Standard Oil

IN 1859, WITH $1,000 in savings and a $1,000 loan from his father, Cleveland, Ohio, resident John D. Rockefeller formed a partnership with Maurice B. Clark and became a commission merchant, a go-between who received a percentage of commission on each sale. During the Civil War, Rockefeller prospered from the generous prices the U.S. government paid him, and he used the profits from that business as well as credit to finance his entry into the oil business. In 1863, Rockefeller and his partners founded Rockefeller, Andrew & Flagler. When the partnership split, Rockefeller and Andrews bought out the other partners (by then, three) for $72,500.

By 1868 this oil-refining business was the world's largest, and in 1870 Rockefeller created Standard Oil Company of Ohio, capitalized at $1 million, which began integrating horizontally by buying out the competition, consolidating all oil refining into Standard Oil. Eight years later, the company owned approximately 90 percent of the United States' oil-refining capacity.

Standard bought virtually all the refineries in Cleveland as well as two in New York City. It established its own barrel-making shop to handle the 29,000 barrels of crude it produced each day. It built storage tanks capable of holding several hundred thousand barrels, warehouses for its refined product, and facilities for the manufacture of finished products such as glue and paint. In 1882, Standard consolidated all the businesses into the Standard Oil Trust, capitalized at $70 million, with 42 owners. The next step was to control the entire business through vertical integration, from the well to the kerosene lantern that used much of Standard's oil.

When the Ohio courts dissolved the company after a decade, the companies of the trust formed Standard Oil Company of New Jersey, taking advantage of state law that allowed holding companies, parent companies that held stock in other companies. Although divested of some of its holdings, Standard retained a petroleum market share of 75 percent.

Standard Oil engaged in dubious business practices. Its cutthroat methods and favored treatment in deals with the railroads allowed it to undercut competitors, eventually expanding its control of refining into a stranglehold on the pre-Spindletop oil business. Standard monopolized resources to the extent of buying all components needed for barrels to prevent the competition from making the barrels that they needed to market their products. Rockefeller also undercut the prices of smaller companies, taking a short term loss until the smaller companies either sold out to Standard or went out of business. The company also coerced rebates from railroads by threatening to take its immense business elsewhere. When all else failed, Rockefeller hired goons to break up uncooperative operators' businesses. Standard also opposed organized labor.