusion and every evil work." He fought the Russians, using his spies and his authority to stop them and outsell them; but he never slandered them or threatened them. No matter what, Rockefeller never lost his temper, either. This was one of the remarkable findings of Allan Nevins in his meticulous research on Rockefeller. During the 1930s, Nevins interviewed dozens of people who worked with Rockefeller and knew him intimately. Not one—son, daughter, friend, or foe—could ever recall Rockefeller losing his temper or even being perturbed. He was always calm.33
The most famous example is the time Judge K. M. Landis fined Standard Oil of Indiana over $29 million. The charge was taking rebates; and Landis, an advocate of government intervention, publicly read the verdict of "guilty" for Standard Oil. Railway World was shocked that "Standard Oil Company of Indiana was fined an amount equal to seven or eight times the value of its entire property, because its traffic department did not verify the statement of the Alton rate clerk that the six-cent commodity rate on oil had been properly filed with the Interstate Commerce Commission." The New York Times called this decision a bad law and "a manifestation of that spirit of vindictive savagery toward corporations. . . ." But Rockefeller, who had testified at the trial, was unruffled.