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<title>&#8220;Vindicating Capitalism: The Real History of the Standard Oil Company&#8221; by Alex Epstein</title>
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				<a id="issue" class="summer-2008" href="index.asp"><span>Summer 2008</span>Vol. 3, No. 2</a>
				<p class="editors-note">This article is from <em>TOS</em> Vol. 3, No. 2. The full contents of the issue are listed <a href="index.asp">here</a>.</p>
				<h1>Vindicating Capitalism: The Real History of the Standard Oil Company</h1>
				<p class="byline">Alex Epstein</p>
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				<img src="http://www.theobjectivestandard.com/issues/2008-summer/_images/rockefeller.jpg" alt="John D. Rockefeller" class="feat-img" />
		  	  	<div class="epigraph">
					<p>Who were we that we should succeed where so many  others failed? Of course, there was something wrong, some dark, evil mystery,  or we never should have succeeded!<a href="#_edn1" name="_ednref1" id="_ednref1" class="endnote">1</a></p>
					&mdash;John D. Rockefeller
				</div>
		  	  	<h2>The Standard Story of Standard Oil</h2>
		  	  	<p>In 1881, <em>The Atlantic</em> magazine  published Henry Demarest Lloyd&rsquo;s essay &ldquo;The Story of a Great Monopoly&rdquo;&mdash;the  first in-depth account of one of the most infamous stories in the history of  capitalism: the &ldquo;monopolization&rdquo; of the oil refining market by the Standard Oil  Company and its leader, John D. Rockefeller. &ldquo;Very few of the forty millions of  people in the United States who burn kerosene,&rdquo; Lloyd wrote,</p>
		  	  	<blockquote>
					<p>know that its production,  manufacture, and export, its price at home and abroad, have been controlled for  years by a single corporation&mdash;the Standard Oil Company. . . . The Standard produces only one fiftieth or sixtieth of our  petroleum, but dictates the price of all, and refines nine tenths. This  corporation has driven into bankruptcy, or out of business, or into union with  itself, all the petroleum refineries of the country except five in New York,  and a few of little consequence in Western Pennsylvania. . . . the means by  which they achieved monopoly was by conspiracy with the railroads. . . .  [Rockefeller] effected secret arrangements with the Pennsylvania, the New York  Central, the Erie, and the Atlantic and Great Western. . . . After the Standard  had used the rebate to crush out the other refiners, who were its competitors  in the purchase of petroleum at the wells, it became the only buyer, and  dictated the price. It began by paying more than cost for crude oil, and  selling refined oil for less than cost. It has ended by making us pay what it  pleases for kerosene. . . .<a href="#_edn2" name="_ednref2" id="_ednref2" class="endnote">2</a></p>
		  	  	</blockquote>
				<p>Many similar accounts followed Lloyd&rsquo;s&mdash;the most  definitive being Ida Tarbell&rsquo;s 1904 <em>History of the Standard Oil Company</em>,  ranked by a survey of leading journalists as one of the five greatest works of  journalism in the 20th century.<a href="#_edn3" name="_ednref3" id="_ednref3" class="endnote">3</a>  Lloyd&rsquo;s, Tarbell&rsquo;s, and other works differ widely in their depth and details,  but all tell the same essential story&mdash;one that remains with us to this day.</p>
		  	  	<p>Prior to Rockefeller&rsquo;s rise to dominance in the  early 1870s, the story goes, the oil refining market was highly competitive, with  numerous small, enterprising &ldquo;independent refiners&rdquo; competing harmoniously with  each other so that their customers got kerosene at reasonable prices while they  made a nice living. Ida Tarbell presents an inspiring depiction of the early  refiners.</p>
		  	  	<blockquote>
					<p>Life ran swift and ruddy and joyous  in these men. They were still young, most of them under forty, and they looked  forward with all the eagerness of the young who have just learned their powers,  to years of struggle and development. . . . They would meet their own needs. They would bring the oil refining to the region where it belonged. They would  make their towns the most beautiful in the world. There was nothing too good  for them, nothing they did not hope and dare.<a href="#_edn4" name="_ednref4" id="_ednref4" class="endnote">4</a></p>
		  	  	</blockquote>
				<p>&ldquo;But suddenly,&rdquo; Tarbell laments, &ldquo;at the very heyday  of this confidence, a big hand [Rockefeller&rsquo;s] reached out from nobody knew  where, to steal their conquest and throttle their future. The suddenness and  the blackness of the assault on their business stirred to the bottom their  manhood and their sense of fair play. . . .&rdquo;<a href="#_edn5" name="_ednref5" id="_ednref5" class="endnote">5</a></p>
		  	  	<p>Driven by insatiable greed and pursuing his firm&rsquo;s  self-interest above all else, the story goes, Rockefeller conspired to obtain  an unfair advantage over his competitors through secret, preferential rebate  contracts (discounts) with the railroads that shipped oil. By dramatically and  unfairly lowering his costs, he slashed prices to the point that he could make  a profit while his competitors had to take losses to compete. Sometimes he went  even further, engaging in &ldquo;predatory pricing&rdquo;: lowering prices so much that  Standard took a small, temporary loss (which it could survive given its pile of  cash) while his competitors took a bankrupting loss.</p>
		  	  	<p>These &ldquo;anticompetitive&rdquo; practices of rebates and  &ldquo;predatory pricing,&rdquo; the story continues, forced competitors to sell their  operations to Rockefeller&mdash;their only alternative to going out of business. It  was as if he was holding a gun to their heads&mdash;and the &ldquo;crime&rdquo; only grew as  Rockefeller acquired more and more companies, enabling him, in turn, to extract  ever steeper rebates from the railroads, which further enabled him to prey on  new competitors with unmatchable prices. This continued until Rockefeller  acquired an unchallengeable monopoly in the industry, one with the &ldquo;power&rdquo; to  banish future competition at will and to dictate prices to suppliers (such as  crude oil producers) and consumers, who had no alternative refiner to turn to.</p>
		  	  	<p>Pick a modern history or economics textbook at  random and you are likely to see some variant of the Lloyd/Tarbell narrative  being taken for granted. Howard Zinn provides a particularly succinct  illustration in his immensely popular textbook <em>A People&rsquo;s History of the  United States</em>. Here is his summary of Rockefeller&rsquo;s success in the oil  industry: &ldquo;He bought his first oil refinery in 1862, and by 1870 set up  Standard Oil Company of Ohio, made secret agreements with railroads to ship his  oil with them if they gave him rebates&mdash;discounts&mdash;on their prices, and thus  drove competitors out of business.&rdquo;<a href="#_edn6" name="_ednref6" id="_ednref6" class="endnote">6</a></p>
		  	  	<p>Exhibiting the same &ldquo;everyone knows about the evil  Standard Oil monopoly&rdquo; attitude, popular economist Paul Krugman writes of  Standard Oil and other large companies of the late 19th century:</p>
		  	  	<blockquote>
					<p>The original &ldquo;trusts&rdquo;&mdash;monopolies  created by merger, such as the Standard Oil trust, or its emulators in the  sugar, whiskey, lead, and linseed oil industries, to name a few&mdash;were frankly  designed to eliminate competition, so that prices could be increased to  whatever the traffic would bear. It didn&rsquo;t take a rocket scientist to figure  out that this was bad for consumers and the economy as a whole.<a href="#_edn7" name="_ednref7" id="_ednref7" class="endnote">7</a></p>
				</blockquote>
		  	  	<p>The standard story of Standard Oil has a standard  lesson drawn from it: Rockefeller should never have been permitted to take the  destructive, &ldquo;anticompetitive&rdquo; actions (rebates, &ldquo;predatory pricing,&rdquo; endless  combinations) that made it possible for him to acquire and maintain his  stranglehold on the market. The near-laissez-faire system of the 19th century  accorded him too much economic freedom&mdash;the freedom to contract, to combine with  other firms, to price, and to associate as he judged in his interest.  Unchecked, economic freedom led to Standard&rsquo;s large aggregation of economic  power&mdash;the power flowing from advantageous contractual arrangements and vast  economic resources that enabled it to destroy the economic freedom of its  competitors and consumers. This power, we are told, was no different in essence  than the political power of government to wield physical force in order to  compel individuals against their will. In the free market, through unrestrained  voluntary contracts and combinations, Standard had allegedly become the  equivalent of a king or dictator with the unchallenged power to forbid  competition and legislate prices at whim. &ldquo;Standard Oil,&rdquo; writes Ron Chernow,  author of the popular Rockefeller biography <em>Titan</em>, &ldquo;had taught the  American public an important but paradoxical lesson: Free markets, if left  completely to their own devices can wind up terribly <em>un</em>free.&rdquo;<a href="#_edn8" name="_ednref8" id="_ednref8" class="endnote">8</a></p>
