14
Ida M. Tarbell

Excerpt from The History of the Standard Oil Company
Originally published in 1904; available at Rochester History Resources (Web site)

"There were … twenty-six refineries in the town—some of them very large plants. All of them were feeling more or less the discouraging effects of the last three or four years of railroad discriminations in favour of the Standard Oil Company. To … these refineries Mr. Rockefeller … told them, 'this scheme is bound to work. It means an absolute control by us of the oil business. There is no chance for anyone outside. But we are going to give everybody a chance to come in. You are to turn over your refinery to my appraisers, and I will give you Standard Oil Company stock or cash, as you prefer, for the value we put upon it. I advise you to take the stock. It will be for your good."'

As America entered the Gilded Age (approximately 1878–99), a new breed of businessmen appeared. These men gained unimaginable amounts of wealth at the expense of America's working class. They ran their companies without a sense of honesty and with an eye always on profit. It was common knowledge that these businessmen—called robber barons—were unethical and conducted their business in questionable and sometimes obviously illegal ways. The powerful robber baron became a symbol of America's Industrial Revolution (1877–1900), the era when America's economy came to depend upon industry rather than agriculture.

Only a handful of men were considered robber barons in the Gilded Age. Although their numbers were few, they gained and controlled the largest percentage of the country's wealth at that time. John D. Rockefeller (1839–1937) was not the first robber baron, but he is often considered the perfect example of one. Rockefeller established the Standard Oil Company and America's petroleum (gasoline) industry.

Rockefeller built his first oil refinery in 1863. By 1877, he controlled 90 percent of the American oil industry. His business became so large that he found it difficult to manage. Rockefeller's response was to form the first "trust" in 1882. A trust is an organization of several businesses in the same industry. By banding together, the trust can control production and distribution of a product or service, thereby limiting competition.

Trusts cause problems for several reasons. One reason is that a direct result of a trust is a monopoly in which one company or group of companies has control of an entire industry. Standard Oil had a monopoly in the oil industry. Monopolies bring their owners and top-level executives great profit and power, but they prohibit smaller businessmen and companies from making any money at all. Another problem stemming from trusts has to do with capitalism, an economy in which all businesses have an equal opportunity to thrive. Since the basis of capitalism is competition, a monopoly undermines the cornerstone of America's economy.

Although most people knew Rockefeller built his oil empire by exploiting (using to his own advantage) smaller companies and labor, the attitude throughout the Gilded Age was that government should not regulate business. To do so, many believed, would weaken the philosophy underlying capitalism, that competition leads to success for businesses and choices for consumers.

Rockefeller knew America depended on oil for its daily existence. Families and businesses used it to heat their homes and buildings; factories needed it to run their machines. By establishing his trust, Rockefeller forced consumers to pay whatever price he wanted to charge for his oil. America was growing weary of this situation.

Some Americans accepted the situation; others took action. At a time when corruption was infiltrating every aspect of life from politics to big business, a group of journalists made it their job to uncover and publicize that corruption. Pioneers of investigative journalism, these writers were called "muckrakers" (muckraking means digging up dirt). One of the most popular among them was Ida M. Tarbell (1857–1944). Tarbell wrote for the popular magazines of the day, including McClure's, a literary and political journal.

Tarbell began her investigation into the Standard Oil Company in 1902. Her findings and report were published in nineteen parts in McClure's from November 1902 to October 1904. In 1904, she published the entire account in book form under the title The History of the Standard Oil Company.

Tarbell's exposé focused on Rockefeller's involvement with the railroads. By the early 1870s, Cleveland, Ohio, was one of the nation's primary oil refining centers. It was also home to Standard Oil, which was the most profitable refinery in the city. Standard Oil, by nature of its size, had become one of the largest shippers of oil and kerosene, and it depended upon the railroads to move its products across the nation.

With so many new railroad lines, competition was fierce. In an effort to compete, railroads tried to undercut each other by charging lower and lower shipping rates. While this was good for companies that relied upon the railroads, it was devastating to the railroads themselves. Unable to make a profit, the railroads formed a monopoly to stabilize shipping rates. This monopoly was called the South Improvement Company.

The Sherman Antitrust Act

U.S. senator John Sherman (1823–1900) of Ohio introduced the Sherman Antitrust Act in Congress. The Act declared it a federal crime to form trusts and monopolies both within states and when dealing with foreign trade.

The Sherman Act was passed on July 2, 1890. Under it, criminals had to pay just $5,000 and spend one year in prison for breaking the law. Considering that the wealthiest men in America formed the trusts and monopolies, this fine was not enough to keep them from breaking the law. In addition, the government was not inclined to enforce the Act because men like Rockefeller gave large sums of money to political campaigns. It would take the power of President Theodore Roosevelt (1858–1919; served 1901–9), known as the trust-busting president, to enforce the Sherman Act.

