The History of Standard Oil

Cover via Amazon

…by Ida M. Tarbell.  The “muckraker”.

Book review time.  Commentary actually, a real review would be too much work.  Checklist:

Here I sit, laptop in lap.  Check.

I’m sipping leftover Lipizzan Port from the Greystone Vineyards in Palidsade, Colorado that m’lady and I opened and consumed the greater share of many weeks ago. Check.  (It’s still very good.)

I’m doing ankle therapy twists and turns off the edge of my recliner sofa for my recently fractured, plated, and healed but still severely stiff and somewhat painful ankle.  Check.

I’m waiting to succumb to the muse so I can wax eloquent and intelligently on Ms. Tarbell and John D. Rockefeller.  Uhhh, that ain’t gonna happen.  I might as well get on with it.

I just finished reading the subject tome.  Contrary to the pictured book, I read the free online version from the University of Rochester:  http://www.history.rochester.edu/fuels/tarbell/MAIN.HTM.  I read quite a bit of it on my iPhone, a testament to the quality of my reading glasses as the book’s rudimentary online web pages were not easily resized.  When I wasn’t reading it there I read it on my laptop.

It ended so abruptly, seemingly without summary, that I searched online for nearby bookstores or libraries that might have a copy with which I could verify.  None was to be found and I’m reluctant at the moment to pay $9.06 or more plus shipping for a paperback copy of a book I’ve already read and don’t feel the need to occupy space in my library.  (Ahh, the digital age.  Personal hard copy libraries may well be a casualty, or at least diminished, due to electronic media.  But I have a large hard drive!) (Hard large drive?  Have another glass of port.)

Amazon did offer a Kindle version (digital media) I can read on my iPhone for $0.99, no tax, so I opted for that. (Be warned, there is no Table of Contents in this Kindle version, and no page numbers for the literary work, only 4195 ‘mini’ pages. The chapters are numbered and subtitled.  The price IS right.)

Sure enough, the end of the book is just as abrupt in the Kindle version.  A mystery to be pursued another time.

Ms. Tarbell was an investigative journalist, though the term and its application probably did not exist at that time.  Today she would be considered a liberal progressive, part of the ‘main-stream media’, though by her own admission she might also find a place in ‘fair and balanced’ news media:

“this classification of muckraker, which I did not like. All the radical element, and I numbered many friends among them, were begging me to join their movements. I soon found that most of them wanted attacks. They had little interest in balanced findings. Now I was convinced that in the long run the public they were trying to stir would weary of vituperation, that if you were to secure permanent results the mind must be convinced.” (From the Wikipedia page on her bio, linked at the beginning.)

Her “History” mostly covers the period from 1872-1880 when John D. Rockefeller was consolidating oil refining and numerous other aspects of the business.  Note that he did not try to buy railroads or well production at this time.

Remember that hindsight now tells us oil production was in its infancy at this time.  Chaos reigned, as Ms. Tarbell aptly describes.  Oil was primarily used for lamp lighting.  The U.S. production was concentrated within northwest Pennsylvania.  (A book I read more thoroughly describing the oil development of this area is God’s Gold; the Story of Rockefeller and his Times (Mises.org) by John T. Flynn.  It’s available free online via either of the previous links.)

I found the book to be hugely less muckraking and hugely more detailed reporting of events than expected.  (“The facts ma’am, just the facts.”-Joe Friday.)  Any philosophizing sprinkled throughout the very thorough factual minutiae is considerably less than the highly opinionated so-called reporting you find today in the New York Times or Time Magazine.

For academic analysis’ sake,  in my opinion the following is one example of editorializing:

“All over the country the refineries in the same condition as Mr. Tack’s firm sold or leased. Those who felt the hard times and had any hope of weathering them resisted at first. With many of them the resistance was due simply to their love for their business and their unwillingness to share its control with outsiders. The thing which a man has begun, cared for, led to a healthy life, from which he has begun to gather fruit, which he knows he can make greater and richer, he loves as he does his life. It is one of the fruits of his life. He is jealous of it-wishes the honour of it, will not divide it with another. He can suffer heavily his own mistakes, learn from them, cor- 

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THE HISTORY OF THE STANDARD OIL COMPANY 

rect them. He can fight opposition, bear all-so long as the work is his. There were refiners in 1875 who loved their business in this way. Why one should love an oil refinery the outsider may not see; but to the man who had begun with one still and had seen it grow by his own energy and intelligence to ten, who now sold 500 barrels a day where he once sold five, the refinery was the dearest spot on earth save his home. He walked with pride among its evil-smelling places, watched the processes with eagerness, experimented with joy and recounted triumphantly every improvement. To ask such a man to give up his refinery was to ask him to give up the thing which, after his family, meant most in life to him. 

