Your continued donations help Wikipedia grow and improve!    

Standard Oil

From Wikipedia, the free encyclopedia

Jump to: navigation, search
Standard Oil Refinery No. 1 in Cleveland, Ohio, 1899
Enlarge
Standard Oil Refinery No. 1 in Cleveland, Ohio, 1899

Standard Oil (1870 - 1911) was a large integrated oil producing, transporting, refining, and marketing organization. It began as an Ohio partnership formed by John D. Rockefeller, his brother William Rockefeller, Henry Flagler, chemist Samuel Andrews, and a silent partner Stephen V. Harkness. Using highly effective and widely-criticized tactics, Standard Oil absorbed or destroyed most of its competition in Cleveland, then throughout the Northeastern United States. In response to state laws attempting to limit the scale of companies, Rockefeller and his partners had to develop innovative ways of organizing so that they could effectively manage their increasingly giant enterprise. In 1882, they combined their disparate companies spread across dozens of states under a single group of trustees. This organization proved so successful that other giant enterprises adopted this "trust" form. At the same time, state and federal laws sought to counter this development with "anti-trust" laws. Ohio successfully sued Standard Oil, compelling the dissolution of the trust in 1892. Standard Oil fought this decree, in essence separating off only Standard Oil of Ohio without reliquishing control of that company. Eventually, New Jersey changed its incorporation laws to allow a single company to hold shares in other companies in any state. Thus, in 1899, the Standard Oil Trust was legally reborn as a holding company.

Eventually, the US Justice Department sued Standard Oil of New Jersey under the federal anti-trust law, the Sherman Act of 1890. In 1911, the Supreme Court upheld the lower court judgment, and forced Standard Oil to separate into 34 companies, each with their own, distinct board of directors. Standard's president, John D. Rockefeller had, by then, long since retired from any management role and became simply a shareholder in each of the new companies. They formed the core of today's U.S. oil industry, including ExxonMobil (formerly Standard of New Jersey and Standard of New York), Conoco-Phillips (the Conoco side, which was Standard's company in the Rocky Mountain states), Chevron (Standard of California), Amoco and Sohio (Standard of Indiana and Standard of Ohio, respectively, now BP of North America), and many other smaller companies.

Contents

Origins

Oil was first struck in Titusville, Pennsylvania, which began the first oil rush. The main product of the oil business was kerosene, which was rapidly supplanting whale oil as the choice fluid for oil lamps due to its lower cost. However, the cost and quality of kerosene at that time varied greatly based on the way it was refined. In 1863, British chemist Samuel Andrews had developed a superior method of refining oil into kerosene and was looking for investors to set up a refinery. He found an investor in John D. Rockefeller. In 1865, Rockefeller was so confident of the growth of the oil business that he purchased additional refining capacity and formally partnered with Andrews to form Rockefeller and Andrews. Soon afterward, Cleveland became one of five major refining areas (along with Pittsburgh, Philadelphia, New York, and the region in Northeastern Pennsylvania were most of the oil was produced). At about the same time Rockefeller's brother, William, started another refinery. In 1867 Rockefeller & Andrews absorbed this business and the business of Henry Morrison Flagler to form the partnership of Rockefeller, Andrews & Flagler.

Cleveland with its port on Lake Erie and service by the three major railroads of the day was a logical center for oil refining. Standard sought to leverage this advantage with favorable rates from the competing railroads, using that advantage to underprice the competition and buy out its weakest rivals. Given their low prices and superior "standardized" product, Standard steadily grew its market share. The larger it grew, the more power they had, and exercised, over their suppliers, including the oil producers and railroads, to get better deals. By the early 1870s, Standard was so dominant that even well-run rivals could no longer effectively compete. In 1874, Rockefeller acquired the oil interests of Charles Pratt and Company, one such competitor with both superior management and product, but without the economies of scale Standard had been able to achieve. The founder Charles Pratt (1830-1891) and his protégé Henry Huttleston Rogers (1840-1909) became directors in Standard Oil. In 1882, when the company was reorganized as the Standard Oil Trust, the senior partners were John D. Rockefeller, his brother William, and Rogers.

Monopoly

By 1890, Standard Oil controlled over 90% of the refined oil flows in the United States. Though conspicuous, it made John D. Rockefeller the wealthiest man in the world. It was at this time that Standard Oil of Ohio moved its headquarters out of Cleveland and into its permanent headquarters at 26 Broadway in New York City.

Concurrently, the trustees of Standard Oil of Ohio chartered the Standard Oil Company of New Jersey in order to take advantages of New Jersey's more lenient corporate stock ownership laws. Standard Oil of New Jersey eventually became one of many important trusts that dominated key markets, such as steel and the railroad. Also in 1890, Congress passed the Sherman Antitrust Act -- the source of all American anti-monopoly laws. The law forbade every contract, scheme, deal, or conspiracy to restrain trade, though the phrase "restrain trade" remains open to interpretation. Standard Oil Trust quickly attracted attention from antitrust authorities and the Ohio Attorney General filed and won an antitrust suit in 1892.