		  	  	<p>This lesson was and is the logic behind antitrust  law, in which government uses its political power to forcibly stop what it  regards as &ldquo;anticompetitive&rdquo; uses of economic power. John Sherman, the author  of America&rsquo;s first federal antitrust law, the Sherman Antitrust Act of 1890,  likely had Rockefeller in mind when he said:</p>
		  	  	<blockquote>
					<p>If we will not endure a king as a  political power we should not endure a king over the production,  transportation, and sale of any of the necessaries of life. If we would not  submit to an emperor, we should not submit to an autocrat of trade, with power  to prevent competition, and to fix the price of any commodity.<a href="#_edn9" name="_ednref9" id="_ednref9" class="endnote">9</a></p>
				</blockquote>
		  	  	<p>But Rockefeller was no autocrat. The standard lesson  of Rockefeller&rsquo;s rise is wrong&mdash;as is the traditional story of how it happened.  Rockefeller did not achieve his success through the destructive, &ldquo;anticompetitive&rdquo;  tactics attributed to him&mdash;nor could he have under economic freedom. Rockefeller  had no coercive power to banish competition or to dictate consumer prices. His  sole power was his earned <em>economic</em> power&mdash;which was no more and no less  than his ability to refine crude oil to produce kerosene and other products  better, cheaper, and in greater quantity than anyone thought possible.</p>
		  	  	<p>It has been more than one hundred years since Ida  Tarbell published her <em>History of the Standard Oil</em> <em>Company</em>. It is  time for Americans to know the real history of that company and to learn its  attendant and valuable lessons about capitalism.</p>
		  	  	<h2>The &ldquo;Pure and Perfect&rdquo; Early Refining Market</h2>
		  	  	<p>Any objective analysis of the nature of  Rockefeller&rsquo;s rise to dominance&mdash;Standard Oil had an approximately 90 percent  market share in oil refining from 1879 to 1899<a href="#_edn10" name="_ednref10" id="_ednref10" class="endnote">10</a>&mdash;must take into account the context  in which he rose. This means taking a thorough look at the market he came to  dominate, before he entered it.</p>
		  	  	<p>Traditional accounts of Rockefeller&rsquo;s ascent, which  began in 1863, portray the pre-Rockefeller market as a competitive paradise of  myriad &ldquo;independent refiners&rdquo;&mdash;a paradise that Rockefeller destroyed when he  drove his competitors out of business and wrested full &ldquo;control&rdquo; of the oil  refining business for himself.</p>
		  	  	<p>This idealized view of the early oil refining market  appeals to most readers, who have been taught that a good, &ldquo;competitive&rdquo; market  is one with as many viable competitors as possible, and that it is  &ldquo;anti-competitive&rdquo; to have a market with a few dominant participants  (&ldquo;oligopoly&rdquo;), let alone one dominant participant (&ldquo;monopoly&rdquo;). This view of markets was formalized in the 20th century  as the doctrine of &ldquo;pure and perfect&rdquo; or &ldquo;perfect&rdquo; competition, which holds  that the ideal market consists of as many distinct producers as possible, each  selling equally desirable, interchangeable products. Under &ldquo;perfect  competition,&rdquo; no one competitor has any independent influence on price, and the  profits of each are minimized as much as possible (on some variants of &ldquo;perfect  competition,&rdquo; prices equal costs and profits are nonexistent). Although  advocates of this view acknowledge (or lament) that it cannot exist in reality,  they view it as a model market toward which we should at least strive.</p>
		  	  	<p>By this standard, the early oil refining market was  &ldquo;perfect&rdquo; in many ways. Many small, &ldquo;independent,&rdquo; practically  indistinguishable refiners were in business. No one threatened to drive the  others out of business, and the market was extremely easy to enter; those with  no experience in refining could buy the necessary equipment for three hundred  dollars and start making profits almost immediately.<a href="#_edn11" name="_ednref11" id="_ednref11" class="endnote">11</a> Some refiners recovered their  start-up costs after one batch of kerosene.<a href="#_edn12" name="_ednref12" id="_ednref12" class="endnote">12</a></p>
		  	  	<p>But the traditional perspective ignores the crucial  aspect of markets relevant to their impact on human life: their <em>productivity</em>&mdash;how  much it produces, the value of that which is produced, and the efficiency with  which it is produced. By this standard, the oil refining market was anything  but perfect&mdash;refiners were at an early, primitive stage of productivity, which  happily ended.</p>
		  	  	<p>This is not a moral criticism of the early oil  refining industry. The first five years of that industry, along with the crude  production industry, from 1859 to 1864, were full of great achievements. It is  almost impossible to overstate the dramatic and near-immediate positive effect  of a group of scientists and businessmen discovering that &ldquo;rock oil,&rdquo;  previously thought to be useless, could be refined to produce kerosene&mdash;the  greatest, cheapest source of light known to man. In 1858, a year before the  first oil well was drilled, only well-to-do families such as that of  11-year-old Henry Demarest Lloyd could afford sperm whale oil at three dollars  per gallon to light their homes at night.<a href="#_edn13" name="_ednref13" id="_ednref13" class="endnote">13</a> For most, the day lasted only as  long as did the daylight. But by 1864, just five years into the industry, a New  York chemist observed:</p>
				<blockquote>
			  	  	<p>Kerosene has, in one sense,  increased the length of life among the agricultural population. Those who, on  account of the dearness or inefficiency of whale oil, were accustomed to go to  bed soon after the sunset and spend almost half their time in sleep, now occupy  a portion of the night in reading and other amusements; and this is more  particularly true of the winter seasons.<a href="#_edn14" name="_ednref14" id="_ednref14" class="endnote">14</a></p>
				</blockquote>
		  	  	<p>Still, the market&rsquo;s primitive methods of production  and distribution at this early stage made it impossible for it to have anywhere  near the worldwide impact it would have by the time Lloyd&rsquo;s famous essay  damning Rockefeller was published.</p>
		  	  	<p>A particularly problematic area was transportation,  which was convoluted and extremely expensive. Oil was transported in 42-gallon  wood barrels of spotty quality, costing $2.50 each. Each one had to be filled  and sealed separately and piled onto a railroad platform (where barrels were  prone to leak or fall off) or occasionally onto a barge (where barrels were  prone to fall off and start fires).<a href="#_edn15" name="_ednref15" id="_ednref15" class="endnote">15</a>  The myriad small refiners each could ship only a handful of barrels at a time;  this required the railroads to make many separate stops at different destinations  for different refiners, which resulted in a lengthy and expensive journey for  both railroads and refiners. And for some time, this was the <em>best </em>aspect  of the process. In the early days, to get barrels of crude oil from assorted  oil spots in northwest Pennsylvania onto railways headed for the refineries,  oil was transported by horse and wagon by teamsters, often through roadless  territory and waist-high mud, with barrels perpetually bouncing and frequently  breaking or falling out. (Because of government intervention, the teamsters had  a huge influence in politics and for years prevented the construction of local  pipelines&mdash;an incomparably superior form of oil transportation.)<a href="#_edn16" name="_ednref16" id="_ednref16" class="endnote">16</a></p>
		  	  	<p>The refining process, the core of the industry, was  also at a primitive stage. To refine crude oil is to extract from it one or  more of its valuable &ldquo;fractions,&rdquo; such as kerosene for illumination, paraffin  wax for candles, or gasoline for fuel. The heart of the refining process uses a  &ldquo;still&rdquo;&mdash;a distillation apparatus&mdash;to heat crude oil at multiple, increasing  temperatures to boil off and separate the different fractions, each of which  has a different boiling point. Distillation is simple in concept and basic  execution, but to produce quality kerosene and other by-products requires  precise temperature controls and various additional purification procedures.  Impure kerosene could be highly explosive; death by kerosene was a common  phenomenon in the 1860s and even the 1870s, claiming thousands of lives  annually. In fact, the spotty quality of much American kerosene is what  inspired John Rockefeller to call his company Standard Oil.<a href="#_edn17" name="_ednref17" id="_ednref17" class="endnote">17</a></p>