The railroads knew they needed support if their monopoly was to work. Rockefeller, being the most wealthy and frequent shipper, was the obvious choice among customers. He agreed to support the South Improvement Company on the condition that he received preferential treatment. This meant he received hefty rebates (refunds) for each shipment he sent, but he was also given rebates for the shipment of competing products. So any other oil or kerosene other than that coming from the Standard refinery that the railroads shipped brought Rockefeller a rebate.

The South Improvement Company announced a steep increase in freight charges, which incurred the wrath of business owners who depended upon the railroads. The protests that followed the announcement brought the situation into the public eye, and it was then that Tarbell discovered (through research and detective work) Rockefeller's involvement in the scheme.

Things to remember while
reading the excerpt from
The History of the
Standard Oil Company

• Women writers of the early twentieth century wrote primarily about social events and domestic or household-related topics. Tarbell was a woman in a field dominated by men, and she was highly respected for her unwavering honesty and assessment. She was one of the highest-paid journalists of her day.
• The South Improvement Company lasted less than one year, but it brought to America's attention undeniable evidence of the corrupt relationship between big business and the railroad industry.
• Even those small businessmen who did not want to become part of the South Improvement Company often sold their business to Rockefeller. They realized that the only other option was to be run out of business entirely.
• Tarbell's father's oil business failed as a direct result of the corrupt business practices of Rockefeller.
• Standard Oil was the largest company in the world during its peak years, and Rockefeller was the wealthiest man in the world for years.

Excerpt from The History of the Standard
Oil Company

Oil had risen to fourth place in the exports of the United States in the twelve years since its discovery, and every year larger quantities were consumed abroad, but it was crude oil, not refined, which the foreigners were beginning to demand; that is, they had found they could import crude, refine it at home, and sell it cheaper than they could buy American refined. France, to encourage her home refineries, had even put a tax on American refined.

In the fall of 1871, while Mr. Rockefeller and his friends were occupied with all these questions, certain Pennsylvania refiners, it is not too certain who, brought to them a remarkable scheme, the gist of which was to bring together secretly a large enough body of refiners and shippers to persuade all the railroads handling oil to give to the company formed special rebates on its oil, and drawbacks on that of other people. If they could get such rates it was evident that those outside of their combination could not compete with them long and that they would become eventually the only refiners. They could then limit their output to actual demand, and so keep up prices. This done, they could easily persuade the railroads to transport no crude for exportation, so that the foreigners would be forced to buy American refined. They believed that the price of oil thus exported could easily be advanced fifty per cent. The control of the refining interests would also enable them to fix their own price on crude. As they would be the only buyers and sellers, the speculative character of the business would be done away with. In short, the scheme they worked out put the entire oil business in their hands. It looked as simple to put into operation as it was dazzling in its results. Mr. [Henry Morrison] Flagler [a wealthy real estate and railroad developer] has sworn that neither he nor Mr. Rockefeller believed in this scheme. But when they found that their friend Peter H. Watson, and various Philadelphia and Pittsburg [sic] parties who felt as they did about the oil business, believed in it, they went in and began at once to work up a company—secretly. It was evident that a scheme which aimed at concentrating in the hands of one company the business now operated by scores, and which proposed to effect this consolidation through a practice of the railroads which was contrary to the spirit of their charters, although freely indulged in, must be worked with fine discretion if it ever were to be effective.

The first thing was to get a charter—quietly. At a meeting held in Philadelphia late in the fall of 1871 a friend of one of the gentlemen interested mentioned to him that a certain estate then in liquidation had a charter for sale which gave its owners the right to carry on any kind of business in any country and in any way; that it could be bought for what it would cost to get a charter under the general laws of the state, and that it would be a favour to the heirs to buy it. The opportunity was promptly taken. The name of the charter bought was the "Southern (usually written South) Improvement Company." For a beginning it was as good a name as another, since it said nothing.

