Billionaire John D. Rockefeller (July 8, 1839 to May 23, 1937) continues to rank as one of the richest men in modern times. He rose from modest beginnings to become the founder of Standard Oil in 1870 and ruthlessly set about destroying his competitors to create a monopoly of the oil industry. He branched out to ancillary businesses such as iron, steel, and copper—but also railroads, general stores, and newspapers. His quest for total control ran afoul of the U.S. government, which passed the Sherman Antitrust Act in 1890 to break up Standard Oil, sparking a running battle that the government finally won in 1911.
Rockefeller retired in 1896, leaving his only son to run his company, and pursued a second career as a philanthropist, donating hundreds of millions of dollars to worthy causes. His hard-edged public persona was softened by his practice of handing out dimes to children. Dying just six-and-a-half weeks before his 98th birthday, Rockefeller remains one of the great figures of Wall Street—reviled as a villain, applauded as an innovator and a benefactor, and universally recognized as one of the most powerful men in history.
Early Life and Education
Rockefeller’s father, William Avery Rockefeller, led a nomadic life as a snake-oil salesman who called himself a physician, while his mother raised their six children. After his family eventually took root in Strongsville, Ohio, a suburb of Cleveland, Rockefeller dropped out of high school and found work as a commission house clerk at the age of 16. He left that position in order to form a business partnership with oil driller Maurice Clark and built his first oil refinery in Cleveland in 1863. Rockefeller and Clark would in 1870 become Rockefeller, Andrews, and Flagler, a company that focused on oil refineries rather than drilling.
In 1864 he married Laura Celestia “Cettie” Spelman (1839 to 1915), who would bear him four daughters (one of whom died at the age of 13 months) and one son, John D. Rockefeller Jr., who would eventually follow in his father’s footsteps and take over his business.
In 1870 Rockefeller, Andrews, and Flagler incorporated into Standard Oil, which in a mere two years controlled all the oil refineries in Cleveland. 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.
An innovative trust
In 1881, Standard Oil was placed under the control of a nine-trustee board, with Rockefeller at its head. He and his partners innovated this first-of-its-kind trust, wherein 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 or acquire pipelines and other infrastructure on a scale that was previously unthinkable.
Research and development
Standard Oil employed chemists who developed ways of increasing the types and quality of combustible fuels and created methods of converting waste into usable substances. This meant that the petroleum coming out of the ground was refined into various products, such as diesel fuel, varnish, Vaseline, and toothpaste.
As these new products became cheaper to produce, the company increased its global economy of scale. Also, through robust research and development, Rockefeller discovered ways to exploit the traditionally discarded oil byproducts by using them to create lubricating oils, petroleum jellies, paraffin wax, and other useful items.
Standard Oil had a hand in many ancillary industries, such as railroads, shipping, gas, iron, copper, steel, and banks and trust companies. It also grew its presence in more unexpected areas, such as general stores. Rockefeller forced shops to carry his kerosene alone by supplying the stores that only sold Standard Oil kerosene with meat, sugar, and other products at artificially low prices, thereby driving shop owners who sold other kerosene brands out of business. Standard Oil likewise planted stories in newspapers to promote its version of events.
Creating a monopoly
Rockefeller saw the cutthroat competition in the oil industry as a ruinous influence and began methodically stamping it out. He used major profits to buy out competitors, starting in a six-week period in 1872 known as “the Cleveland Massacre,” when he acquired 22 of 26 rival refineries at very low prices. In addition to wielding his large cash reserves, Rockefeller struck a secret deal with the three major railroads serving Cleveland known as “the South Improvement Company.”
Standard Oil agreed to divide its oil shipments among the railroads into negotiated amounts in return for the railroads charging exorbitant rates to its competitors. The company would not only receive rebates on the cost of transporting its oil; it would also get a cut of the money generated by the high rates charged to its competitors. News of the agreement leaked and panic ensued, with the rival companies fearing bankruptcy and selling to Rockefeller to avoid total ruin. Due to a hue and cry, the agreement was dissolved without ever actually being implemented.
In the ensuing years, Rockefeller’s offers to purchase competitors were usually readily accepted, though he also had ways of persuading holdouts, which included the following measures:
- Buying up all the oil barrels to cause a shortage that crippled smaller companies
- Buying up land to prevent other companies from building pipelines
- 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
By 1882, Standard Oil had a near-monopoly of the oil business in the United States.
