When you hear the name John D. Rockefeller, you probably associate it with money, considering he was the richest American in history and one of the wealthiest men of all time. His fortune at the time of his death in 1937 was estimated at $409 billion (adjusted for inflation, of course). That was approximately 2% of the entire United States economy. This number doesn’t take into account the massive donations he gave away and establishing the Rockefeller Foundation.
Rockefeller inherited his mother’s pious beliefs and considered himself a religious man throughout his life. He took everything he learned to create Standard Oil, a massive company that, at one point, supplied 90% of the oil in America. Do you ever wonder how this ordinary man managed to monopolize an entire industry?
Here is the story of John D. Rockefeller, and his rise to the top.
His Father was a Known Con Man
John Rockefeller was born in Richford, New York, on July 8, 1839. His dad was known as a con man throughout the community and was referred to as “Devil Bill.” Bill wasn’t around much when it came to his family life. He spent a lot of time on the road, claiming he needed to for his job selling lumber and later marketing patent medicines.
John was the second of six children that Bill had with his wife, Eliza. Bill also had two additional kids out of wedlock. He wasn’t the best father and was known to cheat his sons out of money, but he claimed it was to teach them business and the value of money.
Devout Baptist Mother
Bill thought he would have more business opportunities in different areas, so he moved the family several times while John was a young child. Eventually, they settled in Strongsville, Ohio. John attended Cleveland high school and then took a business class where he learned the essentials of bookkeeping, giving him a chance for gainful employment.
Even though his education was focused on business, John had a passion for music; he even considered a singing career at one point. He also had a way of expressing his opinions and beliefs and earned a good reputation for debating. He inherited his mother’s religious beliefs (Baptist), which stayed with him for the rest of his life.
His First Real Job was as a Bookkeeper
As a boy, John worked some odd jobs like selling vegetables and turkeys to townsfolk. But his first real full-time job was as a bookkeeper for a company brokering produce. He quickly learned a skill that would be useful throughout his life and career: how to enhance profits by reducing the cost of shipping products to markets.
He developed negotiating skills, which helped which shipping costs. He initially thought that the price was fixed by ship owners and freight managers. By reusing the same shippers, he established positive long-term business relationships that were relatively separate from the changing market conditions. For three years, he worked as an apprentice, making $58 a month.
His First Business Endeavor
After working as an apprentice for three years, Rockefeller and his business partner, Maurice Clark, decided to start their own business, buying and selling produce from farmers on a commission basis. Rockefeller needed $2,000 for his half of the business but had only managed to save $800. Thankfully, his father gave him the rest as a loan, with an interest rate of 10%.
They started the business at the perfect time. Right as the Civil War broke out in 1861, Rockefeller and Clark joined all the contractors that were sending their products to the Union Army. Rockefeller was drafted into the army and hired replacements to serve in his stead. As the war was beginning to settle, he considered investing his impressive profits into the business of refining crude oil or kerosene. At the time, this was the main means of providing light.
Right Place at the Right Time
In the 1860s, government officials increased the price of oil from 35 cents when the war first started to more than $13 per barrel. The high oil prices led to the first wave of wildcatters drilling oil wells. By the end of the war, oil flooded the market. Before the Civil War, most kerosene came from coal (coal oil), and it quickly became clear that crude oil would be a cheaper source of kerosene.
During that time, establishing a refinery wasn’t too expensive, and neither were the costs of operating one. Rockefeller discovered that the most expensive way of refining crude oil was shipping it to the refinery first, and then shipping the finished kerosene to the markets. Luckily, John Rockefeller was already an expert in managing costs for shipping.
At the height of the Civil War, the profit from shipping food to armies was at its peak. Rockefeller and Clark decided to leave the produce business and build an oil refinery in a Cleveland area known as “The Flats.” More partners joined them, including a chemist named Samuel Andrews and two of Clark’s brothers.
Thanks to the chemist on board, the partners learned how to save the gasoline, which is a byproduct of the refining process, and use it as operating power for the plant. Most refiners at the time just burned off the gasoline, but Rockefeller and his business partners used what was left in other products, like paraffin and lubricating oils.