		  	  	<p>Some refineries in the early 1860s, such as those of  famed refiners Joshua Merrill and Charles Pratt, produced safe, high-quality  kerosene, but most did not. Tarbell&rsquo;s exalted &ldquo;independent refiners&rdquo; from the  Oil Regions of Pennsylvania, incidentally, produced the worst quality kerosene.</p>
		  	  	<p>&ldquo;Deluded by petroleum enthusiasts as to the  simplicity of refining,&rdquo; write Williamson and Daum in their comprehensive  history of the early petroleum industry, &ldquo;individuals inexperienced in any form  of distillation flocked into the new business. . . .&rdquo; But, they note,</p>
		  	  	<blockquote>
					<p>successful petroleum refining . . .  called for the utmost vigilance. . . . Real separation of the various  components of crude oil was no objective at all; their major purpose was simply  to distill off the gases, gasoline and naphtha fractions as fast as heat and  condensation could permit. All condensed liquid that conceivably could be  fobbed off as burning oil . . . was recovered and the tar residue was thrown  away. . . . Only in the provincial isolation of the Oil Region and nearby locations  did such outfits receive serious designations as petroleum refineries.<a href="#_edn18" name="_ednref18" id="_ednref18" class="endnote">18</a></p>
				</blockquote>
		  	  	<p>In a mature market, such operations, with their  inferior, hazardous products, would never succeed. But in the early stages of  the market, <em>anyone</em> could succeed, because the overall refining capacity  was insufficient to meet the enormous demand for kerosene.Even  lower-quality kerosene was spectacularly valuable compared to any other  illuminant Americans could buy.</p>
		  	  	<p>The supply-and-demand equation of kerosene even made  it possible for refiners with low efficiency to profit handsomely. In 1865,  kerosene cost fifty-eight cents a gallon; at one-fifth the cost of whale oil  this was a great deal for consumers&mdash;and it was a price at which anyone with a  still could make money. Even if the still was very small, requiring much more  manpower and other expenses per gallon of output than a larger still; even if  the still refined only kerosene and failed to make use of the other 40 percent  of crude; even if the still was low-quality and needed frequent repair or  replacement&mdash;the owner could turn a healthy profit.<a href="#_edn19" name="_ednref19" id="_ednref19" class="endnote">19</a></p>
		  	  	<p>This stage of the industry was necessarily  temporary. As more and more people entered the refining industry, attracted by  the premium profits, prices inevitably went down&mdash;as did profits for those who  could not increase their efficiency accordingly.</p>
		  	  	<p>Such a process, which began in the mid-1860s, was  more dramatic than almost anyone expected. Between 1865 and 1870, refining  capacity exploded relative to oil production, and prices plummeted  correspondingly. In 1865, kerosene cost fifty-eight cents a gallon; by 1870,  twenty-six cents.<a href="#_edn20" name="_ednref20" id="_ednref20" class="endnote">20</a> Refining  capacity was increasing relative to the supply of oil; by 1871 the ratio of  capacity to crude production was 2.5:1.<a href="#_edn21" name="_ednref21" id="_ednref21" class="endnote">21</a>  At this point, those who expected to make a livelihood with  three-hundred-dollar stills found the market very inhospitable. A shakeout of  the efficient men from the inefficient boys was inevitable. In the mid-1860s,  no one imagined that the best of the men, by orders of magnitude, would turn  out to be a 24-year-old boy named John Davison Rockefeller.</p>
		  	  	<h2>The Phenomenon</h2>
		  	  	<p>In 1863, the first railroad line was built  connecting the city of Cleveland to the Oil Regions in Pennsylvania, where  virtually all American oil came from. Clevelanders quickly took the opportunity  to refine oil&mdash;as had the residents of the Oil Regions, Pittsburgh, New York,  and Baltimore. Cleveland had the disadvantage of being one hundred miles<a href="#_edn22" name="_ednref22" id="_ednref22" class="endnote">22</a> from the oil fields but the  advantage of having far cheaper prices for materials and land (Oil Regions real  estate had become extremely expensive), plus proximity to the Erie Canal for  shipping.<a href="#_edn23" name="_ednref23" id="_ednref23" class="endnote">23</a></p>
		  	  	<p>In 1863, Rockefeller was running a successful  merchant business with his partner, Maurice Clark, when a local man named  Samuel Andrews approached the two. A talented amateur chemist, Andrews sought  their investment in a refinery. After investigating the industry, Rockefeller  convinced Clark that they should invest four thousand dollars.<a href="#_edn24" name="_ednref24" id="_ednref24" class="endnote">24</a> Rockefeller was attracted to the  substantial&mdash;and then stable&mdash;profits of the refining industry, in contrast to  the production industry, which alternated between incredible booms and busts.  (When producers struck a &ldquo;gusher,&rdquo; whole towns were built up to the height of  1860s luxury; when they dried up, those towns faded into abject poverty.) He  was not, however, impressed with the efficiency with which refiners ran their  operations. He believed he could do better.</p>
		  	  	<p>And he did&mdash;immediately. Instead of setting up a  shanty refinery, Rockefeller invested enough to create the largest refinery in  Cleveland: Excelsior Works. From the beginning, he encouraged Andrews to expand  and improve the refinery, which soon produced 505 barrels a day,<a href="#_edn25" name="_ednref25" id="_ednref25" class="endnote">25</a> as compared to some refineries in  the Oil Regions that produced as few as five barrels a day.<a href="#_edn26" name="_ednref26" id="_ednref26" class="endnote">26</a> Additionally, in a highly profitable  act of foresight, Rockefeller carefully bought the land for his refinery in a  place from which it would be easy to ship by railroad <em>and by water</em>, thus  putting shippers in competition for his business; his competitors simply placed  their refineries near the new Cleveland rail line and took for granted that it  would be their means of transportation.<a href="#_edn27" name="_ednref27" id="_ednref27" class="endnote">27</a></p>
		  	  	<p>Rockefeller&rsquo;s business background made him  well-suited to run a highly efficient firm. His first interest in business had  been accounting&mdash;the art of measuring profit and loss (i.e., economic  efficiency). Rockefeller&rsquo;s first job had been as an assistant bookkeeper, and  for his entire career he revered the practice of careful financial record-keeping. &ldquo;For Rockefeller,&rdquo; writes Ron Chernow, &ldquo;ledgers were  sacred books that guided decisions and saved one from fallible emotion. They  gauged performance, exposed fraud, and ferreted out hidden inefficiencies.&rdquo;<a href="#_edn28" name="_ednref28" id="_ednref28" class="endnote">28</a></p>
		  	  	<p>Rockefeller was hardly the only man in the refining  industry with a background in accounting or a concern with efficiency. But he  was distinguished in this regard by his <em>degree of focus</em> on applying good  accounting practices to his new business. Rockefeller, from a young age,  exhibited an obsessive, laser-like concentration on whatever he chose as his  purpose. At age sixteen he landed an accounting job after six weeks of repeated  visits to top firms, shrugging off rejections until he finally convinced one of  them, Hewitt and Tuttle, to hire him.<a href="#_edn29" name="_ednref29" id="_ednref29" class="endnote">29</a>  Applied to the task of minimizing costs and maximizing revenues in his refining  operation, Rockefeller&rsquo;s focus brought Standard Oil phenomenal success.</p>
		  	  	<p>While other refiners took any given business cost  for granted&mdash;including the cost of barrels and the cost of crude&mdash;Rockefeller put  himself and those who worked for him to the task of discovering ways to lower  every cost while continuously seeking additional sources of revenue.</p>
