J.D. Rockefeller: From Oil Baron to Billionaire

John D. Rockefeller (July 8, 1839–May 23, 1937) continues to rank as one of the richest men in modern times. He remains one of the great figures of Wall Street — reviled as a villain, applauded as an innovator, but universally recognized as one of the most powerful men in history.

F. Scott Fitzgerald famously said, “The test of a first-rate intelligence is the ability to hold two opposed ideas in the mind at the same time, and still retain the ability to function.” By that standard, Rockefeller may be one of the most intelligent people to ever live. 

This article takes a closer look at Rockefeller's life and his memorable achievements.

J.D. Rockefeller: Son of a Peddler

Rockefeller's father, William Avery Rockefeller, led a nomadic life selling goods across the country, while his mother raised the children. After his family eventually took root in Cleveland Ohio, Rockefeller received an unusually good education for his time, and found work as a commission house clerk at the age of 16. But he left that position in order to form a business partnership with oil driller Maurice Clark, that would later become Rockefeller, Andrews & Flagler, a company that focused on oil refineries rather than drilling.

Rockefeller: The Oil Refiner

Early on, Rockefeller keenly understood ways of managing risk. While he knew oil speculators could potentially reap huge profits if they hit a deposit, he also knew that they faced substantial financial loss, if they failed in that effort. For this reason, he strategically narrowed his focus to the refining business, where profits were smaller but more stable. And through robust research and development, he discovered ways to exploit the traditionally discarded oil by-products, by using them to create lubricants, paints, and other useful items.

J.D.'s Road to an Oil Monopoly

Rockefeller saw the cutthroat competition in the oil industry as a ruinous influence and began methodically stamping it out. By 1890, his company, Standard Oil of Ohio, was enjoying major profits, which he used to buy out competitors. While Rockefeller's offers were usually readily accepted, he had ways of persuading holdouts, that included the following measures:

  • Buying up all the oil barrels to cause a shortage that crippled smaller companies.
  • Orchestrating price wars between wholly-owned subsidiaries, forcing holdouts to sell at losses.
  • Secretly bribing legislators.
  • Limiting the number of trains available for shipment by leveraging his close relationship with the railroad companies.
  • Purchasing all of the equipment and the equipment suppliers, then refusing to sell replacement parts to holdouts.

From Oil to Railroads

Vexed by the inconsistent support of competing rail companies, Rockefeller backed the creation of the South Improvement Company, in a strategic effort to improve his company's transport costs. He also agreed to help this company buy up all the railroads in return for bulk rebates, however competitors in both rail and oil eventually lobbied the government to curb such monopolistic behavior.

Rockefeller's Standard Oil Trust

After his failure to reorganize the rail industry, Rockefeller decided to restructure his sprawling empire. He and his partners innovated a first-of-its-kind trust, where they swapped their individual holdings for shares in the trust. Rockefeller now wielded centralized control and veto power on all of the corporate boards within his conglomerate. The immediate benefits included even lower costs, lower kerosene prices and standardization across the industry. Rockefeller's company now had the assets and wherewithal to build pipelines and other infrastructure, on a scale that was previously unthinkable.

Standard Oil also employed chemists who developed ways of increasing the types and quality of combustible fuels and created methods of converting waste into usable substances. The petroleum coming out of the ground was being refined into various products, such as diesel fuel, varnish, and hair gel. As the new products became cheaper to produce, the company increased its global economy of scale.

Standard Oil had its hands in many ancillary industries, such as iron, copper, steel and coal, but it also grew its presence in more unexpected areas, such as general stores. Rockefeller wisely forced shops to carry his products alone, where he was able to draw on the empire’s war chest to slash prices, thereby driving noncompliant shop owners out of business. Standard Oil likewise bought up newspapers to promote its version of events. It also owned its own boats, railroad cars and warehouses, while manufacturing its own sulfuric acid.

Antitrust Action Against J.D.

The government disliked the near-total monopoly in the oil industry and consequently broke up the trust in 1892. In response, Standard Oil's legal team quickly converted the trust into a holding company, that functioned like a trust, but was outside of the legal definition. The government adjusted its legislative attack accordingly and broke up the holding company in 1911.

Standard Oil was carved up into smaller, but still sizable chunks under the government's supervision. Although their names have changed over the years, Chevron (CVX), Exxon Mobil (XOM), and ConocoPhillips (COP), among others, all share a Standard Oil pedigree. These companies had the advantage of Standard Oil's R&D and infrastructure, so they easily made the transition to gasoline producers when kerosene sales dropped as a result of Edison's electric light bulb invention.

Rockefeller, the Philanthropist

After retiring in 1896, Rockefeller channeled his energies towards philanthropic causes, donating hundreds of millions of dollars, during the latter years of his life. With his son's help, he created the Rockefeller Foundation, to carry on his work after he died. And although some fault Rockefeller for the radical means through which he cultivated his fortune, his business practices and charities have nonetheless benefited millions of people.