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John
Davison Rockefeller Sr. (July 8, 1839 – May 23, 1937) was an American oil
industry business magnate, industrialist, and philanthropist. He is widely
considered the wealthiest American of all time, and the richest person in
modern history.
Rockefeller
was born into a large family in upstate New York and was shaped by his con man
father and religious mother. His family moved several times before eventually
settling in Cleveland, Ohio. Rockefeller became an assistant bookkeeper at age
16 and went into a business partnership with Maurice B. Clark and his brothers
at 20. After buying them out, he and his brother William founded Rockefeller
& Andrews with Samuel Andrews, and they concentrated on oil refining rather
than drilling. In 1867, Henry Flagler entered the partnership, and the
Rockefeller, Andrews & Flagler company grew by taking over local
refineries. Rockefeller founded the Standard Oil Company in 1870 as an Ohio
partnership with William, Flagler, Andrews, Jabez A. Bostwick, and silent
partner Stephen V. Harkness. He ran it until 1897.
Rockefeller's
wealth soared as kerosene and gasoline grew in importance, and he became the
richest person in the country, controlling 90% of all oil in the United States
at his peak. Oil was used throughout the country as a light source until the
introduction of electricity, and as a fuel after the invention of the
automobile. Furthermore, Rockefeller gained enormous influence over the
railroad industry which transported his oil around the country. Standard Oil
was the first great business trust in the United States. Rockefeller
revolutionized the petroleum industry and defined the structure of modern
philanthropy, along with other key industrialists such as steel magnate Andrew
Carnegie. His company and business practices came under criticism, particularly
in the writings of author Ida Tarbell.
The
Supreme Court ruled in 1911 that Standard Oil must be dismantled for violation
of federal anti-trust laws. It was broken up into 34 separate entities which
included companies that became ExxonMobil, Chevron Corporation, and others—some
of which still have the highest level of revenue in the world. Individual
pieces of the company were worth more than the whole, as shares of these
doubled and tripled in value in their early years, and Rockefeller became the
country's first billionaire with a fortune worth nearly 2% of the national
economy. His peak net worth was estimated at US$409 billion (in 2018 dollars;
inflation-adjusted) in 1913. Rockefeller spent the last 40 years of his life in
retirement at his estate in Westchester County, New York. His fortune was
mainly used to create the modern systematic approach of targeted philanthropy
through the creation of foundations that had a major effect on medicine,
education, and scientific research. His foundations pioneered the development
of medical research and were instrumental in the near-eradication of hookworm
and yellow fever in the United States.
Rockefeller
was also the founder of the University of Chicago and Rockefeller University
and funded the establishment of Central Philippine University in the
Philippines. He was a devout Northern Baptist and supported many church-based
institutions. He adhered to total abstinence from alcohol and tobacco
throughout his life. For advice, he relied closely on his wife Laura Spelman
Rockefeller with whom he had five children. He was a faithful congregant of the
Erie Street Baptist Mission Church, taught Sunday school, and served as a
trustee, clerk, and occasional janitor. Religion was a guiding force throughout
his life and he believed it to be the source of his success. Rockefeller was
also considered a supporter of capitalism based on a perspective of social
Darwinism, and he was quoted often as saying, "The growth of a large
business is merely a survival of the fittest".
Early
Life :- Rockefeller was the second child born in Richford, New York, to
con-artist William Avery "Bill" Rockefeller and Eliza Davison. He had
an elder sister named Lucy and four younger siblings: William Jr., Mary, and
twins Franklin (Frank) and Frances. His father was of English and German
descent, while his mother was of Scots-Irish descent. Bill was first a
lumberman and then a traveling salesman who identified himself as a
"botanic physician" who sold elixirs. The locals referred to the
mysterious but fun-loving man as "Big Bill" and "Devil
Bill." He was a sworn foe of conventional morality who preferred a
vagabond existence and returned to his family infrequently. Throughout his
life, Bill was notorious for shady schemes. In between the births of Lucy and
John, Bill and his mistress and housekeeper Nancy Brown had a daughter named Clorinda
who died young. Between John and William Jr.'s births, Bill and Nancy had
daughter Cornelia.