With this charter in hand Mr. Rockefeller and Mr. Watson and their associates began to seek converts. In order that their great scheme might not be injured by premature public discussion they asked of each person whom they approached a pledge of secrecy. Two forms of the pledges required before anything was revealed were published later. The first of these, which appeared in the New York Tribune, read as follows:

I, A. B., do faithfully promise upon my honour and faith as a gentleman that I will keep secret all transactions which I may have with the corporation known as the South Improvement Company; that, should I fail to complete any bargains with the said company, all the preliminary conversations shall be kept strictly private; and, finally, that I will not disclose the price for which I dispose of my product, or any other facts which may in any way bring to light the internal workings or organization of the company. All this I do freely promise. Signed [name]; Witnessed by [name]

A second, published in a history of the "Southern Improvement Company," ran:

The undersigned pledge their solemn words of honour that they will not communicate to any one without permission of Z (name of director of Southern Improvement Company) any information that he may convey to them, or any of them, in relation to the Southern Improvement Company. Signed [name]; Witness [name]

The work of persuasion went on swiftly. By the 18th of January the president of the Pennsylvania road, J. Edgar Thompson, had put his signature to the contract, and soon after Mr. [Cornelius] Vanderbilt and Mr. Clark signed for the Central system, and Jay Gould and General [George] McClellan for the Erie. The contracts to which these gentlemen put their names fixed gross rates of freight from all common points, as the leading shipping points within the Oil Regions were called, to all the great refining and shipping centres—New York, Philadelphia, Baltimore, Pittsburg[h] and Cleveland. For example, the open rate on crude to New York was put at $2.56. On this price the South Improvement Company was allowed a rebate of $1.06 for its shipments; but it got not only this rebate, it was given in cash a like amount on each barrel of crude shipped by parties outside the combination.

The open rate from Cleveland to New York was two dollars, and fifty cents of this was turned over to the South Improvement Company, which at the same time received a rebate enabling it to ship for $1.50. Again, an independent refiner in Cleveland paid eighty cents a barrel to get his crude from the Oil Regions to his works, and the railroad sent forty cents of this money to the South Improvement Company. At the same time it cost the Cleveland refiner in the combination but forty cents to get his crude oil. Like drawbacks and rebates were given for all points-Pittsburg[h], Philadelphia, Boston and Baltimore.

An interesting provision in the contracts was that full waybills of all petroleum shipped over the roads should each day be sent to the South Improvement Company. This, of course, gave them knowledge of just who was doing business outside of their company—of how much business he was doing, and with whom he was doing it. Not only were they to have full knowledge of the business of all shippers—they were to have access to all books of the railroads.

The parties to the contracts agreed that if anybody appeared in the business offering an equal amount of transportation, and having equal facilities for doing business with the South Improvement Company, the railroads might give them equal advantages in drawbacks and rebates, but to make such a miscarriage of the scheme doubly improbable each railroad was bound to co-operate as "far as it legally might to maintain the business of the South Improvement Company against injury by competition, and lower or raise the gross rates of transportation for such times and to such extent as might be necessary to overcome the competition. The rebates and drawbacks to be varied pari passu with the gross rates."

The reason given by the railroads in the contract for granting these extraordinary privileges was that the "magnitude and extent of the business and operations" purposed to be carried on by the South Improvement Company would greatly promote the interest of the railroads and make it desirable for them to encourage their undertaking. The evident advantages received by the railroad were a regular amount of freight,—the Pennsylvania was to have forty-five per cent of the Eastbound shipments, the Erie and Central each 27 ½ per cent., while West-bound freight was to be divided equally between them—fixed rates, and freedom from the system of cutting which they had all found so harassing and disastrous. That is, the South Improvement Company, which was to include the entire refining capacity of the company, was to act as the evener of the oil business .

It was on the second of January, 1872, that the organization of the South Improvement Company was completed. The day before the Standard Oil Company of Cleveland increased its capital from $1,000,000 to $2,500,000, "all the stockholders of the company being present and voting therefore." These stockholders were greater by five than in 1870, the names of O. B. Jennings, Benjamin Brewster, Truman P. Handy, Amasa Stone, and Stillman Witt having been added. The last three were officers and stockholders in one or more of the railroads centring [sic] in Cleveland. Three weeks after this increase of capital Mr. Rockefeller had the charter and contracts of the South Improvement Company in hand, and was ready to see what they would do in helping him carry out his idea of wholesale combination in Cleveland. There were at that time some twenty-six refineries in the town—some of them very large plants. All of them were feeling more or less the discouraging effects of the last three or four years of railroad discriminations in favour of the Standard Oil Company. To the owners of these refineries Mr. Rockefeller now went one by one, and explained the South Improvement Company. "You see," he told them, "this scheme is bound to work. It means an absolute control by us of the oil business. There is no chance for anyone outside. But we are going to give everybody a chance to come in. You are to turn over your refinery to my appraisers, and I will give you Standard Oil Company stock or cash, as you prefer, for the value we put upon it. I advise you to take the stock. It will be for your good." Certain refiners objected. They did not want to sell. They did want to keep and manage their business. Mr. Rockefeller was regretful, but firm. It was useless to resist, he told the hesitating; they would certainly be crushed if they did not accept his offer, and he pointed out in detail, and with gentleness, how beneficent the scheme really was—preventing the creek refiners from destroying Cleveland, ending competition, keeping up the price of refined oil, and eliminating speculation. Really a wonderful contrivance for the good of the oil business.

