In 1911, the U.S. Courts Forced the Breakup of Standard Oil. John D. Rockefeller Emerged Richer and More Influential Than Ever.
A look back at the story of the breakup of the Rockefeller empire.
“The facts establish beyond question that this organization was born for the purpose of illegally acquiring wealth and that it has, to this end, oppressed the public and destroyed the rights of its competitors...”
On May 15, 1911, after its chief justice's closing argument, the U.S. Supreme Court ordered the dissolution of Standard Oil, the oil empire built by John D. Rockefeller. “Come on, gentlemen, let's get on with it,” said the tycoon, perfectly in control of himself, to his golfing partners when he heard the news. If he fully satisfies public opinion, the breakup of Standard Oil is not bad news, neither for him nor for the American oil industry. On the contrary ...
John D. Rockefeller was 72 years old. With his parchment-like face and piercing eyes that breathed intelligence, he was one of the most hated men in America. “The most criminal of his time,” an American newspaper said of him at the turn of the century. The “Mummy,” as his fiercest opponent, the journalist Ida Minerva Tarbell, called him. Some churches and religious associations even refused his donations - which were considerable - because his money was “corrupt.”
But these heaps of insults seem to slide over the businessman. It must be said that he is used to it. Rockefeller has been hated since his very first steps in black gold. “Mephistopheles”: this is what some people in the oil-producing regions of America called him back in the 1870s. At the same time, some mothers went so far as to threaten their unruly children with “being taken away by Rockefeller” if they didn't behave!
The reason for this detestation: the monopoly that Rockefeller managed to build, in a very short time and by systematically stifling all competition, in the refining field. For Rockefeller, the oil adventure began in 1863. At that time, he had been associated for four years with an old schoolmate: Maurice Clark. Together, they founded a wholesale trade in agricultural products in Cleveland. The Civil War that broke out in 1861 was making the company's fortune. Specializing in the purchase and sale of salt, pork, and wheat, it signed very lucrative contracts with the government to supply the armies.
Optimization of the production chain
It was then, in 1863, that a certain Samuel Andrews came to propose to the two partners the creation of an oil refinery. Since “Colonel” Drake had discovered the first oil well in Titusville, Pennsylvania, in 1859, a vast market was emerging for refined products intended for lighting or lubricating machinery. In Cleveland itself, many refineries, most of them very small and technically very small, were being built. Rockefeller and Clark also decided to embark on the black gold adventure. That same year, they invested part of the profits from the agricultural products trade in the construction of a “large” refinery in Cleveland, with Andrews as technical director. But between Rockefeller, who was convinced that the refining business had to be developed at full speed, and his two partners, who were cautious to the point of pusillanimity, relations soon deteriorated. In 1865, John Rockefeller finally bought the refinery from Clark and Andrews. With it, the construction of the “Rockefeller empire” began...
The businessman immediately benefited from an exceptional economic situation. That same year, 1865, the United States emerged from the Civil War and was about to enter an era of unprecedented industrial expansion that would serve his interests well. Rockefeller, however, always refused to act as a speculator, preferring to develop his markets one by one, methodically building an efficient industrial tool and reinvesting all his profits.
From that time on, three main principles guided its actions: firstly, to have the most efficient equipment throughout the oil chain, from storage to refining; secondly, to strictly control costs to keep them below those of competitors; and thirdly, to stay away from production for the time being, which was far too risky at the time because of the anarchy that prevailed there. It was these few recipes that made his company the leading oil company in the United States.
This strategy was launched on January 10, 1870, with the founding of Standard Oil in Cleveland. Rockefeller associated one of his friends, Harry Flager, with this venture and he played an essential role in the development of the company. The name “Standard” was chosen to signify that the products delivered would be guaranteed to be of the highest quality. With two refineries, the best equipped in the region, the company began to fight against the collapse of prices due to overcapacity. Flager and Rockefeller worked methodically, in particular by negotiating with the railroads, in the greatest secrecy, advantageous tariff concessions in exchange for delivery guarantees. The question of railroad rates weighed heavily in the dissolution of Standard Oil.
The advantageous conditions enjoyed by Rockefeller contributed to stifling the small independent refiners whose margins were squeezed by transport costs. Caught at the throat, many preferred to sell out to Rockefeller. Those who resist, and there are some, have to endure a veritable price war which, most of the time, forces them to give up. In the space of ten years, the Standard thus acquired a dominant position - around 90% - in oil refining, transport, trade, and distribution. In the years that followed, the group moved upstream and attacked crude oil production, taking control of the new oil fields in Ohio and Indiana. Price wars, price pressures, blackmail in refining ... The methods used by the contractor to dominate production are the same as those it deployed in refining.