Rockefeller was a Thrifty Guy
Throughout his childhood, John’s dad would often leave hungry kids behind for their mother to worry about and feed. This taught Rockefeller the value of thrift at a very young age. In the house he grew up in, everything was recycled, and nothing was wasted. Rockefeller brought these ingrained values to the refining business: every potential product from crude oil would be sold. For example, tar that came from sludge was bought by roofing and paving suppliers.
As soon as Rockefeller noticed that the price of wooden barrels had increased, he cut his suppliers off, bought raw lumber, and hired coopers to build his own barrels. This strategy reduced the cost from over two dollars a barrel to less than one. Instead of hiring third party plumbers and pipefitters, Rockefeller included them in his workforce and paid them hourly instead of with a set fee for each job.
He Became the Sole Company Owner
After the war ended, Rockefeller wasn’t sure that the industry for oil for lighting would ever recover, so he decided to buy out his partners in February 1865 (but kept chemist Andrews around). Abraham Lincoln was promoting the Transcontinental Railroad, and Rockefeller was certain that after the war, the cross-country line and the railroads of the South would be built.
Oil-based products were flourishing, and Rockefeller positioned himself to become the leader of the forthcoming oil-based economy, with stock manipulation, borrowing money with low interest, and maximizing his profits. Although coal was the main source of fuel to create steam, which drove the economy. Rockefeller predicted that coal would be replaced by oil, and he wanted to be ready.
Entering More Partnerships
Following the Civil War, Rockefeller partnered up with his brother William and built a second refinery in Cleveland. Henry Flagler joined their partnership in 1867, and the refineries were operated under the Rockefeller, Andrews, and Flagler Company. By 1868, the subsidiary in New York and the two Cleveland refineries were the world’s leading oil refining business.
The company was famous for its profits per barrel, which always exceeded their competitors. However, its key consumer product was kerosene (for lighting), and it was sold at less than the average market cost. Rockefeller ensured that all the refineries were making a substantial profit with very little to no waste product.
Thanks to the Rockefeller refineries, Cleveland, Ohio, became one of the most critical refining areas in the United States, along with Pittsburgh, New York City, and western Pennsylvania oil fields. The success of the refineries created an excessive amount of kerosene on the market, which was necessary to meet the demand, and resulted in a lower price.
There was more than three times the amount of needed kerosene for sale on the market, and the excess didn’t seem like it would shrink any time soon. In response to the market conditions, Rockefeller ended the partnership and created a new corporation named Standard Oil. His partners stayed with the company, but it was clear that business decisions were in the hands of John D. Rockefeller.
Building His Own Transportation was the Goal
This former bookkeeper learned how to maximize profits through negotiating better deals with shippers, and he continued to do so as Standard Oil grew. He was already the most profitable oil refiner in Ohio, but Rockefeller was determined to become the biggest in the country. The railroads were competing with each other for the lucrative oil traffic, and Rockefeller wanted to find the resources to control shipping rates.
In 1871, Rockefeller created the South Improvement Company. It was a cartel of railroads and oil refineries that gave its members better shipping rates, which allowed them to charge customers less too. Three main railroads were involved in the effort: The Pennsylvania, The Erie, and the New York Central. This reduced refining production for smaller companies that were left out of the cartel.
The Cleveland Massacre
Oil refineries in the United States were manufacturing about 40,000 barrels a day. During that time, the oil product demand was approximately 16,000 barrels per day. Rockefeller wanted all 16,000 of those barrels to come from Standard Oil. He knew that by controlling shipping, the smaller refiners would be forced to close, or at least only sell locally.
It wasn’t very practical to ship overseas because oil needed to be shipped in barrels, and tankers weren’t yet built onto the ships. Within a month, Rockefeller bought out 18 oil refineries (later referred to as the “Cleveland Massacre.”) Pennsylvania suspended the charter of the South Improvement Company in 1872. But after almost a year of taking over the railroads and oil refineries, Rockefeller was seen as the first robber baron by the public. He certainly wouldn’t be the last.
He Didn’t Break any Laws
Rockefeller used the major powerful railroads to manipulate prices in several different ways. He issued rebates for returning clients, influenced shipping schedules, rates per mile, and other practices that benefited his company and harmed smaller refineries. When the smaller businesses were suffering and needed to pay to move their products, they were taken over by Standard Oil.
