Titan
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This vigorous competition abroad aroused Rockefeller’s fighting spirit, and he even took to lecturing his colleagues in verse: “We are neither old nor sleepy and must ‘Be up and doing, with a heart for any fate; Still achieving, still pursuing, learn to labor and to wait.’ ” 8 Both Rockefeller and Archbold favored scrapping their former system of operating through European brokers and instead launching their own marketing subsidiaries. For a time, they were held back by Benjamin Brewster, and Rockefeller, unwilling to move without a consensus, yielded against his better judgment. When the Rothschilds set up a British oil-marketing firm in 1888, Brewster’s logic suddenly crumbled, and twenty-four days later Standard Oil set up its first overseas affiliate, the Anglo-American Oil Company, which soon monopolized the British oil trade. Two years later, Standard started the Deutsche-Amerikanische Petroleum Gesellschaft in Bremen to handle the north German market. Neither old nor sleepy, Rockefeller set up an oil terminal at Rotterdam, struck a deal to supply all of France’s crude oil, took stakes in oil firms in Holland, Italy, and Scandinavia, and orchestrated heated price wars in India. Taking a cue from the Nobels, Standard launched its first oil-tank steamer to Europe, a mammoth vessel that transported a million gallons of oil, the first of what would shortly be an entire ocean fleet piloted from 26 Broadway.
Despite the low price of Russian oil, Standard barred it from America and retained nearly 80 percent of world markets in the late 1880s. For all the complaints about adulterated kerosene that Rockefeller heard on his European travels, the Nobels and Rothschilds never matched the quality of Standard’s products or surpassed its integrated operation. For Archbold, it was the Russians’ failure to consolidate their domestic industry—that is, to suppress competition and establish a trust—that consigned them to secondary status. “If there had been as prompt and energetic action on the part of the Russian oil industry as was taken by the Standard Oil Company, the Russians would have dominated many of the world’s markets which have been made to inure so largely to the benefit of the American oil industry.” 9
If the Nobels and the Rothschilds weren’t mortal threats, neither did they capitulate tamely to Standard Oil, as so many American rivals had. These contending forces clashed repeatedly in the oil wars of the 1890s, a protracted battle that saw periods of blistering competition followed by cozy deals to divvy up markets. When competition forced price-cutting in the early 1890s, Rockefeller advocated a tactical rapprochement with his erstwhile foes and induced Baron Alphonse de Rothschild to visit 26 Broadway in secret. Archbold’s report to Rockefeller about the July 1892 meeting revealed that, beneath the competitive veneer, the Rothschilds were eager to come to terms with Standard Oil:
We reached a tentative agreement with them. . . . I need hardly report again that it seems desirable on all sides that this matter be kept exceedingly confidential. It was thought best that we should not see the Nobel people, but that the approach be made to them on the subject by the Rothschilds. We were treated with great courtesy by Baron Rothschild, and we [were] much delighted that he spoke English fluently, which greatly facilitated our intercourse. 10
In the end, Count Sergei Witte, the Russian finance minister, spiked the scheme for a grand alliance of Standard Oil with the Nobels and Rothschilds—to the dismay of countless European newspaper cartoonists who had made sport evoking the clumsy embrace of the octopus and the bear. All the while, Russia kept pumping crude oil and by the late 1890s briefly overtook the United States in oil production, even though Standard Oil handily eclipsed it in refining.
