The History of Standard Oil

Excerpt from The History of the Standard Oil Company

By Ida M. Tarbell

Published in book form in 1904

Writer and editor Ida M. Tarbell (1857-1944) was one of the first great female journalists in the United States. Her best-known work, The History of the Standard Oil Company (1904), exposed the questionable business practices of John D. Rockefeller's Standard Oil Trust, which had been formed when Rockefeller combined all his corporations in an attempt to reduce competition and control prices in the oil industry. When Tarbell began researching the enormous company in 1902, it had already survived more than thirty years of criticism, state and federal investigation, and legal actions against it (see Chapter 11). The publication of her book helped result in a 1911 Supreme Court decision to dissolve Standard Oil and altered the future course of business in the country, surprising many who had underestimated her influence since she was a woman reporter and a newcomer in the field.

Tarbell was born in 1857 in Hatch Hollow, one of the oilfield towns of Erie County, Pennsylvania. During the 1850s vast numbers of oil wells were being built across the county, transforming the poor, rural region into one of the centers of the new oil industry. When the oil wells began producing in Pithole Creek, an area near Tarbell's home, her father, Frank, rushed to start a wooden barrel shop there. The wells at Pithole quickly dried up, however, and the family moved to Titusville. Bad fortune followed the family to the new town, and Frank Tarbell's business failed when iron tanks came into use for oil storage. Like many other hopefuls, he then attempted to become an independent oil producer.

In 1872 news reached Titusville that the Standard Oil Company and several other wealthy oil refiners (people who ran factories in which oil in its natural state was broken down into commercial products such as oil lamp fuel or kerosene) had entered into a secret pact with the railroads that served the oil industry. The pact was known as the South Improvement Company and its purpose was to keep shipping rates low for its members and high for nonmembers. The higher shipping rates would effectively close down many of the smaller independent producers, such as Ida Tarbell's father, since they would not be able to compete with the South Improvement members. Soon after the citizens of Titusville heard about the planned agreement, the railroads posted their new rates, which were double what they had been the week before. Tarbell, who was fifteen at the time, witnessed the gatherings of the angry independent oilmen when they learned about the rates. Speeches were made encouraging the hanging of South Improvement Company members and the burning of their oil tanks. The oilmen of Titusville refused to sell their oil to the member refiners, beginning a standoff that probably hurt them more than it did the refiners. Eventually, in response to the public uproar, the South Improvement Company was shut down by the state, although Standard Oil did go on to eliminate many independent companies in Titusville. Over the years Tarbell's father and brother—along with most independent oil producers in the town—were ruined by Standard Oil's schemes to gain control of the entire industry.

After the South Improvement controversy, Tarbell enrolled in high school, where she excelled in the sciences. She entered Allegheny College as the only female in a class of forty, graduating with a degree in biology in 1880. She taught school in Ohio for a couple of years after college but soon returned home in search of more challenging work. She took a job writing for the Chautauquan, a monthly continuing education magazine published by the Methodist church, and eventually became its managing editor. After eight years this, too, lost her interest and Tarbell moved to Paris with some friends. There she studied history at the Sorbonne and the University of Paris from 1891 to 1894, making her living by writing articles for American magazines. While in Paris she read Henry Demarest Lloyd's Wealth Against Commonwealth (1894), a five-hundred-page criticism of monopolies (corporations that had exclusive possession or control of a product), in particular the Standard Oil Company. Reading Lloyd's work renewed the anger she had felt against John D. Rockefeller and his oil monopoly when it put her family out of business.

During her years in Paris, Tarbell's writing was gaining an audience in the United States. It caught the attention of Samuel S. McClure (1857-1949), who had founded the popular monthly magazine McClure's in 1893. He hired her to write an eight-part biographical series on the French emperor Napoleon Bonaparte (1769-1821; ruled 1804-15). The series raised McClure's circulation from 24,500 readers to 100,000 readers. When Tarbell returned to New York in 1894, McClure hired her as an editor. Over the next four years she wrote a very popular biographical series on the life of President Abraham Lincoln (1809-1865; served 1861-65), which caused the magazine's circulation to rise again to 300,000 readers.