Losing a monopoly
The government took issue with Standard Oil's near-total monopoly and passed the Sherman Antitrust Act in 1890 to break it up. In response, Standard Oil’s legal team quickly converted the trust into a holding company, which functioned like a trust but was outside of a trust's legal definition. The government adjusted its legislative attack accordingly and broke up the holding company in 1911, again through a Supreme Court ruling.
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 research and development and infrastructure, so they easily made the transition to gasoline producers when kerosene sales dropped as a result of Edison’s invention of the electric light bulb.
Wealth and Philanthropy
A devout Baptist, Rockefeller believed that God had blessed him with the ability to make money and saw no contradiction between his ruthless business methods and his faith. Indeed, he thought the division of the world into rich and poor was part of God’s plan. Or, in his own words, “It has seemed as if I was favored and got increase because the Lord knew that I was going to turn around and give it back.”
And that he certainly did. Rockefeller channeled his energies toward philanthropic causes after retiring in 1896, donating hundreds of millions of dollars during the latter years of his life. He was also known for the practice of carrying nickels and dimes on his person and distributing them to children. With his son’s help, he created the Rockefeller Foundation in 1913 to carry on his work after he was gone. When he died in 1937, his assets equaled 1.5% of the total U.S. economic output for that year (in comparison, in 2018, Bill Gates’ wealth was 0.45% of the gross domestic product for that year).
Certainly one of Rockefeller’s main legacies is federal antitrust legislation, as well as laws strengthening unions. During his lifetime (and after), many people understandably faulted Rockefeller for the radical means through which he cultivated his fortune. Still, his business practices and charities have benefited millions of people. The Rockefeller Foundation continues today to follow its stated mission to “promote the well-being of humanity throughout the world.” In addition, he established the University of Chicago and the Rockefeller University (originally the Rockefeller Institute for Medical Research).
His legacy also lived on through his offspring. John D. Rockefeller Jr. built the famous art deco Rockefeller Center in Manhattan, which continues to house business offices to this day, as well as popular enterprises such as Radio City Music Hall and the Rockettes, the Rainbow Room, an open-air skating rink, a famous annual towering Christmas tree, and the television studios for Saturday Night Live and The Tonight Show. Rockefeller’s grandson Nelson Aldrich Rockefeller served as a four-term Republican governor of New York State and as the 41st vice president of the United States under President Gerald Ford, in addition to running for the Republican presidential nomination three times.
What Was John D. Rockefeller’s Background?
John D. Rockefeller was born into modest circumstances in 1839, the son of an itinerant snake-oil salesman who called himself a physician and his highly religious and disciplined wife, who raised him in the Baptist Church. The family eventually settled in the suburbs of Cleveland, Ohio, where John dropped out of high school and got his first job, working as a bookkeeper, at age 16. His first business trafficked in hay, grain, meats, and other goods; he then chose to go into the oil business due to the expansion of oil production in western Pennsylvania in the early 1860s.
How Long Did Standard Oil Exist as a Monopoly?
Rockefeller, along with his associates Samuel Andrews and Henry M. Flagler, founded Standard Oil in 1870. Within two years, the company had a monopoly on the refinement of oil in the Cleveland area. In 1881, the company was reorganized as a first-of-its-kind trust, allowing it to quickly expand by either building or buying up oil pipelines and other infrastructure. By 1882, it had a virtual monopoly on the oil business in the U.S.
The federal government disapproved of the situation, and Congress passed the Sherman Antitrust Act in 1890 to break up Standard Oil. A running battle ensued, which the government finally won in a Supreme Court ruling in 1911. Thus, Standard Oil essentially existed as a national monopoly for 19 years.
What Is John D. Rockefeller’s Legacy?
Rockefeller retired from business in 1896 and devoted his life to philanthropy. He donated hundreds of millions of dollars to charity during his lifetime and, along with his son, John Jr., set up the Rockefeller Foundation to continue that work after his death, which it still does. He founded the University of Chicago and the Rockefeller University (originally known as the Rockefeller Institute for Medical Research). However, Rockefeller and Standard Oil Company were also responsible for antitrust legislation and laws strengthening unions, though not of their own volition.
The Bottom Line
Billionaire John D. Rockefeller was both admired and loathed, but there is no getting around the fact of his importance as both the principal founder of the Standard Oil monopoly and a world-class philanthropist. His legacy continues today thanks to the work of the Rockefeller Foundation, as well as ongoing institutions he founded such as the University of Chicago and the Rockefeller University (originally known as the Rockefeller Institute for Medical Research). A ruthless businessman who gave his competitors no quarter, he still ranks as one of the richest men of the modern world, a great figure of Wall Street, and one of the most powerful men in history.