Eliza was
a homemaker and a devout Baptist who struggled to maintain a semblance of
stability at home, as Bill was frequently gone for extended periods. She also
put up with his philandering and his double life, which included bigamy. She
was thrifty by nature and by necessity, and she taught her son that
"willful waste makes woeful want". John did his share of the regular
household chores and earned extra money raising turkeys, selling potatoes and
candy, and eventually lending small sums of money to neighbors. He followed his
father's advice to "trade dishes for platters" and always get the
better part of any deal. Bill once bragged, "I cheat my boys every chance
I get. I want to make 'em sharp."
From the
beginning, I was trained to work, to save, and to give.
When he
was a boy, his family moved to Moravia, New York, and to Owego, New York, in
1851, where he attended Owego Academy. In 1853, his family moved to
Strongsville, Ohio, and he attended Cleveland's Central High School, the first
high school in Cleveland and the first free public high school west of the
Alleghenies. Then he took a ten-week business course at Folsom's Commercial
College, where he studied bookkeeping. He was a well-behaved, serious, and
studious boy despite his father's absences and frequent family moves. His
contemporaries described him as reserved, earnest, religious, methodical, and
discreet. He was an excellent debater and expressed himself precisely. He also
had a deep love of music and dreamed of it as a possible career.
Pre-Standard
Oil Career ... As A Bookkeeper :- In September 1855, when Rockefeller was
sixteen, he got his first job as an assistant bookkeeper working for a small
produce commission firm called Hewitt & Tuttle. He worked long hours and
delighted, as he later recalled, in "all the methods and systems of the
office." He was particularly adept at calculating transportation costs,
which served him well later in his career. Much of Rockefeller's duties
involved negotiating with barge canal owners, ship captains, and freight
agents. In these negotiations, he learned that posted transportation rates that
were believed to be fixed could be altered depending on conditions and timing
of freight and through the use of rebates to preferred shippers. Rockefeller
was also given the duties of collecting debts when Hewitt instructed him to do
so. Instead of using his father's method of presence to collect debts,
Rockefeller relied on a persistent pestering approach. Rockefeller received $16
a month for his three-month apprenticeship. During his first year, he received
$31 a month, which was increased to $50 a month. His final year provided him
$58 a month.
As a
youth, Rockefeller reportedly said that his two great ambitions were to make
$100,000 (equivalent to $2.69 million in 2018 dollars) and to live 100 years.
Business
partnership and Civil War service :- In 1859, Rockefeller went into the produce
commission business with a partner, Maurice B. Clark, and they raised $4,000
($111,541 in 2018 dollars) in capital. Clark initiated the idea of the
partnership and offered $2,000 towards the goal. Rockefeller had only $800
saved up at the time and so borrowed $1,000 from his father, "Big
Bill" Rockefeller, at 10 percent interest. Rockefeller went steadily ahead
in business from there, making money each year of his career. In their first
and second years of business, Clark & Rockefeller netted $4,400 (on nearly
half a million dollars in business) and $17,000 worth of profit, respectively,
and their profits soared with the outbreak of the Civil War when the Union Army
called for massive amounts of food and supplies. When the Civil War was nearing
a close and with the prospect of those war-time profits ending, Clark &
Rockefeller looked toward the refining of crude oil. While his brother Frank
fought in the Civil War, Rockefeller tended his business and hired substitute
soldiers. He gave money to the Union cause, as did many rich Northerners who
avoided combat. Rockefeller was an abolitionist who voted for President Abraham
Lincoln and supported the then-new Republican Party. As he said, "God gave
me money", and he did not apologize for it. He felt at ease and righteous
following Methodist preacher John Wesley's dictum, "gain all you can, save
all you can, and give all you can."
At that
time, the Federal government was subsidizing oil prices, driving the price up
from $.35 a barrel in 1862 to as high as $13.75. This created an oil-drilling
glut, with thousands of speculators attempting to make their fortunes. Most
failed, but those who struck oil did not even need to be efficient. They would
blow holes in the ground and gather up the oil as they could, often leading to
creeks and rivers flowing with wasted oil in the place of water.