		  	  	<p>Consider the cost of transporting oil in barrels.  Barrels were a major expense for everyone in the industry, and barrel makers  were notoriously unreliable when it came to delivering barrels on time.  Rockefeller at once slashed his costs and solved this reliability problem by  having his firm manufacture its own barrels. He purchased forest land, had  laborers cut wood, and&mdash;in a crucial innovation&mdash;had the wood dried in a kiln  before using it to transport kerosene. (Others used green wood barrels, which  were far heavier and thus more expensive to transport.) With these and other  innovations, Rockefeller&rsquo;s barrel costs dropped from $2.50 a barrel to less  than $1 a barrel&mdash;and he always had barrels when he needed them.<a href="#_edn30" name="_ednref30" id="_ednref30" class="endnote">30</a></p>
		  	  	<p>Rockefeller further lowered his costs by eliminating  the use of barrels altogether in receiving crude oil (barrels would remain in  use for shipping refined oil to customers for some time). He did so by  investing in &ldquo;tank cars&rdquo;&mdash;railroad cars fitted with giant tanks&mdash;shortly after  they came on the market in 1865. By 1869, he owned seventy-eight of them,  yielding huge cost savings over his competitors.<a href="#_edn31" name="_ednref31" id="_ednref31" class="endnote">31</a></p>
		  	  	<p>Or consider the cost of buying crude, which most  people took as entirely dependent upon current market prices. One way in which  he cut this cost was by employing his own purchasing agents, which eliminated  the need for paying &ldquo;jobbers&rdquo; (purchasing middlemen). A shrewd negotiator,  Rockefeller trained his purchasing agents to obtain the best possible prices.  Further saving money and improving his negotiating position, Rockefeller built  large storage facilities to keep crude in reserve, so that he would not have to  pay exorbitant prices in the event of a spike in its price. Accordingly, his  purchasing agents developed comprehensive, constantly updated knowledge of the  industry so that they could determine the most opportune times to purchase  crude.</p>
		  	  	<p>These improvements, along with many others,  reflected a practice that characterized Rockefeller&rsquo;s firm for his thirty-five  years at the helm: <em>vertical integration</em>&mdash;incorporating into a company  functions that it had previously paid others to do. Time after time,  Rockefeller found that, given his and his subordinates&rsquo; talent and innovative  spirit, many facets of the business could be done more cheaply if his firm  undertook them itself.</p>
		  	  	<p>Rockefeller also lowered costs in the refining  process itself. One particularly innovative form of cost-cutting in which he  engaged was self-insurance against fires. In the early refining industry, the  danger of fire was omnipresent. Even in the 1870s, when safety improved  significantly, premiums &ldquo;varied from 25 per cent down to 5 per cent of  valuation. . . .&rdquo;<a href="#_edn32" name="_ednref32" id="_ednref32" class="endnote">32</a> Rockefeller  determined that he could save money by self-insuring. He regularly set aside  income to handle fire damage, while implementing every safety precaution he and  his men could think of. The practice saved the company thousands and,  eventually, millions of dollars; over time, its insurance funds grew to the  point where they could be used to pay large dividends to shareholders. (In  later years, Rockefeller contained the risk of fire even more by multiplying  refineries across the country, so that one disaster could do only so much  damage.)<a href="#_edn33" name="_ednref33" id="_ednref33" class="endnote">33</a></p>
		  	  	<p>Another refining cost that Rockefeller minimized was  the chemical treatment of kerosene. Samuel Andrews was skilled at determining  the right quantity of sulfuric acid needed to completely purify distilled  kerosene. This was important because sulfuric acid was expensive. Rockefeller  saved money by getting ideal results with 2 percent whereas competitors often  used up to 10 percent.<a href="#_edn34" name="_ednref34" id="_ednref34" class="endnote">34</a></p>
		  	  	<p>And in building his refineries, Rockefeller used the  highest quality materials to get maximum longevity from equipment&mdash;thus avoiding  the reliability issues of early stills&mdash;and he built large facilities so as to  lower his labor costs per gallon refined.</p>
		  	  	<p>Rockefeller also worked to maximize the amount of  revenue he could bring in, both by selling by-products of crude besides  kerosene and by establishing marketing operations in major consumer states and  overseas. Appalled at the idea of wasting the 40 percent of his crude that was  not kerosene, Rockefeller extracted and sold the fraction naphtha, and he sold  much of the remaining portion of the crude to other refiners who specialized in  other non-kerosene fractions, such as paraffin wax and gasoline. (He also used  fuel oil from crude to help power his plants, thereby saving money on coal.)  Later, Rockefeller&rsquo;s firm refined and sold all these fractions&mdash;becoming what is  called a &ldquo;complete&rdquo; refinery&mdash;but even before that development, he let no  cost-cutting or value-creating opportunity go to waste.</p>
		  	  	<p>In the mid-1860s, Rockefeller set up an office in  New York City to focus on overseas sales. The overseas market for kerosene was  larger than the American market and presented a great opportunity to  Rockefeller since nearly all the world&rsquo;s known oil at the time was American.  Recognizing the importance of having a steady stream of foreign demand,  Rockefeller had his brother head the New York operation to keep tabs on the  various markets and maximize sales.</p>
		  	  	<p>These improvements in efficiency and marketing  resulted in a company that was staggeringly more productive than most of its  rivals, and well on its way to revolutionizing the oil refining industry.</p>
		  	  	<p>Rockefeller&rsquo;s obsession with cutting costs has been  called &ldquo;penny-pinching&rdquo;<a href="#_edn35" name="_ednref35" id="_ednref35" class="endnote">35</a>&mdash;a term  that aptly describes his desire and ability to cut costs to the smallest  detail. But insofar as it conjures an image of a miserly businessman, the term  does not apply. Rockefeller, by disposition and in action, was anything but  averse to spending money; he recognized that spending in the form of <em>investing</em> was vital to the dramatic increases in efficiency he sought and achieved.</p>
		  	  	<p>Many of Rockefeller&rsquo;s penny-pinching methods <em>required</em> investments, often large ones. He knew that although these would cut into his  cash in the short run, they would prove profitable in the long run&mdash;if the  company simultaneously invested in its growth. The greater the firm&rsquo;s output,  the more it could leverage economies of scale, achieving greater efficiency by  dispersing productivity-increasing costs over a greater number of units. By  virtue of its size and output, Rockefeller&rsquo;s firm was able, for example, to  purchase, maintain, and replant forests in order to more efficiently produce  barrels&mdash;a strategy that would be utterly unprofitable for a small refiner producing,  say, fifty barrels a day.</p>
		  	  	<p>The bigger the company, the more it can invest in  efficiency-increasing measures&mdash;from tank cars to forests to purchasing agents  to self-insurance&mdash;when it makes financial sense. Recognizing this, Rockefeller  reinvested profits in the business at every opportunity. Whereas other oilmen  in the booming 1860s spent almost all of their profits on the premise that  current market conditions would endure and therefore future revenue would  easily cover their future costs, Rockefeller reinvested as much of the firm&rsquo;s  profit as possible in its growth, efficiency, and durability. </p>
		  	  	<p>Rockefeller also solicited large amounts of capital  from outside the company. Early on, he borrowed money frequently, which he  could do easily given his lifelong track record of perfect credit.  Rockefeller&rsquo;s penchant for borrowing turned out to be his path to assuming full  leadership of the company. His business partner, Maurice Clark, routinely  complained during the refinery&rsquo;s first two years about Rockefeller&rsquo;s borrowing,  and in 1865 threatened to dissolve the firm. Rockefeller called his bluff,  announced the dissolution in the paper, and agreed to bid with him for the  refinery business. The 26-year-old Rockefeller won, for a price of $72,500 (the  equivalent today of about $820,000).<a href="#_edn36" name="_ednref36" id="_ednref36" class="endnote">36</a>  Clark thought he had gotten a bargain&mdash;but given what Rockefeller was to  accomplish in the next five years, Clark would undoubtedly come to think twice.</p>
		  	  	<p>In 1867, Rockefeller accepted an outside investment  of several hundred thousand dollars from Henry Flagler and John Harkness.<a href="#_edn37" name="_ednref37" id="_ednref37" class="endnote">37</a> The investment turned out better  than anyone could have hoped; Rockefeller gained not only vital capital, but  also Flagler, who would be his beloved right-hand man for decades to come.</p>