To Mr. Rockefeller this feeling was a weak sentiment. To place love of independent work above love of profits was as incomprehensible to him as a refusal to accept a rebate because it was-wrong Where persuasion failed then, it was necessary, in his judgment, that pressure be applied-simply a pressure sufficient to demonstrate to these blind or recalcitrant individuals the impossibility of their long being able to do business independently. It was a pressure varied according to locality. Usually it took the form of cutting their market. The system of “predatory competition” was no invention of the Standard Oil Company. It had prevailed in the oil business from the start. Indeed, it was one of the evils Mr. Rockefeller claimed his combination would cure, but until now it had been used spasmodically. Mr. Rockefeller never did anything spasmodically. He applied underselling for destroying his rivals’ market with the same deliberation and persistency that characterised all his efforts, and in the long run he always won. There were other forms of pressure. Sometimes the independents found it impossible to get oil; again, they were obliged to wait days for cars to ship in; there seemed to be no end to the ways of making it hard for men to do business, of discouraging them until they would sell or lease, and always at the 

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LAYING THE FOUNDATIONS OF A TRUST 

psychological moment a purchaser was at their side.”

“Here we have a refiner discouraged by the conditions which Mr. Rockefeller claims his aggregation will cure. Under the Rutter circular and the discrimination in freight to the Standard which followed, his difficulty in getting oil increases, and he consents to a running arrangement with Mr. Rockefeller’s partner in Philadelphia, but he wants to do an “independent 

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THE HISTORY OF THE STANDARD OIL COMPANY 

business.” Impossible. As he sits watching the smooth and terrible power of that famous Corliss engine of 1876, an engine which showed to thousands for the first time what great power properly directed means, he realised that something very like it was at work in the oil business-something resistless, silent, perfect in its might-and he sold out to that something. Everywhere men did the same.”

In the previous, Ms. Tarbell presumes the refiners, who are being taken over or forced out by Rockefeller, are working for “love of independent work”, and she presumes Rockefeller is working for “love of profits”.  Does she presume the refiners worked for no profit, or just enough profit to sustain there love of work?  Does she presume Rockefeller’s love of profits was not love of work for him?  First, presuming is not reporting.  Second, from the voluminous facts throughout Ms. Tarbell’s work, as well as in the book God’s Gold, it is clearly, factually evident that this period of petroleum production was akin to a liquid gold rush.  VAST, unusually high profits were being made, and commensurate fortunes were lost, in this entrepreneurial environment.  ‘Love of work’ definitely included ‘love of profits’.

What I really found thought-provoking about the entire book was observing free enterprise, competitive, capitalism at work on a grand scale in its most raw form.  Many businesses were ‘forced’ to sell to Rockefeller or close.  The force used was considerable economic pressure (incentives or disincentives) but I have not read the slightest implication that any physical coercion was used.  Following is one of many examples Tarbell cites, attempting, IMO, to tug at the heartstrings.  “It just wasn’t FAIR” it might be said.

“…the firm of Morehouse and Freeman. Mr. Morehouse had begun to experiment with lubricating oils in 1861, and in 1871 the report of the Cleveland Board of Trade devoted several of its pages to a description of his business. According to this account he was then making oils adapted to lubricating all kinds of machinery-he held patents for several brands and trade marks, and had produced that year over 25,000 barrels of different lubricants besides 120,000 boxes of axle grease. At this time he was buying his stock or residuum from one or another of the twenty-five Cleveland refiners. Then came the South Improvement Company and the concentration of the town’s refining interest in Mr. Rockefeller’s hands. Mr. Morehouse, according to the testimony he gave the Hepburn Commission in 1879, went to Mr. Rockefeller, after the consolidation, to arrange for supplies. He was welcomed-the Standard Oil Company had not at that time begun to deal in lubricating oils-and encouraged to build a new plant. This was done at a cost of 41,000 and a contract was made with the Standard Oil Company for a dally supply 

