JOHN D. ROCKEFELLER'S FIRST CONNECTION WITH THE OIL BUSINESS- STORIES OF HIS EARLY LIFE IN CLEVELAND-HIS FIRST PARTNERS- ORGANISATION OF THE STANDARD OIL COMPANY IN JUNE, I870-ROCKEFELLER'S ABLE ASSOCIATES-FIRST EVIDENCE OF RAILWAY DISCRIMINATIONS IN THE OIL BUSINESS-REBATES FOUND TO BE GENERALLY GIVEN TO LARGE SHIPPERS-FIRST PLAN FOR A SECRET COMBINATION-THE SOUTH IMPROVEMENT COMPANY-SECRET CONTRACTS MADE WITH THE RAILROADS PROVIDING REBATES AND DRAWBACKS-ROCKEFELLER AND ASSOCIATES FORCE CLEVELAND REFINERS TO JOIN THE NEW COMBINATION OR SELL-RUMOUR OF THE PLAN REACHES THE OIL REGIONS.
THE chief refining competitor of Oil Creek in 1872 was Cleveland, Ohio. Since 1869 that city had done annually more refining than any other place in the country. Strung along the banks of Walworth and Kingsbury Runs, the creeks to which the city frequently banishes her heavy and evil-smelling burdens, there had been since the early sixties from twenty to thirty oil refineries. Why they were there, more than 200 miles from the spot where the oil was taken from the earth, a glance at a map of the railroads of the time will show: By rail and water Cleveland commanded the entire Western market. It had two trunk lines running to New York, both eager for oil traffic, and by Lake Erie and the canal it had for a large part of the year a splendid cheap waterway. Thus, at the opening of the oil business, Cleveland was destined by geographical position to be a refining center.
Men saw it, and hastened to take advantage of the opportunity. There was grave risk.
The oil supply might not hold
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out. As yet there was no certain market for refined oil. But a sure result was not what drew people into the oil business in the early sixties. Fortune was running fleet-footed across the country, and at her garment men clutched. They loved the chase almost as they did success, and so many a man in Cleveland tried his luck in an oil refinery, as hundreds on Oil Creek were trying it in an oil lease. By 1865 there were thirty refineries in the town, with a capital of about a million and a half dollars and a daily capacity of some 2,000 barrels. The works multiplied rapidly. The report Of the Cleveland Board of Trade for 1866 gives the number of plants at the end of that year as fifty, and it dilates eloquently on the advantages of Cleveland as a refining point over even Pittsburg, to that time supposed to be the natural centre for the business. If the railroad and lake transportation men would but adopt as liberal a policy toward the oil freights of Cleveland as the Pennsylvania Railroad was adopting toward that of Pittsburg, aided by her natural advantages the town was bound to become the greatest oil refining centre in the United States. By 1868 the Board of Trade reported joyfully that Cleveland was receiving within 300,000 barrels as much oil as Pittsburg. In 1869 she surpassed all competitors. "Cleveland now claims the leading position among the manufacturers of petroleum with a very reasonable prospect of holding that rank for some time to come," commented the Board of Trade report. "Each year has seen greater consolidation of capital, greater energy and success in prosecuting the business, and, notwithstanding some disastrous fires, a stronger determination to establish an immovable reputation for the quantity and quality of this most important product. The total capital invested in this business is not less than four millions of dollars and the total product of the year would not fall short of fifteen millions.
Among the many young men of Cleveland who, from the
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start, had an eye on the oil-refining business and had begun to take an active part in its development as soon as it was demonstrated that there was a reasonable hope of its being permanent, was a young firm of produce commission merchants. Both members of this firm were keen business men, and one of them had remarkable commercial vision-a genius for seeing the possibilities in material things. This man's name was Rockefeller-John D. Rockefeller. He was but twenty-three years old when he first went into the oil business, but he had already got his feet firmly on the business ladder, and had got them there by his own efforts. The habit of driving good bargains and of saving money had started him. He himself once told how he learned these lessons so useful in money-making, in one of his frequent Sunday-school talks to young men on success in business. The value of a good bargain he learned in buying cord-wood for his father: "I knew what a cord of good solid beech and maple wood was. My father told me to select only the solid wood and the straight wood and not to put any limbs in it or any punky wood. That was a good training for me. I did not need any father to tell me or anybody else how many feet it took to make a cord of wood."