		  	  	<p>By 1870, the firm of Rockefeller, Andrews, and  Flagler was, thanks to Rockefeller&rsquo;s vision, a super-efficient refining  machine, generating more than fifteen hundred barrels a day<a href="#_edn38" name="_ednref38" id="_ednref38" class="endnote">38</a>&mdash;more than most refineries could  produce in a week&mdash;at lower cost than anyone else. And in that year, the firm  became the Standard Oil Company of Ohio&mdash;a joint-stock company, of the type used  by railroads, that enabled Rockefeller to more easily acquire other refiners in  the coming years.</p>
		  	  	<p>Reflecting Rockefeller&rsquo;s profitable investments in  efficiency, the Company declared assets including &ldquo; . . . sixty acres in  Cleveland, two great refineries, a huge barrel making plant, lake facilities, a  fleet of tank cars, sidings and warehouses in the Oil Regions, timberlands for  staves, warehouses in the New York area, and [barges] in New York Harbor.&rdquo;<a href="#_edn39" name="_ednref39" id="_ednref39" class="endnote">39</a></p>
		  	  	<p>But Standard&rsquo;s most important asset was Rockefeller,  followed by his close associates. Rockefeller&rsquo;s ambition for the expansion of  the business was only growing, and he talked with Henry Flagler morning, noon,  and night about possibilities and plans. Reflecting on the company nearly fifty  years later, Rockefeller recalled: &ldquo;We had vision. We saw the vast  possibilities of the oil industry, stood at the center of it, and brought our  knowledge and imagination and business experience to bear in a dozen, in  twenty, in thirty directions.&rdquo;<a href="#_edn40" name="_ednref40" id="_ednref40" class="endnote">40</a></p>
		  	  	<p>The days of indistinguishably inefficient refiners  were over. And Rockefeller, barely thirty, was just scratching the surface of  his productive potential.</p>
		  	  	<p>Having explored this much of Rockefeller&rsquo;s  hard-earned success, let us turn to his most controversial form of cost savings  and efficiency: railroad rebates.</p>
		  	  	<h2>The Virtuous Rebates</h2>
		  	  	<p>Historians overwhelmingly attribute  Rockefeller&rsquo;s success to his dealings with the railroads, dealings that are  almost universally viewed as &ldquo;anticompetitive.&rdquo;</p>
		  	  	<p>Here is Ida Tarbell&rsquo;s description of how Rockefeller  advanced ahead of other refiners&mdash;as described from their perspective (with  which Tarbell agrees).</p>
		  	  	<blockquote>
					<p>John Rockefeller might get his oil  cheaper now and then . . . but he could not do it often. He might make close  contracts for which they [other refiners] had neither the patience nor the  stomach. He might have an unusual mechanical and practical genius in [Samuel  Andrews]. But these things could not explain all. They believed they bought, on  the whole, almost as cheaply as he, and they knew they made as good oil and  with as great, or nearly as great, economy. He could sell at no better price  than they. Where was his advantage? There was but one place where it could be,  and that was in transportation. He must be getting better rates from the railroads  than they were.<a href="#_edn41" name="_ednref41" id="_ednref41" class="endnote">41</a></p>
				</blockquote>
		  	  	<p>This is an unforgivable evasion of Rockefeller&rsquo;s  vast productive superiority over his competitors in the late 1860s. It is  possible that some of Rockefeller&rsquo;s competitors believed this in the 1860s&mdash;as  Rockefeller, to the extent possible, kept his business methods and the scope of  his operations secret&mdash;but for Tarbell to write this in the 1900s is absurd.</p>
		  	  	<p>Also absurd is the implication of the success-by-rebates  story: that railroads arbitrarily gifted Rockefeller with rebates so  enormous he was able to bankrupt the competition. No seller of the era (or any  era) <em>gave</em> Rockefeller or anyone unnecessary or unprofitable  discounts&mdash;certainly not railroads, which were often struggling financially.  Rockefeller <em>earned</em> his rebates, by devising ways to make his oil cheaper  to ship and by setting shippers in competition with one another so that he  could negotiate them down to the best price.</p>
		  	  	<p>The story of Standard&rsquo;s first known rebate  illustrates the true nature of the phenomenon. In this case, Standard extracted  a big discount by dramatically lowering a railroad&rsquo;s shipping costs.</p>
		  	  	<p>When the Lake Shore railroad built a connection to  Cleveland in 1867, Flagler went to the railroad&rsquo;s vice president and offered to  pay 35 cents a barrel for shipping crude from the Oil Regions to Cleveland, and  $1.30 a barrel for kerosene sent to New York (usually for export). In exchange  for these discounts, Flagler offered the Lake Shore a major incentive:  guaranteed, large, regular shipments. This was a huge boon to the Lake Shore,  and its vice-president James H. Devereux readily accepted the deal. As he  explained:</p>
		  	  	<blockquote>
					<p>[T]he then average time for a round  trip from Cleveland to New York for a freight car was thirty days; to carry  sixty cars per day would require 1,800 cars at an average cost of $500 each,  making an investment of $900,000 necessary to do this business, as the ordinary  freight business had to be done; but [research showed] that if sixty carloads  could be assured with absolute regularity each and every day, the time for a  round trip from Cleveland to New York and return could be reduced to ten days,  . . . only six hundred cars would be necessary to do this business with an  investment therefore of only $300,000.<a href="#_edn42" name="_ednref42" id="_ednref42" class="endnote">42</a></p>
				</blockquote>
		  	  	<p>Praising the rebate as a boon to the Lake Shore,  Devereux said: &ldquo;Mr. Flagler&rsquo;s proposition offered to the railroad company a  larger measure of profit than would or could ensue from any business to be  carried under the old arrangements.&nbsp;.&nbsp;.&nbsp;.&rdquo;<a href="#_edn43" name="_ednref43" id="_ednref43" class="endnote">43</a></p>
		  	  	<p>Guaranteed, large shipments were a landmark,  cost-cutting innovation in oil transportation&mdash;identical in nature to  Rockefeller&rsquo;s use of tank cars or his cost-cutting in barrel production. As  economic and antitrust historian Dominick Armentano summarizes, Standard also  &ldquo;furnished loading facilities and discharging facilities at great cost; . . .  it provided terminal facilities and exempted the railroads from liability for  fire by carrying its own insurance.&rdquo;<a href="#_edn44" name="_ednref44" id="_ednref44" class="endnote">44</a></p>
		  	  	<p>In addition to lowering railroads&rsquo; costs to obtain  better prices, Rockefeller&rsquo;s firm was expert at setting railroads against one  another and cultivating alternative means of shipping, such as waterways, to  further lower shipping costs. Having established the location of his first refinery  near the Erie Canal and having built up a large capital position he was able to  take advantage of the lower rates of shipping by water; because it was slower  than shipping by land it required a company to have, in addition to water  access, the capital to handle the larger delay between paying for crude and  being paid for kerosene. Of much of his competition, Rockefeller said: &ldquo;The  others had not the capital and could not let the oil remain so long in transit  by lake and canal; it took twice as long that way. . . .&rdquo;<a href="#_edn45" name="_ednref45" id="_ednref45" class="endnote">45</a></p>
		  	  	<p>Rockefeller&rsquo;s rebates, then, were an earned cost  savings of the sort that any market competitor&mdash;and any consumer&mdash;should  perpetually seek. The extent to which others could not match the low prices he  was able to charge in the 1870s as a result of his many cost-cutting measures,  including this one, is simply an instance of productive inferiority; nothing  about it is coercive or &ldquo;anticompetitive.&rdquo; To say that Rockefeller&mdash;by cutting  his costs, thus enabling himself to sell profitably for lower prices and win  over more customers&mdash;was rendering competitors &ldquo;unfree&rdquo; is like saying that  Google is rendering its competitors unfree by building the most appealing  search engine. To call Rockefeller&rsquo;s actions &ldquo;anticompetitive&rdquo; is to say that  &ldquo;competition&rdquo; consists in no one ever outperforming anyone else. Economic  freedom does not mean the satisfaction of anyone&rsquo;s arbitrary desires to succeed  in any market regardless of ability or performance or consumer preferences; it  means that everyone is free to produce and trade by voluntary exchange to  mutual consent. If one cannot compete in a certain field or industry, one is  free to seek another job&mdash;but not to cripple those who are able to compete. </p>