Standard Oil's quasi-monopolistic position had been established through aggressively anti-competitive business practices, including a systematic program of purchasing competitors or running them out of business by any means necessary, legal or otherwise. Most controversially of all, Rockefeller secretly arranged illegal volume-discount transportation deals with the railroad companies, in order to ensure that it could substantially undercut its smaller competitors' prices. Rockefeller also used his enormous influence with the railroad companies to prevent his competitors from gaining access to other rail services.

In one of the most infamous examples of Standard's monopolistic practices, a rival oil association decided to build an oil pipeline, hoping to overcome the virtual boycott imposed on Standard's competitors. In response, the railroad company (at Rockefeller's direction) denied the consortium permission to run the pipeline across railway land, forcing consortium staff to laboriously decant the oil into barrels, carry them over the railway crossing in carts, and then pump the oil manually back into the pipeline on the other side. When he learned of this tactic, Rockefeller then instructed the railway company to park empty rail cars across the line, thereby preventing the carts from crossing the line. Actual photographs of this incident are included in the PBS TV adaptation of Daniel Yergin's award-winning history of the oil industry, The Prize.

Standard's monopolistic actions and secret transport deals helped its kerosene to drop in price from 58 to 26 cents between 1865 and 1870. Competitors might not have appreciated the company's business practices, but consumers appreciated the drop in prices. Standard Oil, being formed well before the discovery of the Spindletop oil field and a demand for oil other than for heat and light, was well placed to control the growth of the oil business. The company was perceived to own and control all aspects of the trade. Oil could not leave the oil field unless Standard Oil agreed to move it: the "posted price" for oil was the price that Standard Oil agents printed on flyers that were nailed to posts in oil producing areas, and producers were in a take-it-or-leave-it position.

Then came Ida M. Tarbell, an American author and journalist, and one of the original "muckrakers". Her father was an oil producer whose business had failed due to Rockefeller's business dealings. Following extensive interviews with a sympathetic senior executive of Standard Oil, Henry H. Rogers, Tarbell's investigations of Standard Oil fuelled growing public attacks on Standard Oil and on trusts in general. Her work was first published in nineteen parts in McClure's magazine, from November 1902 to October 1904, in which year it was published in book form as The History of the Standard Oil Company. Tarbell's investigation is seen as hastening the breakup of Standard Oil, in 1911 and her report for McClure's is now regarded as one of the cornerstone works of investigative journalism.

The antitrust breakup

As the public became more aware of the Standard Oil trust in allowing its oil companies in different states to be headed by the same board of directors, there was more public support in calling for its dissolution. Eventually, the company was broken up after the United States Supreme Court declared the trust to be an "unreasonable" monopoly under the Sherman Antitrust Act. Thus, on May 15, 1911, though Standard Oil's share of the market had been steadily declining from 1900 to 1910 (Standard's share of oil refining was 64% at the time of the trial and in competition with over 100 other refiners), the Supreme Court of the United States ordered the dissolution of Standard Oil Company into 34 smaller companies, each with their own board of directors. John D. Rockefeller in 1897 had completely retired from the Standard Oil Company of New Jersey, though he continued to own a large fraction of its shares.

Successors

Successor companies to Standard Oil include:

Other Standard Oils:

See also

References

  • Chernow, Ron. Titan: The Life of John D. Rockefeller, Sr. (2004)
  • Hidy, Ralph W. and Muriel E. Hidy. Pioneering in Big Business, 1882-1911: History of Standard Oil Company (New Jersey) (1955), the standard history
  • Knowlton, Evelyn H. and George S. Gibb. History of Standard Oil Company: Resurgent Years 1911-1927 (1956), the standard history
  • Latham, Earl ed. John D. Rockefeller: Robber Baron or Industrial Statesman? (1949). Primary and secondary sources
  • Nevins, Allan. Study in power: John D. Rockefeller, industrialist and philanthropist (1954). There are numerous editions and versions of this famous biography.
  • Nowell, Gregory P. (1994). Mercantile States and the World Oil Cartel, 1900-1939, Cornell University Press. ISBN 0801428785.
  • Tarbell, Ida M. The History of the Standard Oil Company (1904), There are numerous editions and abridgements of this famous muckraking book.
  • Williamson, Harold F. and Arnold R. Daum. The American Petroleum Industry: The Age of Illumination, 1859-1899 (1959) also: vol 2, American Petroleum Industry: the Age of Energy 1899-1959 (1964)
  • Droz, R.V. (2004). Whatever Happened to Standard Oil?. Retrieved June 25, 2005.
  • Standard Oil Company of California (1980). Whatever happened to Standard Oil?. Retrieved June 25, 2005.

External links

Personal tools