By 1890, it was self-evident that oil existed throughout the earth’s crust and that only a freak accident (plus some timely Yankee ingenuity) had led to the business being founded in Titusville. In 1884, Dutch drillers began prospecting for oil in Sumatra and six years later received a royal charter to exploit Dutch East Indian reserves, christening their company Royal Dutch. Meanwhile, another aggressive contender waited in the wings. In 1891, the enterprising London merchant Marcus Samuel signed a contract with the Rothschilds to market their kerosene in the Far East. Samuel used the Suez Canal to speed the export of Russian kerosene to Asian markets. Oil had taken four months to travel from New York to the Far East but now reached it from Batumi in a month. Even though Samuel designed a custom-made bulk tanker, the Murex, to conform to the canal’s strict requirements, Standard Oil hired London solicitors to sow doubts about the project, spreading nasty rumors about a “powerful group of financiers and merchants” under “Hebrew influence” who planned to take tankers through the canal.11 Rockefeller later ranted against “our Asiatic competitors controlled by Jewish men who cry ‘Wolf ! Wolf! Standard Oil Company!’ and keep moving in and getting control of markets.”12 (He once compared Standard Oil’s supposedly “fair-minded” methods with “the old, old Jew method of treating one customer one way and another in another [way].”)13 Warding off this verbal sabotage, Samuel managed to defeat Standard Oil decisively, and his trademark red oilcans—in contrast to Standard’s blue cans—soon became known throughout Asia.
By 1892, with oil production booming in Burma and Java, Standard Oil belatedly recognized the need for concerted action in Asian markets. It tried in vain to buy the business of both Royal Dutch and Marcus Samuel, who renamed his company Shell Transport and Trading Company in 1897 to honor his family’s old seashell-box business. Standard even stooped to trading for Russian kerosene in order to serve better its Asian customers. It finally set up a series of Asian stations and assigned a small army of agents to Shanghai, Calcutta, Bombay, Yokohama, Kobe, Nagasaki, and Singapore. These operatives sold Standard kerosene in tin cans with wooden frames because Asian customers recycled the tin as roofing and turned the wooden cases into household objects. For all these smart marketing ploys, Standard Oil was forced to coexist with Royal Dutch and Shell, which merged to create a rival empire in the early 1900s. Henceforth, competition was enshrined as a permanent fact of the international oil business—despite a multitude of secret, market-sharing deals— and it was only a matter of time before the deadly contagion of competition infected North America.
Even as it was menaced by new competitors abroad, Standard Oil seemed omnipotent in American oil. Everything about its operation was colossal: Twenty thousand wells poured their output into 4,000 miles of Standard Oil pipelines, carrying the crude to seaboard or to 5,000 Standard Oil tank cars. The combine now employed 100,000 people and superintended the export of 50,000 barrels of oil to Europe daily. Rockefeller’s creation could be discussed only in superlatives: It was the biggest and richest, the most feared and admired business organization in the world. Earning steady, reliable profits, year in and year out, Rockefeller could be forgiven for believing he had outwitted the business cycle. For a man who craved order, he had reached his apogee. No longer at the mercy of unpredictable economic forces, he thrived even in recessions.
Rockefeller was exceedingly pleased by the harmonious workings of his fantastic machinery and the neat, orderly unfolding of his days. When he arrived at work each morning, he sat at his rolltop desk and examined two stacks of paper, one representing decisions made, the other matters to be thought over, and he slowly burrowed his way through both piles. Starting in the 1880s, he adopted a policy of never doing business with strangers or even meeting them, avoiding unwanted solicitations and controversy. If this simplified his life, it also strengthened the unsettling image of an untouchable tycoon, hidden behind the scenes.
Many of Rockefeller’s critics alleged that he divided his life into compartments and kept two separate sets of moral ledger books: one governing his exemplary private life, another sanctioning his reprehensible business behavior. But he saw his entire life guided by the same lofty ideals. In retirement, he wrote to Harvard president Charles Eliot, apropos of Standard Oil, “I can say without hesitation that no business organization with which I have ever been connected has been controlled by higher ideals.” 14 One way that he upheld this belief was to become self-righteous about his
opponents, whom he reviled as undisguised rascals. “The other people were up to all sorts of tricks, mixing benzine with the oil, and so forth,” he said of rival refiners.15 Nobody was more vigilant about being cheated than Rockefeller nor quicker to seize the moral high ground. To convince himself that he was a highly ethical businessman, he redefined exactly what that meant. For instance, he always made much of the fact that he honored contracts, paid bills and debt promptly, treated small shareholders fairly, and never watered stock. To confirm his clean, sanctimonious image of himself, he reiterated these ideals with a kind of incantatory relish, and the more naysayers dwelled on his railroad dealings or secret subsidiaries, the more he affirmed his own compensating code of business honor. This was as much to preserve his own self-image as to persuade a skeptical public that he was honorable, for Rockefeller desperately needed to have a good opinion of himself.