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THE HISTORY OF THE STANDARD OIL COMPANY 

of eighty-five barrels of residuum. Some time in 1874. this supply was cut down to twelve barrels. The price was put up too, and contracts for several months were demanded so that Mr. Morehouse got no advantage from the variation in crude prices. Then the freights went up on the railroads. He paid $1.50 and two dollars for what he says he felt sure his big neighbour was paying but seventy or seventy-five cents (there is no evidence of any such low rate to the Standard from Cleveland to New York by rail). Now it was impossible for Mr. Morehouse to supply his trade on twelve barrels of stock. He begged Mr. Rockefeller for more. It was there in the Standard Oil works. Why could he not have it? He could pay for it. He and his partner offered to buy 5,000 barrels and store it, but Mr. Rockefeller was firm. All he could give Mr. Morehouse was twelve barrels a day. “I saw readily what that meant,” said Mr. Morehouse, “that meant squeeze you out-buy your works. They have got the works and are running them; I am without anything. They paid about $15,000 for what cost me $41,000. He said that he had facilities for freighting and that the coal-oil business belonged to them; and any concern that would start in that business, they had sufficient money to lay aside a fund to wipe them out-these are the words.””

But what is “fair” in capitalism?  Should rules exist that allow some to continue in business for ‘love of work’ and in order to earn a living when someone else might run that business better, cheaper, more efficiently?  (My goal is a lemonade stand on every corner and two pots for every chicken.)

Standard Oil was accused of being a ‘combination’, or trust, word of the times for a near-monopoly.  In the purist of economic terms, is this wrong?  Prevailing opinion and subsequent legislation, regardless of theory, eventually conclude that it was, and anti-monopoly laws exist and are applied even today.

The Standard was not defeated or even deterred during the period covered by Ms. Tarbell, 1872-1880.  Wikipedia notes that the Sherman Antitrust Act was in 1890 and it wasn’t until 1911 that the U.S. Supreme Court declared the Standard group to be an “unreasonable” monopoly.  (Can there be reasonable monopolies then?)

To me it still begs the question “is a monopoly wrong”?  Sounds like a John Stossel question: “Monopolies aren’t always fair but are they wrong?”  Today big businesses (including, still, big oil) are frowned upon.  Excessive profits, etc.  We dislike big-box stores like Wal-Mart (started from a very small mom and pop store by the way) even though they provide an abundance of goods at cheap prices.  There is Target, Lowe’s, Home Depot, u-name-it.  Sure, existing mom-and-pop’s can’t compete.  That’s unfortunate but it’s no reason to alter economic reality in order to accommodate them.

Food for future thought and study to be sure.

One other item of considerable note in the Standard’s early history and success is the railroad’s acquiescence to giving Rockefeller “drawbacks”.  Not only did they give him a rebate for promising to ship large quantities of oil via their rails, but they also gave him a drawback, or rebate, on any other oil shipped also.  As near as I can tell it was Rockefeller’s request, and the railroad’s choice, to do this, yet the railroads received considerably muted criticism for doing so.  Again, it is economics and ‘free’ enterprise at work.  

There are many other observations to be made, for which you’ll just have to read this intriguing work.  I found it notable that when Rockefeller began to acquire refiners and thus start on the path to a ‘combination’ of sorts , one of the first things the petroleum producers did was band together and form an association.  Was this not an attempt to be a combination in their own right?  Not the slightest inference is made.

I’ve read it argued that Rockefeller’s ends justified his means because the eventual outcome was cheaper prices for consumers.  I did not find that totally evident in this work.  A topic for research and discussion at another time.

FYI he gave away some $550+ million dollars during his lifetime (he passed away in 1937), not an inconsiderable sum in today’s dollars. 

I surprised myself and enjoyed this book very much.  I recommend it and recommend reading ‘old’ non-fiction books such as this and God’s Gold that were researched and published closer to the actual events.

(PostScript: The glass of port was no help.  I composed 9/10ths of this commentary-but-not-a-review in the clear light of day reinforced by low caffeine coffee.  Alan Watts, Christopher Hitchens, and Lady Gaga not withstanding, intoxications mild or otherwise do not a-muse my muse.)