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Economic History Of The Standard Oil Company History Essay

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Published: Mon, 5 Dec 2016

Within the vast field of U.S economic history one area in particular stands out as having played a key role in a relatively short time span. This area of interest is known as John D. Rockefeller’s Standard Oil Company. Standard Oil played a crucial role in the growth of the U.S economy due to its strong rooting in areas such as the railroads, other industries, as well as the government and, although it is criticized for a multitude of questionable business activities, Standard Oil did indeed benefit the U.S Economy in a number of ways. By carefully analyzing John Rockefeller motives and his company’s practices we will be able to better understand how this occurred.

Before we begin to critique and analyze Standard Oil, we must first look at the man in charge of it all. John D Rockefeller was born into a low working class family in Richford, New York in 1839. As a child John emulated his father who, although wasn’t around much, he thought a paragon of business virtue whose shrewd business tactics and abilities in commerce would later be used in the business world by Rockefeller. Although he learned much about commerce and people from his father John’s reverence for the man quickly disappeared, leading to feelings of resentment. It is due to

these issues regarding his father that Rockefeller grew up exceptionally fast, never being rowdy or causing trouble. He described himself once as “I was very sedate and earnest….preparing to meet the responsibilities of life…” This level of maturity is what aided Rockefeller succeed in his early business years

One aspect of life that Rockefeller greatly enjoyed was that of education. John D. as his classmates called him was said to have excelled as a debater and was able to express himself with precision. One of his teachers even described him as “sane in every respect save one…he is money mad.” Even then when he was still young John D. held a strong attraction to money and this attraction is what would lead to his vast success in his business ventures down the road.

Rockefeller did not immediately go into the oil industry after his years of schooling. Instead he worked as a bookkeeper for a local business firm It was here that John D learned the most about the business world and how goods were transported, retail, and other such areas of business. Rockefeller proceeded to leave the firm in 1859 and went into a partnership with a businessman named Maurice B. Clark. Their business firm bought and sold meats, grains, and other sources of food and shipped them to purchasers. While working at the firm, Rockefeller continued to learn about the business world and how to survive within it. He came to the conclusion that in order to achieve success its bets to take a firm stand on sound business principles. This ideology of his is one of his key principles which helped him accrue such a vast fortune.

While they were making substantial profits selling edible goods, Clark and Rockefeller decided to expand into the growing industry of oil. During the years of the Civil War, Rockefeller, and Clark pooled capital and invested in a refinery in Cleveland. They also brought in three new business partners, two of which were Clark’s brothers, and Samuel Andrews, a experienced oil refiner. With the rapid growth of the refinery tensions began to rise between Rockefeller and the Clarks. In a bold move Rockefeller with his partner Andrews was able to buy out the Clarks and take the refinery for themselves. The renamed it the Standard Works Refinery and it is from there that the birth of the oil monopoly takes place

After the reforming of the oil refinery Rockefeller dived further into the oil industry. With the help of a new partner Henry M. Flagler. Flagler an entrepreneur, trusted and respected Rockefellers ambition and frequently discussed business plans for opening newer more modern refineries. With Flagler’s help the business began to grow. . Rockefeller who considered Flagler to be his most valuable partner was able to assemble executives who would aid in the transformation of the Cleveland refinery into the world’s strongest industrial company. Soon afterwards The two businessmen created the Standard Oil Company of Ohio which would later become the most powerful oil business in the U.S

As the years went by Rockefeller’s company continued to gain power until in 1870, five years after becoming an active partner in the refining business, he combined all his refineries into the Standard Oil Company. This major change from a partnership to a joint-stock firm lead to the standard oil company having control over a large percentage of the refining in the region. Around the year 1873 Standard Oil had gained control of close to 80 percent of the oil refineries in Cleveland, which was close to about one third of the United States total refining production. Flagler and Rockefellers ambition aided them greatly during this period of growth, by acting upon what they knew as businessmen to create the best possible outcome for themselves.