A market
existed for the refined oil in the form of kerosene. Coal had previously been
used to extract kerosene, but its tedious extraction process and high price
prevented broad use. Even with the high costs of freight transportation and a
government levy during the Civil War (the government levied a tax of twenty
cents a gallon on refined oil), profits on the refined product were large. The
price of the refined oil in 1863 was around $13 a barrel, with a profit margin
of around $5 to $8 a barrel. The capital expenditures for a refinery at that
time were small - around $1,000 to $1,500 and requiring only a few men to
operate.
In this
environment of wasteful boom, the partners switched from foodstuffs to oil,
building an oil refinery in 1863 in "The Flats", then Cleveland's
burgeoning industrial area. The refinery was directly owned by Andrews, Clark
& Company, which was composed of Clark & Rockefeller, chemist Samuel
Andrews, and M. B. Clark's two brothers. The commercial oil business was then
in its infancy. Whale oil had become too expensive for the masses, and a
cheaper, general-purpose lighting fuel was needed.
While
other refineries would keep the 60% of oil product that became kerosene, but
dump the other 40% in rivers and massive sludge piles, Rockefeller remained as
thrifty and efficient as ever, using the gasoline to fuel the refinery, and
selling the rest as lubricating oil, petroleum jelly and paraffin wax, and
other by-products. Tar was used for paving, naphtha shipped to gas plants.
Likewise, Rockefeller's refineries hired their own plumbers, cutting the cost
of pipe-laying in half. Barrels that cost $2.50 each ended up only $.96 when
Rockefeller bought the wood and had them built for himself.
In
February 1865, in what was later described by oil industry historian Daniel
Yergin as a "critical" action, Rockefeller bought out the Clark
brothers for $72,500 (equivalent to $1 million in 2018 dollars) at auction and
established the firm of Rockefeller & Andrews. Rockefeller said, "It
was the day that determined my career." He was well positioned to take
advantage of postwar prosperity and the great expansion westward fostered by
the growth of railroads and an oil-fueled economy. He borrowed heavily,
reinvested profits, adapted rapidly to changing markets, and fielded observers
to track the quickly expanding industry.
Beginning
In The Oil Business :- In 1866, William Rockefeller Jr., John's brother, built
another refinery in Cleveland and brought John into the partnership. In 1867,
Henry M. Flagler became a partner, and the firm of Rockefeller, Andrews &
Flagler was established. By 1868, with Rockefeller continuing practices of
borrowing and reinvesting profits, controlling costs, and using refineries'
waste, the company owned two Cleveland refineries and a marketing subsidiary in
New York; it was the largest oil refinery in the world. Rockefeller, Andrews
& Flagler was the predecessor of the Standard Oil Company.
Standard
Oil ... Founding And Early Growth :- By the end of the American Civil War,
Cleveland was one of the five main refining centers in the U.S. (besides
Pittsburgh, Pennsylvania, New York, and the region in northwestern Pennsylvania
where most of the oil originated). By 1869 there was triple the kerosene
refining capacity than needed to supply the market, and the capacity remained
in excess for many years.
On
January 10, 1870, Rockefeller abolished the partnership of Rockefeller, Andrews
& Flagler, forming Standard Oil of Ohio. Continuing to apply his work ethic
and efficiency, Rockefeller quickly expanded the company to be the most
profitable refiner in Ohio. Likewise, it became one of the largest shippers of
oil and kerosene in the country. The railroads competed fiercely for traffic
and, in an attempt to create a cartel to control freight rates, formed the
South Improvement Company offering special deals to bulk customers like
Standard Oil, outside the main oil centers. The cartel offered preferential
treatment as a high-volume shipper, which included not just steep
discounts/rebates of up to 50% for their product but rebates for the shipment
of competing products.
Part of
this scheme was the announcement of sharply increased freight charges. This
touched off a firestorm of protest from independent oil well owners, including
boycotts and vandalism, which led to the discovery of Standard Oil's part in
the deal. A major New York refiner, Charles Pratt and Company, headed by
Charles Pratt and Henry H. Rogers, led the opposition to this plan, and
railroads soon backed off. Pennsylvania revoked the cartel's charter, and
non-preferential rates were restored for the time being. While competitors may
have been unhappy, Rockefeller's efforts did bring American consumers cheaper
kerosene and other oil by-products. Before 1870, oil light was only for the
wealthy, provided by expensive whale oil. During the next decade, kerosene
became commonly available to the working and middle classes.