What further blinded Rockefeller to his misdeeds was that by the 1880s he always stood at several removes from any mayhem. He was now a master puppeteer, adroitly manipulating his marionettes, with the strings artfully concealed. As Standard Oil’s leading figure, he was the only person who didn’t have any direct operational responsibility. Instead, statesmanlike, he applied himself to general policy and monitored the performance of lieutenants, who sent him copious reports about their activities and often boasted shamelessly of their unsavory deeds. In contrast, Rockefeller replied in brief, opaque letters. He never assumed total confidentiality, even in internal memorandums, and cultivated a spare, elliptical style, devoid of names or specifics, that would have baffled any prosecuting attorney. In creating this self-protective structure, Rockefeller could run Standard Oil while simultaneously sidestepping responsibility, erasing incriminating evidence, and avoiding contact with his victims. It enabled him to distance himself from the dirty work down below and feign ignorance of what was happening. When confronted with well-documented cases of terror tactics used by subordinates, he blandly conceded some few indiscretions by overly zealous employees and cast himself as a helpless spectator. But if one examines the reams of letters sent to him by his associates, his pose of innocence crumbles. He knew everything that was going on and now, for the first time, we can document it. For that reason, we will digress occasionally in this chapter from the linear narrative of Rockefeller’s life to examine reports he received from the field. They leave no doubt that he was the brains of the operation, directing activities he professed to deplore and setting the tone for his subordinates. This, of course, only complicates the mystery of how he integrated the various facets of his life—of how the enlightened patron of Spelman Seminary could also be the brutal overlord of Standard Oil. In the end, we can only explain how he rationalized his behavior to himself and others; given the absence of revelatory letters or diaries, we can say little about the unconscious drives that led him to do this or the mental strains it might have caused.
In his memoirs, Rockefeller implied that Standard took no rebates after 1880, whereas his files disclose that collusion with the railroads became even more brazen after that date. By the early 1880s, the railroads had ceded supremacy in oil transport to the Standard-dominated pipelines, which now carried more than three-fourths of the crude oil from the Pennsylvania wells to coastal cities, charging Standard Oil’s own refineries half the posted price. Not surprisingly, as the railroads weakened, Standard Oil only browbeat them more. The combine owned a subsidiary, the Galena-Signal Oil Company, which monopolized the manufacture of high-grade railroad lubricants. Simply by stalling on shipments of this indispensable grease, it could bring any railroad to a halt. If Standard wished to extract a railroad rebate, it merely tacked on a surcharge to the price of Galena cylinder or engine oils. And Rockefeller continued to play his favorite trump card: the tank-car fleet. By the late 1880s, Standard Oil was leasing its tank cars to 196 railroads, forcing most of them to pay a double-mileage tribute to 26 Broadway—that is, a mileage royalty on outward-bound trips, when the cars were topful of oil, and also on inward-bound trips, when they returned empty.
One reason for Rockefeller’s continuing solicitude toward the roads after the pipeline revolution was that he himself had a significant investment in them. He conceded as much when he stated that Standard Oil stockholders “as the years had gone by were becoming more and more a factor in railway problems and other enterprises.”16 At the time, railroad shares were among the few blue-chip securities available to rich investors, which meant that Rockefeller invested heavily in the Erie, the New York Central, and other oil-carrying roads. In March 1881, Rockefeller wrote A. J. Cassatt of the Pennsylvania Railroad about rumors that his railroad would soon issue $400,000 worth of stock. He suggested they set up a joint private account of Pennsylvania stock—with Rockefeller making the payment.17 Whether this deal was executed is unclear, but it was a blatant bid to connive with a major railroad executive.