And here is how he learned the value of investing money:
"Among the early experiences that were helpful to me that I recollect with pleasure was one in working a few days for a neighbour in digging potatoes-a very enterprising, thrifty farmer, who could dig a great many potatoes. I was a boy of perhaps thirteen or fourteen years of age, and it kept me very busy from morning until night. It was a ten-hour day. And as I was saving these little sums I soon learned that I could get as much interest for fifty dollars loaned at seven per cent. -the legal rate in the state of New York at that time for a year-as I could earn by digging potatoes for 100 days. The impression was gaining ground with me that it was a
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Follow the link for a picture of John D. Rockefeller in 1872
THE RISE OF THE STANDARD OIL COMPANY
good thing to let the money be my slave and not make myself a slave to money." Here we have the foundation principles of a great financial career.
When young Rockefeller was thirteen years old, his father moved from the farm in Central New York, where the boy had been born (July 8, 1839), to a farm near Cleveland, Ohio. He went to school in Cleveland for three years. In 1855 it became necessary for him to earn his own living. It was a hard year in the West and the boy walked the streets for days looking for work. He was about to give it up and go to the country when, to quote the story as Mr. Rockefeller once told it to his Cleveland Sunday-school, "As good fortune would have it I went down to the dock and made one more application, and I was told that if I would come in after dinner-our noon-day meal was dinner in those days-they would see if I could come to work for them. I went down after dinner and I got the position, and I was permitted to remain in the city." The position, that of a clerk and bookkeeper, was not lucrative. According to a small ledger which has figured frequently in Mr. Rockefeller's religious instructions, he earned from September 26, 1855, to January, 1856, fifty dollars. "Out of that," Mr. Rockefeller told the young men of his Sunday-school class, "I paid my washerwoman and the lady I boarded with, and I saved a little money to put away.
He proved an admirable accountant-one of the early-and-late sort, who saw everything, forgot nothing and never talked. In 1856 his salary was raised to twenty-five dollars a month, and he went on always "saving a little money to put away." In 1858 came a chance to invest his savings. Among his acquaintances was a young Englishman, M. B. Clark. Older by twelve years than Rockefeller he had left a hard life in England when he was twenty to seek fortune in America. He had landed in Boston in 1847, without a penny or a friend, and it had taken three months for him to earn money to get
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to Ohio. Here he had taken the first job at hand, as man-of all-work, wood-chopper, teamster. He had found his way to Cleveland, had become a valuable man in the houses where he was employed, had gone to school at nights, had saved money. They were two of a kind, Clark and Rockefeller, and in 1858 they pooled their earnings and started a produce com
Boby Freak, cabinet maker, bds 17 Johnson
Fragment of a page in the city directory of Clevdand, Ohio, for 1857. This is the first year in which the name John D. Rockefeller appears in the directory. The same entry is made in 1858. The nest year, 1859, Mr. Rockefeller is entered as a member of the firm of Clark and Rockefeller.
ROBY E. W. & CO. (Edward W.. Roby and*William H.