Undeterred,
though vilified for the first time by the press, Rockefeller continued with his
self-reinforcing cycle of buying the least efficient competing refiners,
improving the efficiency of his operations, pressing for discounts on oil
shipments, undercutting his competition, making secret deals, raising
investment pools, and buying rivals out. In less than four months in 1872, in
what was later known as "The Cleveland Conquest" or "The
Cleveland Massacre," Standard Oil absorbed 22 of its 26 Cleveland competitors.
Eventually, even his former antagonists, Pratt and Rogers, saw the futility of
continuing to compete against Standard Oil; in 1874, they made a secret
agreement with Rockefeller to be acquired.
Pratt and
Rogers became Rockefeller's partners. Rogers, in particular, became one of
Rockefeller's key men in the formation of the Standard Oil Trust. Pratt's son,
Charles Millard Pratt, became secretary of Standard Oil. For many of his
competitors, Rockefeller had merely to show them his books so they could see
what they were up against and then make them a decent offer. If they refused
his offer, he told them he would run them into bankruptcy and then cheaply buy
up their assets at auction. However, he did not intend to eliminate competition
entirely. In fact, his partner Pratt said of that accusation "Competitors
we must have ... If we absorb them, it surely will bring up another."
Instead
of wanting to eliminate them, Rockefeller saw himself as the industry's savior,
"an angel of mercy" absorbing the weak and making the industry as a
whole stronger, more efficient, and more competitive. Standard was growing
horizontally and vertically. It added its own pipelines, tank cars, and home
delivery network. It kept oil prices low to stave off competitors, made its
products affordable to the average household, and, to increase market
penetration, sometimes sold below cost. It developed over 300 oil-based
products from tar to paint to petroleum jelly to chewing gum. By the end of the
1870s, Standard was refining over 90% of the oil in the U.S. Rockefeller had
already become a millionaire ($1 million is equivalent to $26 million in 2018
dollars).
He
instinctively realized that orderliness would only proceed from centralized
control of large aggregations of plant and capital, with the one aim of an
orderly flow of products from the producer to the consumer. That orderly,
economic, efficient flow is what we now, many years later, call 'vertical
integration' I do not know whether Mr. Rockefeller ever used the word 'integration'.
I only know he conceived the idea.
In 1877,
Standard clashed with Thomas A. Scott, the president of the Pennsylvania
Railroad, Standard's chief hauler. Rockefeller envisioned pipelines as an
alternative transport system for oil and began a campaign to build and acquire
them. The railroad, seeing Standard's incursion into the transportation and
pipeline fields, struck back and formed a subsidiary to buy and build oil
refineries and pipelines.
Standard
countered, held back its shipments, and, with the help of other railroads,
started a price war that dramatically reduced freight payments and caused labor
unrest. Rockefeller prevailed and the railroad sold its oil interests to
Standard. In the aftermath of that battle, the Commonwealth of Pennsylvania
indicted Rockefeller in 1879 on charges of monopolizing the oil trade, starting
an avalanche of similar court proceedings in other states and making a national
issue of Standard Oil's business practices. Rockefeller was under great strain
during the 1870s and 1880s when he was carrying out his plan of consolidation
and integration and being attacked by the press. He complained that he could
not stay asleep most nights. Rockefeller later commented:
All the
fortune that I have made has not served to compensate me for the anxiety of
that period.
Tags :- John
Davison Rockefeller Sr., Rockefellers, The Rockefellers, American Oil Industry
Business Magnate, Industrialist, Philanthropist, Widely Considered The
Wealthiest American Of All Time, Richest Person In Modern History, Plant And
Capital, Railroads, Pennsylvania Railroad, Standard's Chief Hauler, Reduced
Freight Payments, Rockefeller, Andrews & Flagler Was The Predecessor Of The
Standard Oil Company,
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