Wealth and Power
John D. Rockefeller is considered by many to be one of the world’s richest and most powerful figures of all time. Depending on who is asked, Rockefeller has been portrayed as a villain, a serial entrepreneur, the king of fossil fuels, and a man of great charity. While the characterization of Rockefeller has varied throughout history, he is universally recognized for his tremendous contributions to development of the global oil industry. His innovations and business achievements helped to pave the way for the foundation of a wide array of American oil giants, some of which still boast among the highest levels of annual business revenue of any industry in the world. Nearly a century before Jeff Bezos, Mark Zuckerberg, or Bill Gates mad their vast fortunes in the tech industries, Rockefeller was racing past global wealth records as a result of his ventures in the oil and gas industry.
The First Billionaire in America
In 1916, John D. Rockefeller became the first billionaire in America. By 1918, his fortune had grown to just over $1.5 billion, which is equivalent to around $24 billion in today’s inflation-adjusted dollars. To put this into perspective, the total net worth of Jeff Bezos was estimated to be nearly $189.8 billion in July 2020 (Frank, 2018). Even though Jeff Bezos’ fortune seems to vastly topple the fortune of John D. Rockefeller, Rockefeller’s total net worth was equal to about two percent of the United States economy. In order for Jeff Bezos to command as large of a chunk of the economy as Rockefeller, Bezos’ net worth would have to rise to nearly $400 billion (Umoh, 2018). In 2019, the total economic output of the United States was equal to just over $21 trillion, which is a monumental increase over the $50 billion economic output from 1916. Therefore, while Jeff Bezos may now be the richest person on the planet in terms of his total net worth, John D. Rockefeller still holds the title for most wealth in comparison to the size of the United States economy.
How did John D. Rockefeller become one of the richest and most powerful individuals in history? The roots of his vast fortune and power can be attributed to his tremendous success in the fossil fuel industry. After founding the Standard Oil Company in 1870, Rockefeller transformed the company into one of the biggest and most successful oil companies of all time. The Standard Oil Company became the world’s largest oil refiner and also one of the world’s first multinational business conglomerates.
The Standard Oil Company
With a vision and guidance provided by Rockefeller, the Standard Oil Company grew to dominate nearly every aspect of the oil industry. Through the initial dominance of horizontal integration, the Standard Oil Company found success in refining oil. Later on, the Standard Oil Company started to dominate all facets of vertical integration. With control over both horizontal and vertical integration of the oil and gas industry, the massive American business conglomerate ended up taking control over oil and gas exploration, oil and gas leases, production operations, refining, and selling oil and other petroleum products directly to consumers. John D. Rockefeller’s ability to take control over the entire market, from production to distribution, made him one of the most successful businessmen in history. However, as his success grew, so did the controversy.
The Standard Oil Company’s dominance of the oil industry not only brought success for John D. Rockefeller, but it also led to a landmark Supreme Court case over anti-competitive practices. Nearly a decade after its founding in 1870, the Standard Oil Company had grown so large that Rockefeller was able to easily purchase numerous smaller competitors, giving the company an edge in all aspects of the oil and gas industry. While some economists and energy industry leaders have labeled these aggressive acquisitions as the foundation for modern American capitalism, some policy makers and other business leaders found Rockefeller’s business practices to be too powerful. Renowned investigative American journalists Ida Tarbell famously lambasted Rockefeller in a series of newspaper blasts. In a piece published in 1904, Tarbell said, “There is nothing which concerned the oil business which John Rockefeller was not on the inside of” (Eschner, 2017).
One of John D. Rockefeller’s favorite business methods in the oil industry was to methodically eliminate his competition. At the height of the Standard Oil Company’s dominance, it was said to have had control over nearly 90 percent of the American oil industry (Pendergast, 2018). As a result of his tireless efforts to take over the oil industry, Rockefeller became the quintessential image of a monopolistic businessman. In a famous political cartoon that became widely circulated during the early 1900s, Rockefeller was portrayed as a grasping octopus, with tentacles wrapped around an array of copper, steel, and shipping industry interests. Other tentacles were shown wrapped around state houses and the United States Capitol building, with one also headed for the White House. In another famous editorial, Ida Tarbell wrote, “It is pitiful, so pitiful, that one cannot watch John Rockefeller sit through a church service and never cease to feel that he is one of the saddest objects in the world” (Eschner, 2017).
While Rockefeller’s monopolistic business strategy helped him achieve a vast fortune and nearly endless power, it was eventually put to end by the Supreme Court. In response to accusations related to the use of monopolistic tactics, Rockefeller responded by saying, “We had to do it in self-defense. The oil business was in confusion and daily growing worse. Someone had to take a stand” (Krasner, 2004). Rockefeller was obsessed with efficiency. He also became fixated on the significant level of volatility that seemed to be entrenched within the oil industry. While the oil industry is still regarded as much more volatile than other industries, it was substantially more volatile in the late 1800s and the early 1900s. Each time a new discovery of oil was made, the price per barrel dropped considerably. According to the economic principle of the law of supply and demand, the relationship between the availability of a resource and the demand for that resource influences price. As new reserves of oil were discovered, the supply rose to levels that made energy industry leaders concerned about demand.