		  	  	<p>True economic competition&mdash;the kind of competition  that made kerosene production far cheaper&mdash;is not a process in which businessmen  are forced by the government to relinquish their advantages, to minimize their  profits, to perform at the norm, never rising too far above the mean. Economic  competition is a process in which businessmen are free to capitalize on their  advantages, to maximize their profits, to perform at the peak of their  abilities, to rise as high as their effort and skill take them. </p>
		  	  	<p>Rockefeller&rsquo;s meteoric rise and the business  practices that made it possible&mdash;including his dealings with the  railroads&mdash;epitomize the beauty of a free market. His story provides a clear  demonstration of the kind of life-serving productivity that is the hallmark of  laissez-faire competition.</p>
		  	  	<h2>The Missing Context of Standard&rsquo;s Rise to Supremacy</h2>
		  	  	<p>The 1870s was a decade of gigantic growth for  the Standard Oil Company. In 1870, it was refining fifteen hundred barrels per  day&mdash;a huge amount for the time. By January 1871, it had achieved a 10 percent  market share, making it the largest player in the industry. By 1873, it had  one-third of the market share, was refining ten thousand barrels a day and had  acquired twenty-one of the twenty-six other firms in Cleveland. By the end of  the decade, it had achieved a 90 percent market share.</p>
		  	  	<p>Such figures are used as ammunition by those who  believe in the dangers of acquisitions and high market share. These critics  believe that Standard&rsquo;s growth and its ability to acquire so many companies so  quickly &ldquo;must have&rdquo; come from&nbsp; some sort  of &ldquo;anticompetitive&rdquo; misconduct&mdash;and they point to Standard Oil&rsquo;s participation  in two cartels during the early 1870s as evidence of Rockefeller&rsquo;s market  malice. </p>
		  	  	<p>But the growing success of Standard did not flow  from these attempted cartels&mdash;neither of which Standard initiated, and both of  which failed miserably in very short order&mdash;but from the company&rsquo;s enormous  productive superiority to its competitors, and from the market conditions whose  groundwork had been laid in the 1860s. Without understanding these conditions,  one cannot understand Rockefeller&rsquo;s exceptionally rapid rise.</p>
		  	  	<p>Recall that in 1870 kerosene cost twenty-six cents a  gallon, while three-fourths of the refining industry was losing money. A major  cause of this was that refining capacity was at 12 million barrels a year,  while there were only 5 million barrels to refine,<a href="#_edn46" name="_ednref46" id="_ednref46" class="endnote">46</a> a disparity that had an upward  effect on the price of the crude that refiners purchased&mdash;and a downward effect  on the price of the refined oil they sold. On November 8, 1871, a writer for  the <em>Titusville Herald</em> estimated that &ldquo;at present rates the loss to the  refiner, on the average, is seventy-five cents per barrel.&rdquo;<a href="#_edn47" name="_ednref47" id="_ednref47" class="endnote">47</a> Rockefeller&rsquo;s firm, which was  engineered to drastically lower production costs, could profit with such  prices; few other firms could.</p>
		  	  	<p>Even if there had not been a major excess of  refining capacity, most of the refiners in America would have been unable to  survive without drastically transforming their businesses. Rockefeller had  raised the industry bar, and was expanding; anyone who hoped to compete with  him would have to run a refining operation of comparable scale and efficiency.</p>
		  	  	<p>Still, the excess capacity exacerbated the trouble  for the lesser refiners&mdash;many of whom further exacerbated their own trouble by  refusing to close or sell their failing businesses. In 1870, the <em>Pittsburgh  Evening Chronicle</em> described the &ldquo;very discouraging&rdquo; tendency of the  industry to <em>increase</em> refining capacity &ldquo;ad infinitum&rdquo; even during  difficult times.<a href="#_edn48" name="_ednref48" id="_ednref48" class="endnote">48</a> One projection  in 1871 put the rate of expansion at four thousand barrels per day.<a href="#_edn49" name="_ednref49" id="_ednref49" class="endnote">49</a></p>
		  	  	<p>Refiners hoped that the old prices would come back.  But the harsh reality for those refiners was that they could return to  profitability only if they could restructure their businesses as modern,  technological enterprises with the economies of scale on the order of those  achieved by Standard. This reality became increasingly apparent over the decade  as prices dropped from 26 cents a gallon in 1870, to 22 cents in 1872, to 10  cents in 1874.<a href="#_edn50" name="_ednref50" id="_ednref50" class="endnote">50</a></p>
		  	  	<p>The failing refiners were neither the first nor the  last businesses to be in such a situation. And, like many before and after  them, they tried to solve their problems via cartels: agreements among producers  to artificially reduce their production in order to artificially raise their  prices. Rockefeller, hoping for stability in prices and an end to the  irrationality of others refining beyond their means, joined and supported two  cartels. This move was disastrous&mdash;the worst of Rockefeller&rsquo;s career.</p>
		  	  	<p>Cartels are generally viewed as evil, destructive  schemes because they are overt attempts by a group of businesses to increase  revenues by raising consumers&rsquo; prices across an industry. In and of itself,  however, seeking higher prices for one&rsquo;s products is not evil; it is good. The  problem with cartels is not that they seek higher profits, but that they  shortsightedly attempt to generate them by non-productive means. So long as the economic freedom to offer competing or  substitute products exists&mdash;as should be the case&mdash;such a scheme is bound to  fail.</p>
		  	  	<p>Cartels are more accurately viewed as ineffectual  than evil. Cutting off supply in order to effect higher profits rewards those  who do not participate in the scheme (as well as cheaters within the cartel)  with the opportunity to sell more of their own products at inflated prices. And  to attempt a cartel is to invite a boycott and long-term alienation from one&rsquo;s  customers. These truths were borne out by both the South Improvement Company  (SIC) scheme and the Pittsburgh Plan.</p>
		  	  	<p>The Pennsylvania Railroad and its infamous leader,  Tom Scott, a master manipulator of the Pennsylvania legislature, initiated the  South Improvement Company cartel. Railroads, like oil refiners, were struggling  financially; they too had overbuilt given the market. Having less traffic than  they had anticipated, they sought to solve the problem by charging above-market  prices. Here is the essence of their plan: The railroads would more than double  the rates for everyone outside the cartel, including oil producers, to either  bring all refiners into the SIC or drive them out of business. In turn, SIC  refiners, which could constitute virtually all the refiners on the market,  would impose strict limits on their output in order to raise prices. It seemed  to be a &ldquo;win-win&rdquo; plan: The railroads would get higher rates and more revenue,  and SIC refiners would raise prices and start profiting again.</p>
		  	  	<p>This whole scheme, however, was delusional. For one,  it presumed that the oil producers would accept catastrophic rate increases.  They did not.</p>
		  	  	<p>The oil producers&mdash;who were also the railroads&rsquo;  consumers and the refineries&rsquo; suppliers&mdash;retaliated by placing an embargo on  refineries associated with the South Improvement Company. The proposed rate  increases were so dramatic and arbitrary that producers were strongly committed  to the embargo&mdash;and it worked, cutting off Standard&rsquo;s operations while  benefiting those who did not participate. Writes Charles Morris in <em>The  Tycoons</em>, &ldquo;By early March, [1872] the Standard was effectively out of  business, and up to 5,000 Cleveland refinery workers were laid off. . . . [In  early April] the triumphant producers announced the end of their embargo.&rdquo;<a href="#_edn51" name="_ednref51" id="_ednref51" class="endnote">51</a> The South Improvement Company never  collected a rebate.</p>
		  	  	<p>So much for Standard&rsquo;s and the SIC&rsquo;s &ldquo;monopoly  power.&rdquo;</p>
		  	  	<p>The other cartel in which Standard participated, the  Pittsburgh Plan, was an agreement between oil producers and refiners to inflate  their respective prices. While the 1870s began with high crude prices due to  low crude supply and excess refinery capacity, a series of gushers soon reduced  the price of crude to about $3.50 a barrel. Oil producers wanted to reverse  this trend. Again, the idea was to artificially restrict production, raise  prices, and reap the profits while competitors and consumers idly complied. The  participants agreed that refiners would buy oil at the premium price of $5 a  barrel (in some cases $4) so long as the producers substantially limited their  production. Refineries, also, would limit production to raise their prices. The  deal was wildly illogical; part of it stipulated that producers in the Oil  Regions would simply cease new drilling for six months.</p>