This growing power eventually worried public opinion and political circles. In the 1870s, the forced takeover of dozens of independent refineries even provoked riots in Pennsylvania. Accused of unfair practices and price manipulation, and threatened with legal action in several states, John Rockefeller decided in 1882 to transform his company into a trust, i.e. an association of officially autonomous companies voluntarily submitting to the leadership of the Standard.
This legal transformation had no real consequences since although the decisions communicated to the various units of the trust were apparently in the form of simple recommendations, in reality, the trust was directed by a small group of men led by Rockefeller. He leads the firm with a firm hand. If he knows how to listen to his closest collaborators, he wants to know everything that is happening in the multiple ramifications of the trust. To this end, he sets up remarkably efficient information and espionage system that is directly attached to him.
The industrialist is not done with worries, however. The press and the political class strongly criticized the transformation of Standard Oil into a trust, presented as a delaying tactic. In 1890, the famous Sherman Act strictly regulated the use of the system. John Rockefeller retaliated by taking advantage of the possibility offered by several states to create holding companies to create, in 1899, in the state of New Jersey, the Standard Oil Company, which would henceforth control the 70 companies of the trust.
But the war for the monopoly, the constant struggles against the federal administration, the vehement criticism of the Standard, and the press campaigns finally affected the health of the industrialist. Exhausted and suffering from insomnia, in 1897 he entrusted the general management of the firm to one of his fellow directors, John D. Archbold. He remained president and a member of the board. But if he is systematically consulted on the major orientations concerning the future of the firm, he devotes himself more to his family.
At nearly 60 years of age, the oil emperor is taking a step back. However, it was not long before Standard's troubles brought him back into the limelight. At the turn of the century, while the company was conquering the world, a great moralizing campaign was launched in public opinion against the monopolistic excesses of capitalism. Newspapers and politicians constantly denounced the handful of tycoons who had concentrated all the country's economic power in their hands. The opinion leaders demanded the dismantling of the trusts, starting with the main one: the Standard.
Ida Minerva Tarbell, the sworn enemy of John D. Rockefeller
The affair began in 1904 with the publication by the prestigious magazine “McLur's” of a series of articles on the history of Standard Oil. Written by journalist Ida Minerva Tarbell - daughter of an independent refiner ruined by Rockefeller - the investigation revealed to the public the methods that had allowed Standard to impose itself on the market. These revelations caused a sensation and led to a vast campaign to dismantle the trust.
Theodore Roosevelt, President of the United States from 1901 onwards, made the Standard one of his priority targets. In-depth investigations were launched and legal action was taken. Rockefeller was summoned to appear before the courts several times, but he pretended not to remember anything. The main trial opened in 1902 in the Federal Court of Saint Louis. It lasted until 1909 when the dissolution of Standard Oil was ordered.
Confirmed by the Supreme Court in 1911, the sentence forced Standard Oil to give up control of 33 subsidiaries and sell some of its shares. This forced dissolution gave rise to some of the largest American oil companies, such as Exxon, Mobil, Chevron, and Amoco.
In the months following the dismantling of his empire, those who crossed paths with John Rockefeller found him in a surprisingly cheerful mood. The age of oil, he was convinced, had only just begun. A visionary, he knew that in an increasingly competitive market, smaller companies were better equipped to grow than giant conglomerates. The dissolution of Standard Oil was inevitable and even desirable. All the more so since it was an excellent deal for him.
Through share conversions, the industrialist holds 25% of the capital of the 33 companies created by Standard Oil. Although those close to him advised him to sell his shares, he refused to do so. With good reason: in the months following their listing on the stock exchange in 1911, the prices of the oil companies rose from 65% to 125%... John Rockefeller's fortune soared in the process: between 1910 and 1913, it rose from 200 to 900 million dollars!
It will allow the former tycoon to develop the foundation that he created under his name and which, first, will engage in philanthropic operations on a global scale. “It is not surprising that the prayer of Wall Street today is: Benevolent providence, grant us a new dissolution of the trust,” commented President Theodore Roosevelt, one of the most bitter opponents of trusts, ironically...
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