A Monopoly in the Making
In an effort to take control of supply while simultaneously achieving breakthroughs in business efficiency, Rockefeller employed a takeover strategy that eventually led the Standard Oil Company to acquire 41 separate companies. Even though some businesses were eager to be purchased by the Standard Oil Company, others were more difficult to persuade. In order to sway the holdouts, Rockefeller employed a number of brutal tactics. Strategies included buying up all the barrels used to store oil, coordinating price wars, bribing political officials, taking over rail lines and other transportation infrastructure, and purchasing oil equipment supplies and in turn, refusing to sell equipment to entities until they agreed to be purchased by the Standard Oil Company (Beattie, 2019).
The government eventually caught on to Rockefeller’s tactics. A number of new laws were even developed to specifically target the Standard Oil Company. However, in the early years of the government attempting to limit the control of the Standard Oil Company, Rockefeller and his business associates quickly found a way around state laws that were aimed at limiting the scale of companies. The development of the Standard Oil Trust allowed Rockefeller to effectively manage the continued growth of the Standard Oil Company without crossing the threshold that violated state laws. The Standard Oil Trust ended up allowing Rockefeller and his business associates to combine a number of enterprises across dozens of states. Even though the Standard Oil Trust was made up of many different entities, they were all controlled by a single board of trustees. The development of this business trust pioneered the development of other trusts throughout the business world.
The Sherman Antitrust Act
The Standard Oil Trust gave Rockefeller a previously unthinkable level of power that enabled him to control a vast array of industries outside the realm of his original fossil fuel company. Rockefeller was able to reduce business costs, standardize prices, and control more financial assets and physical infrastructure than ever before. Following the development of this business monopoly, the United States government decided that it was time to take action against Rockefeller. In 1890, the vast majority of the members of Congress passed the Sherman Antitrust Act, which enacted a series of landmark anti-monopoly laws aimed at limiting the scale and power of massive business conglomerates.
After the passing of the Sherman Antitrust Act, Ohio Attorney General David K. Watson led the charge against the Standard Oil Company. Ohio was eventually successful in their lawsuit, which dissolved the Standard Oil Trust in Ohio in 1892. However, the Standard Oil Trust was eventually reformulated in New Jersey, which allowed the same level of monopolistic tactics, but from a different headquarters. It wasn’t until 1909 that the United States Department of Justice decided to take on the Standard Oil Company for violating the Sherman Antitrust Act. Two years later on May 15, 1911, the Supreme Court declared that the Standard Oil Company had created a monopoly that was conclusively in violation of the Sherman Antitrust Act. The Supreme Court then ruled that Rockefeller’s company would have to be broken up into 34 separate entities.
A Lasting Impact
A number of successor companies that came as a result of the dissolved Standard Oil Company are still around today. BP, Conoco Phillips, Chevron, and Exxon Mobil can all trace their origins to the Standard Oil Company. To this day, economists and energy analysts still hold debates about the breakup of Rockefeller’s company. Some have speculated that if the Standard Oil Company had not have been broken up, the company would have a value in excess of $1 trillion today. Other critics say that the breakup went too far to quell free-market capitalism. Representative William Mason was one of the leading members of the government that argued in favor of dissolving the Standard Oil Company. He said, “Trusts have made products cheaper, have reduced prices; but if the price of oil, for instance, were reduced to one cent a barrel, it would not right the wrong done to people of this country by the trusts which have destroyed legitimate competition and driven honest men from legitimate business enterprise” (Congressional Record, 1890).
There is no question that John D. Rockefeller had a resounding impact on the global oil industry. Some of today’s biggest oil and gas companies would not exist if it wasn’t for the aggressive innovation that was pioneered by the Standard Oil Company. Moreover, Rockefeller’s legacy also has had a tremendous impact on American economic policy. When learning about monopolies in entry-level economic classes, the example of the Standard Oil Company is often the quintessential model used to illustrate this economic concept. In addition to having a vital influence on the oil industry and economic policy, Rockefeller’s wealth has also left a lasting impact. Despite his controversial career in the oil industry, Rockefeller is said to have donated nearly 97 percent of his fortune to charity by the time that he died in 1937 (Eschner, 2017).
Beattie, A. (2019). “J.D. Rockefeller: From Oil Baron to Billionaire.” Investopedia.
Congressional Record. (1890). 51st United States Congress, 1st session, House of Representatives, June 20, 1890, p. 4100.
Eschner, K. (2017). “John D. Rockefeller Was the Richest Person To Ever Live. Period.” Smithsonian Magazine.
Frank, R. (2018). “Jeff Bezos is now the richest of all time — sort of.” CNBC.
Krasner, B. (2014). “John D. Rockefeller: Oil King.” Cobblestone Journal: Vol. 35, Issue 3.
Pendergast, G. (2018). “The controversial history of oil tycoon John D. Rockefeller.” Medium.
Umoh, R. (2018). “10 key management principles from John D. Rockefeller, America’s first billionaire.” CNBC.