This empire of oil that John D’s company controlled didn’t just stop growing in Cleveland. During the following years Standard oil continued to absorb refineries all throughout Pennsylvania, and New York and 1878 Rockefeller had gained control of the vast majority of refineries within the United states and controlled oil refining production. This vast control of the market allowed Standard to basically work unchallenged in their industry.

As the years progressed Standard Oil continued to gain massive profits and expand its boundaries further and further. Then around 1882 Rockefeller brought in a new partner named Samuel Dodds who lead to the biggest revelation yet. With Dodd’s help standard Oil’s assets, property, and equipment were pooled together into the newly formed Standard Oil Trust which was, one huge organization with great power over the market as well as politics. This move which Dodds and Rockefeller played basically lead to the complete control of the oil industry. The great success of the Standard Oil Trust spurred many other companies to follow this specific and money minded business model, particularly towards the end of the 19th century. Some of the largest of these new founded trusts were the railroad, coal, steel, and tobacco trusts which drastically impacted the economy by virtually removing any competition in these sectors. Before going any further into the rise and fall of the trust, a much needed understanding of how Rockefeller was able to achieve such success is warranted.

From the beginning of the oil rush the biggest issue facing all oil refineries was how to transport their finished products at an affordable rate in order to maximize profits. During the time there were a number of railroads each of which was competing with the others so that the fees for transporting constantly fluctuated. Up to this point in time, no refiner had yet been able to organize the pipeline to his exclusive advantage or was able to get better freight rates from the railroads than were granted to his competitor. The transportation of oil by rail and by pipelines was left to outside independent companies, and it was only by way of competition and the need for improvements of such companies that the cost of the transportation had been reduced. This changed quickly once Rockefeller came to the foreground.

Since its inception until the dissolution of the company Standard Oil succeeded in controlling the routes of transportation, primarily the railroads and pipeline. Under the guidance of Flagler Standard Oil was able to set up a reduced shipping rate from the Lake Shore railroad line. In order to do so Standard oil guaranteed sixty carloads of oil products daily This was but one of many deals made by Rockefellers company in order to control the rail’s. As standard Oil expanded numerous other reduced rates were granted by the railroads in order to carry the mega corporation’s constant oil supply. Along with these reduced rates Standard oil began to receive rebates on their cargo, which increased their revenue. Standard Oil’s master plan can be seen in the failed attempt of the South Improvement Company Charter. This charter which was called by Ida Tarbell an “Unholy Alliance” was a business alliance between the three most powerful railroads , and a number of refineries, most of which belonged to Standard oil While the SIC never came to fruition it showed to the public Rockefellers goals of gaining control oil market and how he had the power to basically do so.

One thing that these deals did that benefited the economy was that increased efficiency in the railroads as well as the refineries. While according to some people of the time the actions that Rockefeller and the railroads took in order to achieve this were considered heinous and vile they did aid in uniting the two sectors and allowing for large scale transportation of oil at relatively low cost which enabled it to be sold at a lower price While yes Standard Oil did negatively affect small oil refinery owners it was able to sell at such a lower cost compared to them that it made sense for the trust to continue its domination of the oil market.

As the years went by Standard Oil’s grasp upon the oil market tightened. By 1890, Standard Oil had control of about ninety percent of all the oil refineries within the United States. Around this time the Sherman Anti-Trust act was passed and soon the slow decline of Standard Oil’s power began. Under the Act he state of Ohio after becoming aggravated at Rockefellers business practices was finally able to successfully sue Standard Oil, which lead to the State Supreme Court of Ohio’s decision for the dissolution of the trust in 1892. While the court’s decision to remove the trust was final the trust was only dissolved in name, Rockefeller and the other trustees still maintained control of the company.

In the course of the next seven years state laws began to change. This lead to Standard Oil’s next big move in the business world. During the year of 1899, the Standard Oil Trust, which was headquartered in New York, was legally changed and rose anew as what was called a holding company or a parent corporation, titled the Standard Oil Company of New Jersey or SOCNJ. This new company would remain in effect until the 1900’s when the fall of Standard Oil would come.