Keitb), wood and coal, C. &: P. R. R. Coal Pier, an
d
Merwin n Columbus St. Bridge
Rechert Conrad, h 175 St Cair
Rock John, bat keeper. bds 11 Public Square
ROCKAFELLOW JOHN J.Coal, C.& P.R.R. Coal Pier,
h 183 Prospect
Rockefeller John D., , book-keeper, h 35 Cedar
Rockefeller William, physician, h 35 Cedar av
Rockett Morris, rectifier, h 182 St Clair
Rockwell Edwards, Sec. C.& P.R.R., bds Weddell Housa
e
mission business on the Cleveland docks. The venture succeeded. Local historians credit Clark and Rockefeller with doing a business of $450,000 the first year. The war came on, and as neither partner went to the front, they had full chance to take advantage of the opportunity for produce business a great army gives. A greater chance than furnishing army supplies, lucrative as most people found that, was in the oil business (so Clark and Rockefeller began to think), and in 1862, when an Englishman of ability and energy, one Samuel Andrews, asked them to back him in starting a refinery, they put in $4,000 and promised to give more if necessary. Now Andrews was a mechanical genius. He devised new processes, made a better and better quality of oil, got larger and larger percentages of refined from his crude. The little refinery grew big, and Clark and Rockefeller soon had $100,000 or more in it. In the meantime Cleveland was growing as a refining
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centre. The business which in 1860 had been a gamble was by 1865 one of the most promising industries of the town. It was but the beginning-so Mr. Rockefeller thought-and in that year he sold out his share of the commission business and put his money into the oil firm of Rockefeller and Andrews.
In the new firm Andrews attended to the manufacturing. The pushing of the business, the buying and the selling, fell to Rockefeller. From the start his effect was tremendous. He had the frugal man's hatred of waste and disorder, of middlemen and unnecessary manipulation, and he began a vigorous elimination of these from his business. The residuum that other refineries let run into the ground, he sold. Old iron found its way to the junk shop. He bought his oil directly from the wells. He made his own barrels. He watched and saved and contrived. The ability with which he made the smallest bargain furnishes topics to Cleveland story-tellers to-day. Low-voiced, soft-footed, humble, knowing every point in every man's business, he never tired until he got his wares at the lowest possible figure. "John always got the best of the bargain," old men tell you in Cleveland to-day, and they wince though they laugh in telling it. "Smooth," "a savy fellow," is their description of him. To drive a good bargain was the joy of his life. "The only time I ever saw John Rockefeller enthusiastic,:" a man told the writer once, "was when a report came in from the creek that his buyer had secured a cargo of oil at a figure much below the market price. He bounded from his chair with a shout of joy, danced up and down, hugged me, threw up his hat, acted so like a madman that I have never forgotten it."
He could borrow as well as bargain. The firm's capital was limited; growing as
they were, they often needed money, and had none. Borrow they must. Rarely if ever did Mr. Rockefeller fail. There is a story handed down in Cleveland from
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the days of Clark and Rockefeller, produce merchants, which is illustrative of his methods. One day a well-known and rich business man stepped into the office and asked for Mr. Rockefeller. He was out, and Clark met the visitor. "Mr. Clark," he said, "you may tell Mr. Rockefeller, when he comes in, that I think I can use the $10,000 he wants to invest with me for your firm. I have thought it all over."
"Good God" cried Clark, "we don't want to invest $10,000. John is out right now trying to borrow $5,000 for us."
It turned out that to prepare him for a proposition to borrow $5,000 Mr. Rockefeller had told the gentleman that he and Clark wanted to invest $10,000 !
"And the joke of it is," said Clark, who used to tell the story, "John got-the $5,000 even after I had let the cat out of the bag. Oh, he was the greatest borrower you ever saw !"
These qualities told. The firm grew as rapidly as the oil business of the town, and started a second refinery-William A. Rockefeller and Company. They took in a partner, H. M. Flagler, and opened a house in New York for selling oil. Of all these concerns John D. Rockefeller was the head. Finally, in June, 1870, five years after he became an active partner in the refining business, Mr. Rockefeller combined all his companies into one-the Standard Oil Company. The capital of the new concern was $1,000,000. The parties interested in it were John D. Rockefeller, Henry M. Flagler, Samuel Andrews, Stephen V. Harkness, and William Rockefeller.*
The strides the firm of Rockefeller and Andrews made after the former went into it were attributed for three or four years mainly to his extraordinary capacity for bargaining and borrowing. Then its chief competitors began to suspect something. John Rockefeller might get his oil cheaper now and
* See Appendix, Number 2. First act of incorporation of the Standard Oil Company.