This was ruthless, but not illegal. Rockefeller didn’t break any laws, and neither did the railroads; this was a time when business was affected just by the existing market conditions. When Pennsylvania suspended Rockefeller’s railroad cartel, it was one of the first times the government took action in controlling how a business operated in the United States.
The backlash from the Press
When the press revealed Standard Oil’s manipulation of shipping costs for oil, they vilified Rockefeller. He was criticized in both cartoons and text, even though his actions were what made kerosene more affordable than ever before. Oil lamps lighted homes, factories, offices, streets, and stores at a much lower cost than before the Civil War when most houses used candles for light.
So, even though the media vilified Rockefeller, most of the public did not. He continued to develop Standard Oil even after he was torn apart by the national newspapers and had eyes on him from government entities, which were already suspicious of his fortune and power.
Even More Ruthless
By 1872, 26 oil companies operated factories in Cleveland, Ohio. In just under four months, Standard Oil managed to take over 22 of them. Rockefeller was driven as much by his contempt for wastefulness as he was by greed. His tactics were less than honorable, and he frequently made secret deals with competing refineries, pitting them against each other and taking over both of them.
As he lowered his competition, and the number of people who would complain about how he conducted his businesses, he also manipulated the railroads against each other to gain better shipping rates for his company. Then, he would buy out smaller refineries that couldn’t afford to compete. Consumers were still satisfied since he drove down kerosene prices for personal use. This made Standard Oil one of the most recognized consumer companies in the country.
Buying the Competition
Rockefeller’s negotiating style developed as his power and wealth increased. He would simply show a competitor Standard Oil’s books and showing them the force their smaller company was up against. After that, he threatened to bankrupt them if they wouldn’t sell. Rockefeller eventually found a way to acquire the companies anyway, by buying them at the ensuing bankruptcy auction.
He was intimidating, and his ruthless reputation within the industry worked in his favor during these “negotiations.” He gained deep satisfaction from using sneaky tactics to acquire control over companies that resisted his attempt to form a railroad cartel (which benefited his business over the competition).
John D. Rockefeller used his appetite for efficiency and elimination of waste in all the companies he brought into Standard Oil, and his method forced competitors to use similar strategies in hopes of survival. Following the style he established by hiring his own pipefitters and coopers, Rockefeller expanded his company throughout the 1870s and bought his own railcars instead of paying rent to the railroads.
He also invested in pipelines as well as delivery trucks to bring his product directly to the consumer’s home, instead of them buying it from a third party. Standard Oil usually kept the cost of its products below the market rates, to eliminate the competition.
Standard Oil Branched Out
During the 1870s, Standard Oil developed more than 300 petroleum-based products for consumers, thanks to Rockefeller’s deep-seated hatred for wasting anything. Even chewing gum became a product line. Oil-based paints were created and sold straight to consumers, as well as paint manufacturers. Petroleum Jelly was also developed and marketed by Standard Oil and had a variety of purposes.
Paraffin wax (less expensive than beeswax) was marketed. The first paraffin candles were known for being smoky with a distinct smell. However, they quickly started dominating the market because they were less expensive. Standard Oil produced 90% of the crude oil refined in the United States by the end of the 1870s, with petroleum products about to explode on the scene.
Rockefeller VS Pennsylvania Railroad
By 1877, Rockefeller believed that the extensive pipelines owned by his company were a practical alternative to shipping his products by rail, and he started to look for the means to build them. The Pennsylvania Railroad thought the pipelines were part of the rail companies because they had the easements needed to locate them across the country.
The PRR (Pennsylvania Railroad) started purchasing and building pipelines, supported by their existing rail network. They also started buying oil refineries so that they could feed these pipelines, something Rockefeller viewed as a war against Standard Oil. Not surprisingly, this wasn’t something he would tolerate since he had been trying to monopolize the oil industry.
Rockefeller Defeats Pennsylvania
Rockefeller went against the PRR by not using the railroad to ship Standard Oil products and used PRR’s competition instead. The PRR suffered a devastating loss of revenue; the declining profits meant they had to cut wages, leading to a labor crisis for the railroads. Rockefeller had no problem turning to the other railroads and basically destroying the PRR. He initiated a price war that cut deeper into Pennsylvania’s reserves.