In later years, when Ida Tarbell made railroad manipulation the focal point of her Standard Oil indictment, Rockefeller pleaded ignorance of such dealings, claiming they were handled by his colleagues while he magisterially confined himself to broader matters. In fact, his papers document that he either met directly with railroad presidents or else was given graphic, blow-by-blow accounts of negotiations by Flagler, Archbold, O’Day, Payne, Warden, and a formerly little-noticed figure, Colonel W. P. Thompson, who had headed a Virginia cavalry unit for the Confederacy. The secretary of Standard Oil of Ohio and a brother-in-law of Standard power broker Johnson N. Camden, Colonel Thompson shared a Cleveland office with Rockefeller and Payne, and his letters furnish explosive proof of extensive railroad collusion in the 1880s. While Rockefeller made it seem as if such shenanigans occurred far from his sphere, he was fully briefed by Thompson, who liked to boast of his maneuvers.
Rockefeller’s files are chock-full of examples of rebates well into the 1880s. In March 1886, William G. Warden reported from Philadelphia that the Pennsylvania Railroad had agreed to the following discounts: Fifty-two cents per barrel to ship oil from Oil Creek to New York (versus a listed rate of 78 cents) and 39 cents to Philadelphia (versus 65 cents for other refiners). Rockefeller was always insistent that Standard’s competitive advantage had nothing to do with preferential transport rates, but his correspondence reveals that rebates could single-handedly transform an unprofitable plant into a profitable one. In 1886, Colonel Thompson told him that it made sense to proceed with a new naphtha plant at Oil City (naphtha was a crude-oil fraction used to make gas or solvents) only if the Lake Shore hauled the finished product to Cleveland for ten cents instead of seventeen.18 During these negotiations, Colonel Thompson also reported that low freight rates would enable them to rehabilitate an otherwise insolvent Oil City refinery. Wherever possible, Thompson preferred oral agreements, once telling Rockefeller of his talks with two railroads, “I think they will concede the undesirability of a regular written contract.” 19
The backdoor deals with the railroads necessarily generated more speculation than proof at the time. But it was the trust’s marketing operation that ultimately proved its undoing, for it directly touched consumers and tens of thousands of small businessmen located in every congressional district. In the 1870s, Rockefeller began to assemble a marketing organization to eliminate the middlemen, independent agents who had earned three to five cents per gallon of kerosene. Since they handled Standard kerosene and competing products—an intolerable situation for Rockefeller—and often cared more about gouging consumers than expanding markets, he decided to get rid of them.
Furthermore, Standard’s refinery flow was now too huge to depend upon this fragmented, obsolete distribution system. Kerosene demand was booming as it illuminated mills, factories, hotels, and office buildings in the growing cities. To exploit economies of scale, Rockefeller noted, “we had to create selling methods far in advance of what then existed; we had to dispose of two, or three, or four gallons of oil where one had been sold before, and we could not rely upon the usual trade channels t
hen existing to accomplish this.”20 To have high-volume, low-cost production, the Standard needed huge guaranteed sales. This forced Rockefeller to integrate vertically the entire industry, controlling everything from the wellhead to the consumer.
Around 1882, in a revolutionary development, the trust began to sweep away the old distribution system, with its horse-drawn carts full of swaying barrels, and disburse millions of dollars to build thousands of tank wagons to service every American town. Rockefeller hailed the efficient new system: “I believe it one of our best means for getting and holding the trade.”21 It worked thus: Standard’s tank cars or pipelines delivered refined oil to storage tanks, where the tank wagons were filled up. From here, the wagons set out for local groceries and hardware stores—the principal retail outlets—where they replenished special canisters that the trust provided. Sometimes, over the furious opposition of storekeepers, tank wagons even went door-to-door, selling directly to households and putting Standard smack in the retail trade. (In some places, the trust manipulated local retailers by saying that they would refrain from this practice if storekeepers dealt exclusively in Standard kerosene.) The combine also sold, almost at cost, heaters, stoves, lamps, and lanterns to widen the market; in the manner of a modern corporation, Standard Oil created demand as well as satisfied it, and its obliging agents helped consumers clean lamps and burners to enhance their use.