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then, they said, but he could not do it often. He might make close contracts for which they had neither the patience nor the stomach. He might have an unusual mechanical and practical genius in his partner. But these things could not
Follow the link for a picture of North Wester Pennsylvania, showing the relation of the Oil Regions to the railroads in 1859, when oil was discovered.
explain all. They believed they bought, on the whole, almost as cheaply as he, and they knew they made as good oil and with as great, or nearly as great, economy. He could sell at
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no better price than they. Where was his advantage? There was but one place where it could be, and that was in transportation. He must be getting better rates from the railroads than they were. In 1868 or 1869 a member of a rival firm long in the business, which had been prosperous from the start, and which prided itself on its methods, its economy and its energy, Alexander, Scofield and Company, went to the Atlantic and Great Western road, then under the Erie management, and complained. "You are giving others better rates than you are us," said Mr. Alexander, the representative of the firm. "We cannot compete if you do that." The railroad agent did not attempt to deny it-he simply agreed to give Mr. Alexander a rebate also. The arrangement was interesting. Mr. Alexander was to pay the open, or regular, rate on oil from the Oil Regions to Cleveland, which was then forty cents a barrel. At the end of each month he was to send to the railroad vouchers for the amount of oil shipped and paid for at forty cents, and was to get back from the railroad, in money, fifteen cents on each barrel. This concession applied only to oil brought from the wells. He was never able to get a rebate on oil shipped eastward.* According to Mr. Alexander, the Atlantic and Great Western gave the rebates on oil from the Oil Regions to Cleveland up to 1871 and the system was then discontinued. Late in 1871, however, the firm for the first time got a rebate on the Lake Shore road on oil brought from the field.
Another Cleveland man, W. H. Doane, engaged in shipping crude oil, began to suspect about the same time as Mr. Alexander that the Standard was receiving rebates. Now Mr. Doane had always been opposed to the "drawback business," but it was impossible for him to supply his customers with crude oil at as low a rate as the Standard paid if it received a
* Testimony of Mr. Alexander before the Committee of Commerce of the United States House of Representatives, April, 1872.
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rebate and he did not, and when it was first generally rumoured in Cleveland that the railroads were favouring Mr. Rockefeller he went to see the agent of the road. "I told him I did not want any drawback, unless others were getting it; I wanted it if they were getting it, and he gave me at that time ten cents drawback." This arrangement Mr. Doane said had lasted but a short time. At the date he was speaking-the spring of 1872-he had had no drawback for two years.
A still more important bit of testimony as to the time when rebates first began to be given to the Cleveland refiners and as to who first got them and why, is contained in an affidavit made in 1880 by the very man who made the discrimination.* This man was General J. H. Devereux, who in 1868 Succeeded Amasa Stone as vice-president of the Lake Shore Railroad. General Devereux said that his experience with the oil traffic had begun with his connection with the Lake Shore; that the only written memoranda concerning oil which he found in his office on entering his new position was a book in which it was stated that the representatives of the twenty-five oil-refining firms in Cleveland had agreed to pay a cent a gallon on crude oil removed from the Oil Regions. General Devereux says that he soon found there was a deal of trouble in store for him over oil freight. The competition between the twenty-five firms was close, the Pennsylvania was "claiming a patent right" on the transportation of oil and was putting forth every effort to make Pittsburg and Philadelphia the chief refining centres. Oil Creek was boasting that it was going to be the future refining point for the world. All of this looked bad for what General Devereux speaks of as the "then very limited refining capacity of Cleveland." This remark shows how new he was to the business, for, as we have
* See Appendix, Number 3. Affidavit of James H. Devereux. At the time General Devereux made this affidavit, 1880, he was president of the New York, Pennsylvania
and Ohio Railroad.
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already seen, Cleveland in 1868 had anything but a limited refining capacity. Between three and four million dollars were invested in oil refineries, and the town was receiving within 35,000 barrels of as much oil as New York City, and within 300,000 as much as Pittsburg, and it was boasting that the next year it would outstrip these competitors, which, as a matter of fact, it did.