The railroad ultimately surrendered, forced to sell its oil and pipeline holding to Standard Oil; it seemed to be the price of peace. Rockefeller got what he wanted, but the PRR influence in the Pennsylvania legislature led to Rockefeller and his company facing a charge for operating a monopoly in 1879. The millionaire found himself in a long, expensive battle that lasted over three decades.
Other States Join the War Against Rockefeller
After Pennsylvania leveled an indictment on John D. Rockefeller and Standard Oil for creating a monopoly that literally controlled the United Stated oil industry, other states joined the legal action. Each state that initiated investigations or brought charges only did so in its own borders, not in federal court.
Rockefeller needed to face each state individually, based on the laws and practices specific to each. Needless to say, this took up a lot of his attention, and to him, this was all just a waste of time. As the investigations increased in number, so did coverage of Rockefeller; he was in newspapers and magazines everywhere. Ironically, these articles were usually read under oil lamps lit by kerosene that was provided by Standard Oil.
More Enemies in the 1880s
The heyday for yellow journalism in the United States was at the end of the 19th century. Rockefeller and his Standard Oil Company was a huge target for reporters, politicians, and columnists. Technically, it was never a true monopoly because it’s not like there was no competition. There were hundreds of small oil companies across the country. Still, Rockefeller was condemned and criticized by the media for monopolistic practices.
In 1880, the New York World wrote that Standard Oil (and Rockefeller) was “cruel, impudent, and pitiless.” It went on to say that the company was the most “grasping monopoly” that any nation was ever forced to endure. Rockefeller denied all allegations and claimed that the size of the company led to some unfortunate oversights that were corrected as soon as they were detected.
The Standard Oil Trust
Back in the late 19th century, many state laws were making it illegal for a company to assimilate with another state to operate in their jurisdiction. This meant that Standard Oil operated dozens of corporations across various states, a managerial nightmare, to say the least. To fix this management shortage, in 1882, Rockefeller generated what was essentially a corporation, created from several corporations. He named it Standard Oil Trust.
The Trust was formed by 41 individual corporations, with a board of nine members managing it, one being John D. Rockefeller. The result: Standard Oil became the largest and wealthiest entity on the planet. This only encouraged enemies to double their efforts to portray Rockefeller as the ultimate robber baron.
Rockefeller’s Enormous Business Empire
The newly formed Standard Oil Trust was massive. It had control over 20,000 oil wells in the United States, shipping products through pipelines the company-owned, which exceeded 4,000 miles in length. It also evaded rentals on railroad equipment by owning 5,000 tanker cars, along with fleet boxcars, hoppers, and private passenger cars (for its executives).
At its height, the company was responsible for 90% of the refined petroleum products around the world. That number began to decrease slowly during the 1880s and 1890s. At the turn of the 20th century, it dropped to about 80%. The transparency was due to Rockefeller’s growing awareness of the hostility and resentment his dominance of the oil industry was causing, and how he planned to alter the public depiction of his company.
When John D. Rockefeller started his first real job as a bookkeeper, he established a habit to give a portion of his earnings to charity. Despite his greed, he continued this practice for the rest of his life. Often times, his charitable donations were substantial, but he also carried around nickels and dimes so that he could personally give money to strangers and friends.
He was known for carrying a pocket full of dimes for this reason, and he was also known to give them to his fellow rich business moguls. He would often give the coins to prominent men like Henry Ford and Harvey Firestone, both insanely wealthy in their own right.
Thrifty Lessons for the Grandkids
Rockefeller’s ingrained thriftiness was legendary. Even though he had many accountants, bookkeepers, and business managers, he insisted on looking at the books with his own eyes. He kept a pocket ledger, where he meticulously recorded his personal expenses every day. He wouldn’t allow his children and grandchildren to visit his offices when they were young so that they would be unaware of how wealthy the family was.
However, with the size of the company, their fortune was revealed to them anyway. He taught them his values about wastefulness and extravagance, even though he built luxurious houses. But he didn’t go as extreme as the rich guys of the day who built massive homes in Newport, Rhode Island, Massachusetts’ Berkshire Hills, and in the Hudson Valley of New York.
Never Strayed From Religion
As we mentioned earlier, Rockefeller’s mom was a devout Baptist, and her religious and moral beliefs rubbed off on her son. He applied them to his business dealings (in his mind) and to his children. The reason he liked charity was because of the Christian belief documented in the Gospel of Luke that ‘the more one gave, the more one would have given to him.’