As the twentieth century began, a new kind of journalist, called a muckraker, was becoming popular. Muckrakers sought out and exposed the misconduct of well-known people or high profile organizations. Muckraking journalists wrote articles about injustices or abuses, hoping the information they provided would stimulate the public to demand reform. McClure, who was at the forefront of the new journalistic movement, began to restructure the format of his magazine to include coverage of social issues, particularly dishonesty in government and misconduct in the business world. Unlike some of the other magazine owners of the period, McClure demanded from his writers accurate, well-researched reporting and clear, logical analysis.

In 1902 Tarbell persuaded McClure to let her do a three-part series on the business practices of Standard Oil and began two years of deep investigation into the giant corporation. Rockefeller had always attempted to keep a low profile, and most of his complex business dealings and transactions had been conducted in secret. Because the company had recently been under federal investigation, however, Tarbell found volumes of public records to examine. Using her extraordinary gifts for absorbing and organizing hundreds of factual details, she put together the most thorough record of the company in existence up until the early twenty-first century. Tarbell wove the history of Rockefeller and Standard Oil into a fascinating story and explained the complicated business practices of the corporation in terms that were easy to understand. Critics agreed that her research was extremely thorough, and that, despite her personal dislike of Standard Oil (which she openly acknowledged throughout the book), her work was highly accurate. Although intended as an attack on Rockefeller, the information the series revealed about him was well-supported by papers that became available after his death and has stood up well over time. Tarbell even wrote at length about the excellence of the company, praising its management and efficiency. But the work's overall effect was to reveal the ruthless practices of Standard Oil. Her readers responded with enthusiasm, and the original plan for three articles turned into a nineteen-article series that ran from 1902 to 1904. McClure's readership soared and the series of articles was published in book form in 1904 as The History of the Standard Oil Company.

In her work Tarbell carefully acknowledged the genius and hard work with which Rockefeller handled Standard Oil. She made it clear that Rockefeller's corporation had acquired its power and wealth through his unusual business talent and drive, and his choice of associates who had the same top skills and motivations. Tarbell did not oppose large corporations that followed honest policies. Her point was, rather, that Rockefeller was already so successful that he did not need to ruthlessly destroy the independents and small business owners. In her 1939 book All in a Day's Work, she observed of Standard Oil: "They had never played fair, and that ruined their greatness for me."

Things to remember while reading the excerpt from The History of the Standard Oil Company:

• Tarbell began writing her articles about Standard Oil at the close of an American era of politics that had become known for its dishonesty and greed. Throughout the Gilded Age (the era of industrialization from the early 1860s to the turn of the century in which a few wealthy individuals gained tremendous power and influence), the great industrialists rarely answered to the public for their conduct. A famous example of the attitude of the top industrialists and railroad owners of the time was reported to have occurred sometime in the 1880s, when a reporter asked railroad tycoon William Henry Vanderbilt (1821-1885) if his business should be accountable to the public. Vanderbilt is said to have shouted "The public be damned!" (cited in Trivia-Library.com).
• The Progressive Era began around the end of the nineteenth century and lasted roughly through 1918. During this period, farmers, industrial workers, artisans, small business owners, and an increasing number of middle-class citizens joined forces in opposition to the power that the giant corporations wielded over the American government and economy.
• Ida Tarbell was not the only one to begin an examination of the Standard Oil monopoly in 1902. President Theodore Roosevelt (1858-1919; served 1901-9) started a federal investigation the same year.