Under the combined threat and persuasion of the Standard, armed with the South Improvement Company scheme, almost the entire independent oil interest of Cleveland collapsed in three months' time. Of the twenty-six refineries, at least twenty-one sold out.

What happened next …

Although it came too late to help many of the smaller, independent oil businesses, Tarbell's exposé increased public pressure to put an end to Rockefeller's unethical behavior. The public had been aware of the robber baron's basic lack of honesty, but Tarbell's report gave concrete evidence as to Rockefeller's greed and willingness to exploit others. By 1906, anti-Rockefeller sentiment was at its highest, partially because President Roosevelt publicly attacked him as a criminal.

The federal government had seven lawsuits pending against Standard Oil by 1907, claiming it was twenty times bigger than its closest competitor. In 1908, the government launched its biggest suit against Standard Oil, determined to break up the oil trust. It would take three years, but on May 15, 1911, the government ordered Standard Oil to dismantle and separate into thirty-four smaller companies, each with its own board of directors. The trust was broken.

Tarbell continued her career in journalism. In 1999, the New York University Department of Journalism ranked her book on Standard Oil fifth on a list of the top one hundred works of journalism. A commemorative stamp with her photo on it was issued by the U.S. Post Office in 2002.

Did you know …

• By the time the Standard Oil Company was ordered to dismantle, John D. Rockefeller had already been retired for fourteen years.
• Rockefeller was seen as a contradiction. Although he was a dishonest and greedy businessman, he was a deeply religious man who donated millions of dollars to charitable causes.
• Antitrust legislation is still in effect in the twenty-first century. The largest antitrust lawsuit of the twentieth century was brought against the computer company Microsoft by the federal government. After two years of litigation, the company was found guilty of violating the Sherman Act. Eventually, Microsoft was ordered to share its computer interfaces with third-party companies (such as those who sell computers). The government appealed the settlement. As of 2006, no final decision had been made.
• Oil companies in the twenty-first century that grew out of Standard Oil include Mobil, Amoco, Conoco, and BP.

Consider the following …

• You are John D. Rockefeller's teenage child. You know that your father is dishonest and engages in criminal activity, but you live a life of luxury and privilege because of his money. You enjoy the wealth, but you are not comfortable with how your father makes his money. What would you do?
• What are some modern, powerful companies or business people whose success you know is the result of corruption?
• Can you name three instances in your lifetime when a major political or social scandal has been uncovered by investigative journalists?

For More Information

BOOKS

Coffey, Ellen Greenman. John D. Rockefeller: Richest Man Ever. San Diego: Blackbirch Press, 2001.

Segall, Grant. John D. Rockefeller: Anointed with Oil. New York: Oxford University Press, 2001.

Somervill, Barbara A. Ida Tarbell: Pioneer Investigative Reporter. Greensboro, NC: M. Reynolds, 2002.

Tarbell, Ida M. The History of the Standard Oil Company. New York: McClure, Phillips & and Co., 1904. Reprint, New York: Harper & Row, 1966. Also available online at Rochester History Resources.http://www.history.rochester.edu/fuels/tarbell/MAIN.HTM (accessed on August 14, 2006).

WEB SITES

"Standard Oil Trust." U-S-History.com.http://www.u-s-history.com/pages/h1804.html (accessed on August 14, 2006).

Tarbell, Ida M. "John D. Rockefeller: A Character Study." Allegheny College.http://tarbell.allegheny.edu/archives/jdr.html (accessed on August 14, 2006).

"Whatever Happened to Standard Oil?" U.S. Highways: From US 1 to (US 830).http://www.us-highways.com/sohist.htm (accessed on August 14, 2006).

Crude:

Raw.

Refined:

Processed to remove impurities.

Gist:

Idea.

Special rebates:

Monetary refunds.

Drawbacks on that of other people:

Specific, per-barrel monetary refunds for oil shipped by other companies.

Speculative:

Uncertain.

Consolidation:

Combination.

Charters:

Documents incorporating an institution and listing its rights.

Liquidation:

The process of turning property and assets into money.

Heirs:

Descendents of a deceased person.

Converts:

Businessmen who would join their company.

Waybills:

Documents identifying the handling and accounting of the shipment of freight.

Pari passu:

Equally.

Evener of the oil business:

The company that would ensure fairness.

Contrivance:

Deceitful scheme.