The natural point for General Devereux to consider, of course, was whether he could meet the rates the Pennsylvania were giving and increase the oil freight for the Lake Shore. The road had a branch running to Franklin, Pennsylvania, within a few miles of Oil City. This he completed, and then, as he says in his affidavit, "a sharper contest than ever was produced growing out of the opposition of the Pennsylvania Railroad in competition. Such rates and arrangements were made by the Pennsylvania Railroad that it was publicly proclaimed in the public print in Oil City, Titusville and other places that Cleveland was to be wiped out as a refining centre as with a sponge." General Devereux goes on to say that all the refiners of the town, without exception, came to him in alarm, and expressed their fears that they would have either to abandon their business there or move to Titusville or other points in the Oil Regions; that the only exception to this decision was that offered by Rockefeller, Andrews and Flagler, who, on his assurance that the Lake Shore Railroad could and would handle oil as cheaply as the Pennsylvania Company, proposed to stand their ground at Cleveland and fight it out on that line. And so General Devereux gave the Standard the rebate on the rate which Amasa Stone had made with all the refiners. Why-he should not have quieted the fears of the twenty-four or twenty-five other refiners by lowering their rate, too, does not appear in the affidavit. At all events the rebate had come, and, as we have seen, it soon was suspected and others went after it, and in some cases got it. But the
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rebate seems to have been granted generally only on oil brought from the Oil Regions. Mr. Alexander claims he was never able to get his rate lowered on his Eastern shipments The railroad took the position with him that if he could ship as much oil as the Standard he could have as low a rate, but not otherwise. Now in 1870 the Standard Oil Company had a daily capacity of about 1,500 barrels of crude. The refinery was the largest in the town, though it had some close competitors. Nevertheless on the strength of its large capacity it received the special favour. It was a plausible way to get around the theory generally held then, as now, though not so definitely crystallised into law, that the railroad being a common carrier had no right to discriminate between its patrons. It remained to be seen whether the practice would be accepted by Mr. Rockefeller's competitors without a contest, or, if contested, would be supported by the law.
What the Standard's rebate on Eastern shipments was in 1870 it is impossible to say. Mr. Alexander says he was never able to get a rate lower than $1.33 a barrel by rail, and that it was commonly believed in Cleveland that the Standard had a rate of ninety cents. Mr. Flagler, however, the only member of the firm who has been examined under oath on that point, showed, by presenting :the contract of the Standard Oil Company with the Lake Shore road in 1870, that the rates varied during the year from $I.40 to $I.20 and $I.60, according to the season. When Mr. Flagler was asked if there was no drawback or rebate on this rate he answered, "None whatever." -
It would seem from the above as if the one man in the Cleveland oil trade in 1870 who ought to have been satisfied was Mr. Rockefeller. His was the largest firm in the largest refining centre of the country; that is, of the 10,000 to 12,000 daily capacity divided among the twenty-five or twenty-six refiners of Cleveland he controlled 1,500 barrels. Not only was
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Cleveland the largest refining centre in the country, it was gaining rapidly, for where in 1868 it shipped 776,356 barrels of refined oil, in 1869 it shipped 923,933, in l870 l,459,500 and in 1871 1,640,499.* Not only did Mr. Rockefeller control the largest firm in this most prosperous centre of a prosperous business, he controlled one of amazing efficiency. The combination, in 1870, of the various companies with which he was connected had brought together a group of remarkable men. Samuel Andrews, by all accounts, was the ablest mechan ical superintendent in Cleveland. William Rockefeller, the brother of John D. Rockefeller, was not only an energetic and intelligent business man, he was a man whom people liked. He was open-hearted, jolly, a good story-teller, a man who knew and liked a good horse-not too pious, as some of John's business associates thought him, not a man to suspect or fear, as many a man did John. Old oil men will tell you on the creek to-day how much they liked him in the days when he used to come to Oil City buying oil for the Cleveland firm. The personal quality of William Rockefeller was, and always has been, a strong asset of the Stand ard Oil Company. Probably the strongest man in the firm after John D. Rockefeller was Henry M. Flagler. He was, like the others, a young man, and one who, like the head of the firm, had the passion for money, and in a hard self supporting experience, begun when but a boy, had learned, as well his chief, some of the principles of making it. He was untiring in his efforts to increase the business, quick to see an advantage, as quick to take it. He had no scruples to make him hesitate over the ethical quality of a contract which was advantageous. Success, that is, making money, was its own justification. He was not a secretive man, like John D. Rocke feller, not a dreamer, but he could keep his mouth shut when necessary and he knew the worth of a financial dream when
* Report for 1871 of the Cleveland Board of Trade.