		  	  	<p>The plan dissolved in short order. Producers outside  the cartel did not play their role of not trying to make a profit; instead,  they expanded their production to make money&mdash;as did cartel members once this  started happening. Prices fell&mdash;indeed, they fell immediately to the market  rate, $3.25; within two months, following more crude discoveries, prices fell  again, down to $2.<a href="#_edn52" name="_ednref52" id="_ednref52" class="endnote">52</a></p>
		  	  	<p>Historians try to outdo one another in denouncing  the oil cartels as immoral. But given the desperation of many in the industry,  and the relatively primitive understanding of how such arrangements pan out, it  is more valuable to learn from the incidents, to gain a better understanding of  the nature of cartels and other attempts to control markets under economic  freedom.</p>
		  	  	<p>Despite a huge percentage of refiners trying  collectively to control market prices, they could not do so&mdash;because they had no  means of <em>forcing</em> consumers to pay their prices or of forcing other  producers not to compete by offering lower prices. The only thing they could  control was their own production and whether it was the best it could be. Before  the cartels, Rockefeller had relied solely on stellar production and efficiency  to achieve great success; his participation in the cartels brought him failure  and ire and was antithetical to his fundamental goal of <em>expanding production</em>.</p>
		  	  	<p>In the wake of the South Improvement Company fiasco,  Rockefeller claimed&nbsp; that he had never  believed the cartel would work and that he had participated in it merely to  show failing refiners that the only solution to their problems was to sell  their businesses to him. Given his company&rsquo;s prominent role in the SIC, this is  likely overstated. But it is undeniable that while planning the cartel,  Rockefeller began an aggressive policy of acquisition and improvement that  continued throughout the decade.</p>
		  	  	<h2>From 10 to 90 in Eight Years</h2>
		  	  	<p>Rockefeller had several motives for acquiring  competitors. First, other refineries had talent and assets that he  wanted&mdash;including facilities that produced not only kerosene, but a full range  of petroleum products. Second, he wanted to eliminate the industry&rsquo;s excess  refining capacity and its accompanying instability as soon as possible, rather  than ride out the storm as the other ships sank. </p>
		  	  	<p>Rockefeller made his first acquisition in December  1871. He proposed a buyout to Oliver Payne of Clark, Payne &amp; Company, which  was his biggest competitor in Cleveland (and which featured the same Clark  family that initially had been involved in business with Rockefeller). Payne,  suffering from the depressive industry conditions and without much hope of  timely relief, was open to the possibility of selling. The decisive moment in  the negotiations came when Rockefeller showed Payne Standard&rsquo;s books. Payne was  &ldquo;thunderstruck&rdquo; by how much profit the company was making under conditions in  which others were flailing.<a href="#_edn53" name="_ednref53" id="_ednref53" class="endnote">53</a>  Rockefeller bought the company for $400,000 (a &ldquo;goodwill&rdquo; premium of $150,000  more than its then current market value).</p>
		  	  	<p>After acquiring Clark, Payne &amp; Company,  Rockefeller increased his company&rsquo;s capitalization to $3.5 million and went on  an acquisition spree&mdash;later dubbed &ldquo;The Conquest of Cleveland.&rdquo; By the end of  March 1872, he had proposed to buy out all of the other refiners in Cleveland,  and twenty-one of twenty-six had already agreed. During 1872, Rockefeller also  bought several refineries in New York, a crucial port, at which point he owned  25 percent of the refining capacity there.<a href="#_edn54" name="_ednref54" id="_ednref54" class="endnote">54</a></p>
		  	  	<p>According to many analysts, the rapidity of  acquisition &ldquo;proves&rdquo; that Rockefeller was involved in devious activities. But  it proves nothing of the sort. The basic reason so many sold was that  Rockefeller&rsquo;s propositions made economic sense; if the second leading refiner  in Cleveland was &ldquo;thunderstruck&rdquo; by the superiority of Standard&rsquo;s efficiency,  imagine the relative economic positions of the smaller, even less efficient  refiners.</p>
		  	  	<p>Another common view is that the &ldquo;threat&rdquo; of the  proposed South Improvement Company frightened Cleveland refiners into selling  to Rockefeller. But, if anything, as has been shown, the SIC provided incentive  for refineries to remain independent.</p>
		  	  	<p>A better explanation of why so many sold to  Rockefeller is that they were eager to be bought out; in fact, a problem later  surfaced with frauds trying to set up new refineries just to be bought out by  Rockefeller. Of course, it took only a handful of acquisition targets,  resentful of a market that had superseded them, to make a &ldquo;devastating expos&eacute;&rdquo;  and gain a place in the anti-capitalist canon.</p>
		  	  	<p>What if a company Rockefeller wanted to buy was not  willing to sell? Accounts differ, but one plausible account is that he gave the  competitor &ldquo;a good sweating&rdquo; (an expression attributed to Flagler) by lowering  prices to a point where Standard remained profitable but the competitor would  go out of business quickly. This practice is labeled &ldquo;predatory pricing&rdquo;&mdash;but it  is no such thing. If predatory pricing is taken to mean lowering one&rsquo;s prices  below cost to drive a competitor out of business&mdash;and then raising those prices  to artificially high levels once the competitor has been eliminated&mdash;then  Rockefeller did not engage in &ldquo;predatory pricing,&rdquo; at least not to any  significant extent. If he had tried, he would have experienced the fact that,  like cartels, this form of attempting to profit through unproductive measures  fails. In general, large companies that attempt to profit by this means find  that they lose money at alarming rates because they are selling more units at a  loss than their &ldquo;prey&rdquo; is selling. If they do manage to destroy an existing  company, they have weakened themselves in the process, thus providing an  opportunity for more substantial, more able competitors to enter the market. </p>
		  	  	<p>Nothing is inherently wrong&mdash;either economically or  morally&mdash;with temporarily selling at a loss in order to eliminate a rickety  competitor. And the phrase &ldquo;predatory pricing&rdquo; is a misnomer in any event,  because no force is involved in the practice of selling at a loss. But Standard  Oil did not need to employ such measures to make its acquisitions. The company  was so superior in its efficiency and economies of scale that it could price  its product at a level at which it could profit but its competitors could not. </p>
		  	  	<p>A study by John McGee published in 1958 shows that  Standard generally did not lower prices below cost and take a loss; rather, it  opted for temporarily smaller gains to demonstrate to unsustainable competitors  that they were, indeed, unsustainable and would do well to join Standard and  thrive.<a href="#_edn55" name="_ednref55" id="_ednref55" class="endnote">55</a> Here is Rockefeller&rsquo;s  description of how competitors came to see the situation: </p>
		  	  	<blockquote>
					<p>The point is, that after awhile,  when the people, or, at least, the intelligent, saw that we were not crushing  or oppressing anybody, they began to listen to our suggestion for a pleasing  meeting at which we could quietly talk over conditions and show them the  advantage of entering our organizations. One after another they joined us.<a href="#_edn56" name="_ednref56" id="_ednref56" class="endnote">56</a></p>
				</blockquote>
		  	  	<p>Rockefeller used the Conquest of Cleveland to create  the most impressive refining concern ever. He took twenty-four refineries and  turned them into six state-of-the art facilities, selling the unusable parts  for scrap. These refineries constituted a &ldquo;complete&rdquo; refining operation, which  produced not only kerosene but several profitable by-products. In 1873, these  refineries produced 10,000 barrels a day.<a href="#_edn57" name="_ednref57" id="_ednref57" class="endnote">57</a> At this rate, which would only grow,  Rockefeller would create nationwide markets for paraffin wax, petroleum jelly,  chewing gum, various medicinal products (later found to be of dubious value),  fuel oil, and many other products.</p>