During the 1900’s Standard Oil continuously faced public scrutiny up until its dissolution. One event in particular that had consumers in an uproar was their rebates from the Alton Railway. These rebates which allowed Standard Oil to pay only six cents per container of oil instead of eighteen cents outraged consumers, who called it an illegal business tactic and immoral. This along with countless other business deals finally lead to the judgment day for Standard Oil in 1911.

In the year 1911, after fighting countless battles against litigators, The United States Supreme Court found Standard Oil in violation of the Antitrust Act due to its restrictions on the oil industry, particularly in the ways it eliminated its competitors. The Supreme Court ruled that the Standard Oil holding company had to be broken down into about thirty three separate corporate companies, and that they had to distribute the stock of these companies to shareholders and not to a new trust or holding company. The grand result of this large decision was that it lead to the birth of a fairly large number of independent oil companies, each of which would considered by some as the most influential and powerful in the region. This decision also made the way clear for new entrants into the oil industry, such as Gulf Oil L.P and Texaco Inc, who were able to grow without the shadow of Standard Oil looming over their prospective heads.

While it is true that Standard Oil’s business tactics at times could be considered by consumers as vile and monstrous The monopoly create a number of positive of benefits which affected the economy in numerous ways. Because of Standard Oil’s sheer size it was able to undertake projects that smaller companies would never even have been able to accomplish, which in turn aided in the growth of the United States as an industrial nation. These projects whether they be in the form of opening new major refineries or in controlling the railroad rates to allow for lower prices affected the economy in a positive light.

Another way how Standard Oil benefited the economy was with its practice of being highly efficient. Rockefeller who ran the company with his iron will detested waste and so in order to achieve a high level of production he used all parts of the oil. The residue left over from the refining process were used to create Vaseline, and other such oil based product. Even critics such as Ida Tarbell were impressed with Standard’s level of efficiency. Even after the company was broken apart in 1911, Standard Oil continued to ascribe to this level of efficiency, resulting in what was known as “cracking” crude oil, which resulted in a much higher yield of gasoline. This ability greatly aided the U.S economy by allowing for gasoline to be created and sold at lower costs.

One more important outcome of The Standard Oil Court case was that the Supreme Court came to a ruling on a legal matter pertaining to trusts which was termed the rule of reason. This standard implied that not all large monopolies are bad and that those that aren’t bad do not violate the antitrust act, however those monopolies which use business tactics which are immoral or illegal do violate the Act This standard greatly influenced the economy in a number of ways, primarily because it allowed for monopolies to exist so long as they behaved.

Of all the economic effects that Standard Oil had on the economy, none are as monumental as that of Rockefellers on philanthropist activities. Rockefeller who after the dissolution of the oil company, stilled owned numerous shares in all the companies saw his fortune double in size resulting in him becoming one of the most richest man in the world during the time After his retirement in 1910 and continuing up until the end of his life Rockefeller gave away a large majority of his fortune in ways he believed would cause the most good. He determined these choices by careful studying all options available and was given assistance by advisers. Some of his charitable organizations include The Rockefeller Foundation, as well as The Rockefeller Institute for Medical Research. He also gave a substantial donation to The American Baptist Education Society which had a crucial role in the founding and funding of the University of Chicago. This large scale level of philanthropy trickled down from Rockefeller to his son as well as the rest of his family who continued on donating charitable amounts of money to those in need.

With everything that Standard Oil had done to achieve its success it is quite natural to assume that this oil empire did nothing beneficial however to do so would be to be negligent on the part of the reader. Rockefeller’s monopoly lead the way to lowering costs of refined oil, as well as advancements in products such as Vaseline and the improved method of obtaining gasoline. Add to that the millions of dollars John D donated to numerous charities and it is clearly evident that Standard Oil was a positive force acting on the economy. No one denies that Rockefeller was a strong ruthless businessman who did what was necessary to achieve success, however that should not blind people to the good that the company achieved throughout the decades of existence.


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