• In The History of the Standard Oil Company, Tarbell described the way the South Improvement Company pact was planned among the refiners and railroads. Although Rockefeller participated in the South Improvement plan, it was probably not his idea. However, Tarbell showed throughout her book that this kind of scheme was a common method used by Standard Oil to eliminate competition. Historians who later gained access to Rockefeller's private papers agreed that he and his associates acquired businesses using similar secret manipulation of transportation systems and other essential resources and services. The documentation showed that Rockefeller made many deals with railroads and other shippers and had inside information about the shipments of rival oil producers and refiners.
• Tarbell focused her writings on John D. Rockefeller although many of the dishonorable practices she described were carried out by the corporation's other partners. By the time the articles were published, Rockefeller had retired and was no longer involved in the daily management of the company. Because he was still the president of the company in name, however, the public continued to hold him accountable for its actions.

Excerpt from The History of the Standard Oil Company

Something more than local troubles occupied [the elite group of Cleveland oil refiners]. This was the condition of the refining business as a whole. It was unsatisfactory in many particulars. First, it was overdone. The great profits on refined oil and the growing demand for it had naturally caused a great number to rush into its manufacture…. There was … a much larger amount of refining actually done than the market demanded. The result was that the price of refined oil was steadily falling. Where Mr. Rockefeller had received on an average 58 3/4 cents a gallon for the oil he exported in 1865, the year he went into business, in 1870 he received but 26 3/8 cents. In 1865 he had amargin of forty-three cents, out of which to pay for transportation, manufacturing, barrelling and marketing and to make his profits. In 1870 he had but 17 1/8 cents with which to do all this. To be sure his expenses had fallen enormously between 1865 and 1870, but so had his profits. Themultiplication of refiners with the intense competition threatened to cut them down still lower. Naturally Mr. Rockefeller and his friends looked with dismay on this lowering of profits through gaining competition….

In the fall of 1871, while Mr. Rockefeller and his friends were occupied with all these questions, certain Pennsylvania refiners, it is not too certain who, brought to them a remarkable scheme, the gist of which was to bring together secretly a large enough body of refiners and shippers to persuade all the railroads handling oil to give to the company formed specialrebates on its oil, anddrawbacks on that of other people. If they could get such rates it was evident that those outside of theircombination could not compete with them long and that they would become eventually the only refiners. They could then limit their output to actual demand, and so keep up prices. This done, they could easily persuade the railroads to transport nocrude for exportation, so that the foreigners would be forced to buy American refined. They believed that the price of oil thus exported could easily be advanced fifty percent. The control of the refining interests would also enable them to fix their own price on crude. As they would be the only buyers and sellers, thespeculative character of the business would be done away with. In short, the scheme they worked out put the entire oil business in their hands. It looked as simple to put into operation as it was dazzling in its results….

With [a new] charter in hand Mr. Rockefeller andMr. Watson and their associates began to seekconverts. In order that their great scheme might not be injured bypremature public discussion they asked of each person whom they approached a pledge of secrecy….

[At a meeting on January 2, 1872, in Philadelphia] a discussion came up as to what refiners were to be allowed to go into the new company. Each of the men represented had friends whom he wanted taken care of, and after considerable discussion it was decided to take in every refinery they could get hold of. This decision was largely due to the railroad men…. That is, while theincorporators had intended to kill off all but themselves and their friends, the railroads refused to go into a scheme which was going to put anybody out of business—the plan if they went into it must cover the refining trade as it stood. It was enough that it could prevent any one in the future going into the business….

It has frequently been stated that the South Improvement Company represented the bulk of the oil-refining interests in the country. The incorporators of the company in approaching the railroads assured them that this was so. As a matter of fact, however, the thirteen gentlemen above named, who were the only ones ever holding stock in the concern, did not control over one-tenth of the refining business of the United States in 1872…. In assuring the railroads that they controlled the business, they were dealing with their hopes rather than with facts….

