Rockefeller & competition - matthew josephson
Matthew Josephson, a historian, wrote this piece in 1934 declaring Rockefeller a manipulator and conspirator to ending competition in the oil business. (Edited and adapted)
Rockefeller had no friends and no diversions, who was “all business” as John T. Flynn describes him, now gave himself to incessant planning, planning that would defeat chance itself…Within a year or two, the firm of Rockefeller, Flagler & Andrews was the biggest refinery in Cleveland, producing 1,500 barrels (of oil) a day…the company moved steadily to the front of the field, surpassing its rivals in quality and outselling them by a small, though not certain or decisive margin. How was this done?
In the struggle for business, Rockefeller’s instinct for conspiracy is already marked. The partnership with Flagler brought an access of fresh capital and even more credit. Then in a further step of collusion, this of profound importance, Rockefeller and Flagler approached the railroad which carried so many carloads of their oil toward the seaboard…and demanded from it concession in freight rates that would enable them to meet the advantages of other refining centers such as Pittsburg and New York. This company was now large enough to force the hand of the railroad…and they were granted their demands: a secret reduction of “rebate” on all their shipments of oil. Thanks to the collaboration of the railroad, he had placed his rivals in other cities and in Cleveland itself under a handicap, whose weight he endeavored to increase.
Rockefeller saw disorganized conditions of the Pennsylvania oil fields and felt that reorganization would help the whole. The broad purpose [of the South Improvement Company] was to control and direct the flow of crude petroleum into the hands of a narrowed group of refiners. Saying nothing to others, bending over their r maps of the industry, Rockefeller and Flagler first drew up a short list of the principal refining companies who were to be asked to combine with them. Then having banded together a sufficient number, they would persuade the railroads to give them special freight rates – on the ground of ”evening” the traffic – guaranteeing equitable distribution of freight business, and this in turn would be a club to force other elements needed into union with them. They could control output, drive out competitors, and force all foreign countries throughout the world to buy their product from them at their own terms.
Their plans moved forward rapidly all through 1871. Those who were approached by the promoters, those whom they determined to use in tier grand scheme, were compelled in a manner typical of all Rockefeller’s projects to sign a written pledge of secrecy:
“I, --- ---, do solemnly promise upon my honor and faith as a gentleman what I will keep secret all transactions which I may have with the corporation known as the South Improvement Company.”
The refiners to be combined under the aegis of the South Improvement Company were to have a rebate of from 40 to 50 per cent on the crude oil they ordered shipped to them and form 25 to 50 per cent on the refined oil they shipped out. The refiners in the Oil Regions were to pay twice as much by the new code as the Standard Oil Company at Cleveland. There competitors were simply to be decimated; the railroad systems were to open all their knowledge or rival private business to the South Improvement Company, thus helping to concentrate all the oil trade into the few hands chosen.
To the principal oil firms in Cleveland, Rockefeller went one by one, explaining the South Improvement Company, patiently pointing out how important it was…to save the Cleveland Oil trade. He would say: “You see, this scheme is bound to work. There is no chance for anyone outside. But we are going to give everybody a chance to get in. You are to turn your refinery over to my appraisers, and I will give you Standard Oil Company stock or cash, as you prefer for the value we put on upon it. I advise you to take the stock. It will be for your good.”
Then if the men demurred…he would point out suavely that it was useless to resist; opposition would certainly be crushed. The offers made were for from a third to a half the actual cost of the property.
Rockefeller had no friends and no diversions, who was “all business” as John T. Flynn describes him, now gave himself to incessant planning, planning that would defeat chance itself…Within a year or two, the firm of Rockefeller, Flagler & Andrews was the biggest refinery in Cleveland, producing 1,500 barrels (of oil) a day…the company moved steadily to the front of the field, surpassing its rivals in quality and outselling them by a small, though not certain or decisive margin. How was this done?
In the struggle for business, Rockefeller’s instinct for conspiracy is already marked. The partnership with Flagler brought an access of fresh capital and even more credit. Then in a further step of collusion, this of profound importance, Rockefeller and Flagler approached the railroad which carried so many carloads of their oil toward the seaboard…and demanded from it concession in freight rates that would enable them to meet the advantages of other refining centers such as Pittsburg and New York. This company was now large enough to force the hand of the railroad…and they were granted their demands: a secret reduction of “rebate” on all their shipments of oil. Thanks to the collaboration of the railroad, he had placed his rivals in other cities and in Cleveland itself under a handicap, whose weight he endeavored to increase.
Rockefeller saw disorganized conditions of the Pennsylvania oil fields and felt that reorganization would help the whole. The broad purpose [of the South Improvement Company] was to control and direct the flow of crude petroleum into the hands of a narrowed group of refiners. Saying nothing to others, bending over their r maps of the industry, Rockefeller and Flagler first drew up a short list of the principal refining companies who were to be asked to combine with them. Then having banded together a sufficient number, they would persuade the railroads to give them special freight rates – on the ground of ”evening” the traffic – guaranteeing equitable distribution of freight business, and this in turn would be a club to force other elements needed into union with them. They could control output, drive out competitors, and force all foreign countries throughout the world to buy their product from them at their own terms.
Their plans moved forward rapidly all through 1871. Those who were approached by the promoters, those whom they determined to use in tier grand scheme, were compelled in a manner typical of all Rockefeller’s projects to sign a written pledge of secrecy:
“I, --- ---, do solemnly promise upon my honor and faith as a gentleman what I will keep secret all transactions which I may have with the corporation known as the South Improvement Company.”
The refiners to be combined under the aegis of the South Improvement Company were to have a rebate of from 40 to 50 per cent on the crude oil they ordered shipped to them and form 25 to 50 per cent on the refined oil they shipped out. The refiners in the Oil Regions were to pay twice as much by the new code as the Standard Oil Company at Cleveland. There competitors were simply to be decimated; the railroad systems were to open all their knowledge or rival private business to the South Improvement Company, thus helping to concentrate all the oil trade into the few hands chosen.
To the principal oil firms in Cleveland, Rockefeller went one by one, explaining the South Improvement Company, patiently pointing out how important it was…to save the Cleveland Oil trade. He would say: “You see, this scheme is bound to work. There is no chance for anyone outside. But we are going to give everybody a chance to get in. You are to turn your refinery over to my appraisers, and I will give you Standard Oil Company stock or cash, as you prefer for the value we put on upon it. I advise you to take the stock. It will be for your good.”
Then if the men demurred…he would point out suavely that it was useless to resist; opposition would certainly be crushed. The offers made were for from a third to a half the actual cost of the property.