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it was laid before him. It must have been evident to every business man who came in contact with the young Standard Oil Company that it would go far. The firm itself must have known it would go far. Indeed nothing could have stopped the Standard Oil Company in 1870-the oil business being what it was-but an entire change in the nature of the members of the firm, and they were not the kind of material which changes.
With such a set of associates, with his organisation complete from his buyers on
the creek to his exporting agent in New York, with the transportation advantages which none of his competitors had had the daring or the persuasive power to get, certainly Mr. Rockefeller should have been satisfied in l870. But Mr. Rockefeller was far from satisfied. He was a brooding, cautious, secretive man, seeing all the possible dangers as well as all the possible opportunities in things, and he studied, as a player at chess, all the possible combinations which might imperil his supremacy. These twenty-five Cleveland rivals of his-how could he at once and forever put them out of the game? He and his partners had somehow conceived a great idea-the advantages of combination. What might they not do if they could buy out and absorb the big refineries now competing with them in Cleveland ? The possibilities of the idea grew as they discussed it. Finally they began tentatively to sound some of their rivals. But there were other rivals than these at home. There were the creek refiners ! They were there at the mouth of the wells. What might not this geographical advantage do in time? Refining was going on there on an increasing scale; the capacity of the Oil Regions had indeed risen to nearly 10,000 barrels a day- equal to that of New York, exceeding that of Pittsburg by nearly 4,000 barrels, and almost equalling that of Cleveland. The men of the oil country loudly declared that they meant to refine for the world. They boasted of an oil kingdom which
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eventually should handle the entire business and compel Cleveland and Pittsburg either to abandon their works or bring them to the oil country. In this boastful ambition they were encouraged particularly by the Pennsylvania Railroad, which naturally handled the largest percentage of the oil. How long could the Standard Oil Company stand against this competition?
There was another interest as deeply concerned as Mr. Rockefeller in preserving Cleveland's supremacy as a refining centre, and this was the Lake Shore and New York Central Railroads. Let the bulk of refining be done in the Oil Regions and these roads were in danger of losing a profitable branch of business. This situation in regard to the oil traffic was really more serious now than in 1868 when General Devereux had first given the Standard a rebate. Then it was that the Pennsylvania, through its lusty ally the Empire Transportation Company, was making the chief fight to secure a '"patent right on oil transportation." The Erie was now becoming as aggressive a competitor. Gould and Fisk had gone into the fight with the vigour and the utter unscrupulousness which characterised all their dealings. They were allying themselves with the Pennsylvania Transportation Company, the only large rival pipe-line system which the Empire had. They were putting up a refinery near Jersey City, and they were taking advantage shrewdly of all the speculative features of the new business.
As competition grew between the roads, they grew more reckless in granting rebates, the refiners more insistent in demanding them. By 1871 things had come to such a pass in the business that every refiner suspected his neighbour to be getting better rates than he. The result was that the freight agents were constantly beset for rebates, and that the large shippers were generally getting them on the ground of the quantity of oil they controlled. Indeed it was evident that the
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For pictures of W.G.Warden, Peter H. Watson, Charles Lockhart and Henry M.Flagler follow the appropriate links.
W.G.WARDEN
PETER H. WATSON
CHARLES LOCKHART
HENRY M. FLAGLER