By the 18th of January the president of the Pennsylvania road, J. Edgar Thompson, had put his signature to the contract, and soon afterMr. Vanderbilt andMr. Clark signed for the Central system, andJay Gould andGeneral McClellan for the Erie. The contracts to which these gentlemen put their names fixed gross rates of freight from all common points, as the leading shipping points within the Oil Regions were called, to all the great refining and shipping centers—New York, Philadelphia, Baltimore, Pittsburgh and Cleveland. For example, the open rate on crude to New York was put at $2.56. On this price the South Improvement Company was allowed a rebate of $1.06 for its shipments; but it got not only this rebate, it was given in cash a like amount on each barrel of crude shipped by parties outside the combination.

The open rate from Cleveland to New York was two dollars, and fifty cents of this was turned over to the South Improvement Company, which at the same time received a rebate enabling it to ship for $1.50. Again, an independent refiner in Cleveland paid eighty cents a barrel to get his crude from the Oil Regions to his works, and the railroad sent forty cents of this money to the South Improvement Company. At the same time it cost the Cleveland refiner in the combination but forty cents to get his crude oil. Like drawbacks and rebates were given for all points—Pittsburgh, Philadelphia, Boston and Baltimore.

An interestingprovision in the contracts was that fullwaybills of all petroleum shipped over the roads should each day be sent to the South Improvement Company. This, of course, gave them knowledge of just who was doing business outside of their company—of how much business he was doing, and with whom he was doing it. Not only were they to have full knowledge of the business of all shippers—they were to have access to all books of the railroads….

The reason given by the railroads in the contract for granting these extraordinary privileges was that the "magnitude and extent of the business and operations" purposed to be carried on by the South Improvement Company would greatly promote the interest of the railroads and make it desirable for them to encourage their undertaking. The evident advantages received by the railroad were a regular amount of freight—the Pennsylvania was to have forty-five percent of the Eastbound shipments, the Erie and Central each 27 1/2 percent, while West-bound freight was to be divided equally between them—fixed rates, and freedom from the system ofcutting which they had all found so harassing and disastrous. That is, the South Improvement Company, which was to include the entire refining capacity of the company, was to act as the evener of the oil business.

[By February 1872] Mr. Rockefeller had the charter and contracts of the South Improvement Company in hand, and was ready to see what they would do in helping him carry out his idea of wholesale combination in Cleveland. There were at that time some twenty-six refineries in the town—some of them very large plants. All of them were feeling more or less the discouraging effects of the last three or four years of railroad discriminations in favour of the Standard Oil Company. To the owners of these refineries Mr. Rockefeller now went one by one, and explained the South Improvement Company. "You see," he told them, "this scheme is bound to work. It means an absolute control by us of the oil business. There is no chance for anyone outside. But we are going to give everybody a chance to come in. You are to turn over your refinery to my appraisers, and I will give you Standard Oil Company stock or cash, as you prefer, for the value we put upon it. I advise you to take the stock. It will be for your good." Certain refiners objected. They did not want to sell. They did want to keep and manage their business. Mr. Rockefeller was regretful, but firm. It was useless to resist, he told the hesitating; they would certainly be crushed if they did not accept his offer, and he pointed out in detail, and with gentleness, howbeneficent the scheme really was—preventing thecreek refiners from destroying Cleveland, ending competition, keeping up the price of refined oil, and eliminating speculation. Really a wonderful contrivance for the good of the oil business.

Margin:

Difference between the net sales and the net costs of producing a product. Net refers to the amount remaining after the deduction of all expenses or loss.

Multiplication:

Great increase.

Rebates:

Return of part of the shipping charges.

Drawbacks:

Extra fees charged to nonmembers for shipping their freight that were payable to the South Improvement Company.

Combination:

The South Improvement Company, a secret agreement between certain successful refiners and railroads.

Crude:

Crude oil; oil as it comes from the ground, before refining.

Speculative:

Financially insecure.

Mr. Watson:

P. H. Watson of Ashtabula, Ohio, the president of the South Improvement Company and a business representative of Rockefeller's.

Converts:

People to join the South Improvement Company.

Premature:

Early.

Incorporators:

Oil refiners who had initially created the alliance.

Mr. Vanderbilt:

Cornelius "Commodore" Vanderbilt (1794-1877), an extremely wealthy and powerful railroad industrialist.