A lot of Rockefeller’s donations were of a religious nature, and somehow, he saw no moral conflict between the ruthless way he conducted his business, and the act of sharing the wealth he acquired, oftentimes at other people’s expense. For example, when he eliminated the middle man delivering kerosene to customers cost hundreds of people’s livelihoods but increased profits for his company – which increased the money he could give to charity.
Oil Futures and Price Manipulation
Standard Oil started controlling the price of oil in the 1880s, by raising or lowering storage prices for oil in its pipelines and reservoirs. Certificates of value against the oil stored in Standard pipelines were issued under Rockefeller’s command and were traded by brokers and investors. These certificates were the first oil futures to be traded (kind of like stocks). It has been the source of oil market prices since the innovation was established.
Oil futures were traded on the National Petroleum Exchange in New York by late 1882. At that point, the Exchange was established as the business center of the United States. Through its dominance of the market, Standard Oil was able to set oil prices well into the future based on changing markets. This ensured their continuous profitability.
Standard Oil Faced Competition
Up until the mid-1880s, more than 80% of the crude oil in the world was recovered in the state of Pennsylvania. By the end of the decade, competition around the world was increasing from oil fields in Asia, Russia, and the South Pacific Islands. Then, an entirely new ship was created – the oil tanker – which made recovering crude from far away sources economically practical.
There was also competition from another source – electrical lighting. At first, it was more amusing, but it became a way more practical source of light and decreased the demand for kerosene. Rockefeller’s company extended its marketing of natural gas as a resource for heat and light. They also expanded marketing for gasoline, which was also inspired by new technology, the automobile (and the internal combustion engine).
Standard Oil Moved to New York
As his company became more and more dependent on the activities of other businesses, Rockefeller decided to move Standard Oil to New York. There, he joined some of his fellow businessmen by building a mansion in midtown and forming his business headquarters downtown. Most of the giants in the industry commuted to their offices in carriages or chauffeur driven automobiles.
Rockefeller got to work every day using the railroad, where he would hand out nickels and dimes. Reading the daily newspaper, he was well-aware of the issues that would be brought against his empire by the Sherman Antitrust Act, which appeared in 1890 as a tool for the management of labor unions. However, it also allowed for measures to break apart the Standard Oil Trust.
The Breakup of Standard Oil Trust
Standard Oil started in Ohio, and that’s where the government first became suspicious of Rockefeller’s power and took steps to demolish it. With the enforcement of the state’s antitrust laws, Standard Oil of Ohio was forced to separate from the oil giant’s empire in 1892. Standard Oil Ohio survived almost another century and is familiar to locals in Ohio, where gas stations still bear that name.
Rockefeller also led Standard Oil into the iron ore industry, especially to transporting unrefined ore using the railroad assets he accumulated through the years. Venturing into the iron ore business led to more conflicts with steel industry tycoons, like Andrew Carnegie.
Rockefeller was Ready to Retire
With production decreasing in Pennsylvania, the region where Rockefeller founded wells for a massive amount of his oil fortune, he started to purchase what he thought would be profitable oil fields to the west, in Ohio, Indiana, West Virginia, and Illinois. He was also getting sick and tired of having to constantly protect his reputation, company, and fortune from the press and politicians.
As the nineteenth century was coming to an end, Rockefeller chose to spend his time doing more relaxing activities, like becoming an avid golfer. That wasn’t the only sport he took on; he started bicycling, which was popular at the turn of the century. He left the hectic pace of New York City for the Hudson Valley, where he bought a new estate.
The Next Generation
In 1902, Carnegie Steel was bought by a consortium led by the famed J.P. Morgan. With it, the new company, US Steel, attained Rockefeller’s interests in iron and iron ore transportation. Rockefeller traded his iron investments for a share of stock in US Steel. The deal was arranged by Henry Clay Fricke, between Rockefeller and his son, John D. Rockefeller Jr. The arrangement left them with memberships on the controlling board.
This allowed John Rockefeller Jr. to completely retire at the age of 63 from the operations of Standard Oil. Despite his removal from operations, and his charitable donations, Rockefeller continued to receive negativity from the press. He was condemned for his domination of the oil industry, as well as for his personal fortune and power.