Mr. Clark:

Horace Clark (1815-1873), president of the Lake Shore and Michigan Southern Railroad, the Northern Indiana Railroad, and the Union Pacific Railroad.

Jay Gould:

(1836-1892) Financier and owner of the Erie Railroad.

General McClellan:

George B. McClellan (1826-1885), president of the Atlantic & Great Western Railroad.

Gross rates:

Rates consisting of an overall total not counting deductions.

Provision:

Condition.

Waybills:

Documents prepared by the carrier of a shipment of goods providing details of the shipment, route, and charges.

Cutting:

Lowering shipping charges in order to keep business from going to a competitor.

Beneficent:

Producing good.

Creek refiners:

Independent oil refiners in Titusville and other parts of Pennsylvania.

Contrivance:

Arrangement.

What happened next …

The Standard Oil Company, always private and secretive, never publicly responded to Tarbell's articles. This hurt the company's reputation deeply.

Tarbell's articles and book focused public resentment on the Standard Oil Trust at a time when the corporation could not afford the attention. Within one year of the book's release, the federal courts brought charges against Standard Oil for being a monopoly and restraining trade (limiting free market competition). In 1911 the Supreme Court ordered the Standard Oil Trust to be dissolved. Most historians credited Tarbell's book as being responsible for the breaking up of the trust and for later laws passed to regulate the giant corporations and monopolies.

Ida Tarbell and several other famous muckrakers left McClure's in 1906 and started their own publication, American Magazine.

In 1999 the Journalism Department at New York University created a list of the best one hundred works of twentieth-century American journalism. Ida Tarbell's History of the Standard Oil Company was ranked number five.

Did you know …

• Ida Tarbell's father tried to persuade her not to write about Standard Oil. He was convinced the huge and powerful company would destroy McClure's or even seek to physically harm his daughter. Nothing of the sort occurred.
• Ida Tarbell was the most successful female journalist of her time. When the women's suffrage (right to vote) movement began to increase, suffragists called for her support, but Tarbell would not endorse their cause. Although she had been publicly and successfully competing in the largely male-dominated field of journalism for decades, she believed that women should play a domestic role in society and that voting and working in the public world might drain them of the moral force that she believed was natural to them. Her views seemed to contradict her own life, since she was one of the country's most successful women, but she felt that because she had never married she was different than most women.
• By the time Tarbell's book was published, John D. Rockefeller was becoming one of the most influential philanthropists (people who give their money and time to charitable causes for the good of others) of his time.

Consider the following …

• How did the South Improvement Company pact hurt refiners who were not members of the pact? How did it favor members? Why do you think secret railroad rates were considered so important?
• Tarbell's book about Standard Oil is considered a classic piece of muckraking journalism. Do you think this kind of reporting is valuable to U.S. society? Why or why not?

For More Information

Books

Brady, Kathleen. Ida Tarbell: Portrait of a Muckraker. New York: Putnam, 1984.

Chernow, Ron. Titan: The Life of John D. Rockefeller, Sr. New York: Vintage Books, 2004.

Tarbell, Ida M. All in the Day's Work: An Autobiography. New York: Macmillan, 1939.

Tarbell, Ida M. The History of the Standard Oil Company. New York: McClure, Phillips and Co., 1904.

Web Sites

"Ida Tarbell." Pennsylvania Historical and Museum Commission. http://www.phmc.state.pa.us/ppet/tarbell/page1.asp?secid=31 (accessed on July 6, 2005).

"Origins of Sayings—'The Public Be Damned.'" Trivia-Library.com. http://www.trivia-library.com/b/origins-of-sayings-the-public-be-damned.htm (accessed on July 6, 2005).

"The Rockefellers: People and Events: Ida Tarbell, 1857-1944." American Experience, PBS. http://www.pbs.org/wgbh/amex/rockefellers/people events/p_tarbell.html (accessed on July 6, 2005).