The Standard Oil Trust Split
After years of litigation and being vilified in the press, which resulted in various re-organizations of the Standard Oil Companies, in 1911, the United States Supreme Court professed Standard Oil of New Jersey to be contrary to the Sherman Antitrust Act. The Standard Oil Company was split up into over thirty separate companies, many of them are still recognized today. Continental Oil became Conoco, and Standard Oil of California is now known as Chevron.
Standard Oil of New York was called Socony (later Mobil), and the former Standard Oil of New Jersey became Esso (later Exxon and eventually, ExxonMobil). Rockefeller held shares in each of these new companies, and in addition to his shares in Standard Oil Trust (before its breakup), his fortune increased even more.
The Ludlow Strike and Massacre in Colorado
Rockefeller was an underwriter of a loan, which allowed him and his son John Jr. to gain controlling interests in affiliations of the Colorado Fuel and Iron Company. In 1913 and 1914, labor fights among coal minors, labor organizers, and corporate interests led to extreme violence, which resulted in the deaths of women and children in the mining camps.
The Rockefellers were not personally involved in any of the violence or in hiring anyone who was. In fact, the Rockefeller Foundation underwent relief efforts in the aftermath. Still, public opinion and an outraged press (usually outrageously inaccurate) vilified Rockefeller and his reputation once again.
Rockefeller’s Business Affected his Health
Rockefeller built up his wealth and fortune and created the massive Standard Oil Company. He was also susceptible to physical and mental illness. In his middle age, Rockefeller dealt with sadness for periods of time and was known as melancholic back then. The symptoms he exhibited would probably be identified as clinical depression nowadays.
In the 1890s, when Rockefeller was dealing with all the legal battles, he only ate occasionally and lost a lot of weight. That led to digestive problems, which made him feel too weak to exercise. During that decade, he also developed alopecia. The condition made him lose all of the hair on his body, including the hair on his eyebrows, lashes, and head. In his late forties, Rockefeller started wearing wigs to hide his appearance, but his lack of facial hair was often commented on.
Rockefeller anonymously donated money to various organizations and churches for decades. During the Civil War, he helped freed slaves by giving generous donations to build their schools. Spelman College in Atlanta was founded with a large amount of his money. He named the school after his wife’s maiden name, Laura Spelman Rockefeller.
He also donated money to a small Baptist college because it was led by William R. Harper, a minster he admired; Rockefeller donated over $80 million, and the school eventually became the University of Chicago. In addition, he gave considerable sums to Yale University, Harvard University, and other established Eastern schools such as Columbia University, Vassar, and what would become the Rockefeller University in New York in 1965 (decades after he died).
The Rockefeller Foundation
John D. Rockefeller took $250 million of his own personal fortune and set it aside to establish the Rockefeller Foundation in 1913, with its charter centering its work in public health areas, education, public housing, and medical professional training. The Rockefeller Foundation subsequently endowed the School of Hygiene and Public Health at John Hopkins University.
Rockefeller Foundation money was essential in relief efforts when it came to Europe after World War One. The Foundation also donated a large chunk of money for research into the Spanish Flu Pandemic, which emerged towards the end of the war and spread like wildfire in its aftermath.
Rockefeller made his Money before the Demand for Gasoline
Rockefeller retired from business right before gasoline and motor oil was flourishing, thanks to the automobile and aviation engines. Still, he retained huge stock shares in all the companies that emerged from Standard Oil after the government broke it up because of his monopoly, and his wealth continued to grow for the rest of his life.
At one time, it was widely believed in the United States that if a gas station’s logo included the colors red, white, and blue, it was produced by Standard Oil. Rockefeller’s genius innovations and impressive business relationships to move the products seem to be forgotten. They tend to be overlooked by the massive fortune he built, and the questionable ethics of how he got rich.
A Man of Contradictions
John Rockefeller was a deeply religious man (and a moral man in his head). He did, however, crush opponents with such ruthlessness to get what he wanted before he created Standard Oil. He had more money than any other person in American history, yet he chose to take a train to work.
Despite being one of the most recognizable people in America, he was pious. He read the Bible every single day and often quoted it. He also had no problem with Christ’s prediction that it would be difficult for a rich man to enter heaven. The life he lived demonstrated that he learned a lot from both of his parents: his con-man father and religious mother. He took those lessons with him (bad or good) for all of his long lifetime.