		  	  	<p>In answering a question about Lloyd&rsquo;s characterization  of him, Rockefeller contrasted Standard with other refiners: &ldquo;Here were these  refiners, who bought crude oil, distilled it, purified it with sulphuric acid,  and sold the kerosene. We did that, too; but we did fifty&mdash;yes, fifty&mdash;other  things beside, and made a profit from each one.&rdquo; And: &ldquo;. . . every one of these  articles I have named to you represents a separate industry founded on crude  petroleum. And we made a good profit from each industry. Yet this &lsquo;historian,&rsquo;  Lloyd, cannot see that we did anything but make kerosene and get rebates and  &lsquo;oppress&rsquo; somebody.&rdquo;<a href="#_edn58" name="_ednref58" id="_ednref58" class="endnote">58</a></p>
		  	  	<p>In 1873, Rockefeller began vertically integrating  the company to include the acquisition of gathering pipelines for crude oil.  These pipelines connected new oil wells to transportation hubs. Managing these  with its typical excellence, Standard made its stream of incoming oil more  reliable and enabled drillers to quickly find a place to put newfound oil  instead of letting it go to waste in an uncontrolled gusher.</p>
		  	  	<p>Standard was no longer just a kerosene company; it  was a full-fledged, integrated oil-refining giant. And, after the Conquest of  Cleveland in 1873, Rockefeller, age thirty-three, was still just beginning.</p>
		  	  	<p>Starting in 1874, Rockefeller focused on acquiring  competitors in the rest of the country. He began, as he had in Cleveland, with  the major players: Charles Pratt in New York; Atlantic Refining in  Philadelphia; and Lockhart, Waring, and Frew in Pittsburgh. He bought out the  largest refiners in the Oil Regions, including the refinery of a man named John  Archbold, who later became president of Standard when Rockefeller retired.</p>
		  	  	<p>Rockefeller&rsquo;s operation was so superior to others in  every facet&mdash;from its marketing efforts, to its access to supplies of crude, to  its ability to generate and profitably sell dozens of by-products&mdash;that the  acquisitions occurred with relative ease, even when he was acquiring his most  sophisticated competitors. Charles Morris writes of buying out the Warden  interests in Atlantic Refining: &ldquo;Warden&rsquo;s son recalled that his father was  invited to examine the Standard&rsquo;s books and was astonished at its  profitability, just as Oliver Payne had been in Cleveland a few years before.&rdquo;<a href="#_edn59" name="_ednref59" id="_ednref59" class="endnote">59</a></p>
		  	  	<p>The most difficult acquisitions for Rockefeller were  in Pennsylvania. The difficulties were not initiated by the refiners but by the  Pennsylvania Railroad and its subsidiary, the Empire Transportation Company  (ETC). ETC owned extensive gathering pipelines and tank cars in the region, and  it attempted to freeze Standard out of the area and acquire a nationwide  refining victory of its own by&mdash;of all things&mdash;lowering its prices and making  transportation nearly free for its refiners. This attempt ended in disaster.  Rockefeller, who had provided the Pennsylvania with two-thirds of its freight,  first tried to convince the Pennsylvania&rsquo;s Tom Scott to stop his scheme. When  that failed, he stopped shipping on the railroad and redirected his domestic  and international traffic elsewhere. The Pennsylvania Railroad started  hemorrhaging money and, facing terrified shareholders, Scott not only ended the  scheme, but he sold ETC to Standard, making Standard&rsquo;s onloading and offloading  transportation network that much more extensive and efficient.</p>
		  	  	<p>At this point, Rockefeller had earned a 90 percent  market share&mdash;a 90 percent that was far different in nature than what 90 percent  in 1870 would have meant. Rockefeller owned not a grab bag of mediocre  operations, but an integrated, coordinated group of facilities in Cleveland,  New York, Baltimore, and Pennsylvania, the likes of which had never been  imagined. Near the end of the 1870s, he ran, to use the apt clich&eacute;, a  well-oiled machine. Standard housed millions of barrels of crude in its storage  facilities, transported that crude to its refineries by gathering line and tank  car, extracted every ounce of value from that crude using its state-of-the-art  refining technologies, and shipped the myriad resulting petroleum products to  Standard&rsquo;s export facilities in New York&mdash;where its marketing experts  distributed Standard products to every nook and cranny of the world.</p>
		  	  	<p>Rockefeller oversaw all of this in conjunction with  a team of great business minds (many of whom were obtained through the  acquisitions) that understood every facet of the domestic and international oil  market and that was always expanding and adjusting operations to meet demand. </p>
		  	  	<p>It is important to note that as big as Standard was  becoming, its leader&rsquo;s obsession with efficiency remained unabated. Rockefeller  had a rare ability to conceive and execute a grand vision for the future, while  minding every detail of the present. A story told by Ron Chernow in <em>Titan</em> illustrates this well:</p>
		  	  	<blockquote>
					<p>In the early 1870s, Rockefeller  inspected a Standard plant in New York City that filled and sealed five-gallon  tin cans of kerosene for export. After watching a machine solder caps to the  cans, he asked the resident expert: &ldquo;How many drops of solder do you use on  each can?&rdquo; &ldquo;Forty,&rdquo; the man replied. &ldquo;Have you ever tried thirty-eight?&rdquo;  Rockefeller asked. &ldquo;No? Would you mind having some sealed with thirty-eight and  let me know?&rdquo; When thirty-eight drops were applied, a small percentage of cans  leaked&mdash;but none at thirty-nine. Hence, thirty-nine drops of solder became the  new standard instituted at all Standard Oil refineries. &ldquo;That one drop of  solder,&rdquo; said Rockefeller, still smiling in retirement, &ldquo;saved&rdquo; $2,500 the  first year; but the export business kept on increasing after that and doubled,  quadrupled&mdash;became immensely greater than it was then; and the saving has gone  steadily along, one drop on each can and has amounted since to many hundreds of  thousands of dollars.<a href="#_edn60" name="_ednref60" id="_ednref60" class="endnote">60</a></p>
				</blockquote>
		  	  	<p>Rockefeller and his firm were as active-minded and  vigilant as could be, but in the late 1870s one development in the industry  took it by surprise: long-distance pipelines.</p>
		  	  	<p>A group of entrepreneurs successfully started the  Tidewater Company, the first long-distance pipeline. This posed an immediate  threat to the railroads&rsquo; oil transportation revenue, because pipelines are a  far more efficient, less expensive means of transporting oil. With sufficiently  thick or plentiful pipelines, enormous amounts of oil can be shipped at  relatively low cost twenty-four hours a day.</p>
		  	  	<p>Initially, Rockefeller, the allegedly invincible  &ldquo;monopolist,&rdquo; aided the railroads in fighting Tidewater (including using commonly-practiced  political tactics that should have been beneath him) but failed. Realizing the  superiority of pipelines, he entered the pipeline business in full-force  himself, creating the National Transit Company.</p>
		  	  	<p>Describing Rockefeller&rsquo;s excellent pipeline  practices, oil historian Robert L. Bradley Jr. writes:</p>
				<blockquote>
			  	  	<p>Right-of-way was obtained by  dollars, not legal force. Pipe was laid deep for permanence, and only the best  equipment was used to minimize leakage. Storage records reflected &ldquo;accuracy and  integrity.&rdquo; Innovative tank design reduced leakage and evaporation to benefit  all parties. Fire-preventions reflected &ldquo;systematic administration.&rdquo; The  pricing strategy was to prevent entry by keeping rates low. While these  business successes may not have benefited certain competitors, they benefited  customers and consumers of the final products.<a href="#_edn61" name="_ednref61" id="_ednref61" class="endnote">61</a></p>
				</blockquote>
		  	  	<p>By 1879, Rockefeller was the consummate so-called  &ldquo;monopolist,&rdquo; &ldquo;controlling&rdquo; some 90 percent of the refining market. According  to antitrust theory, when one &ldquo;controls&rdquo; nearly an entire market, he can  restrict output and force consumers to pay artificially high prices. Yet output  had quadrupled from 1870 to 1880. And as for consumer prices, recall that in  1870 kerosene cost twenty-six cents per gallon and was bankrupting much of the  industry; by 1880, Standard Oil was phenomenally profitable, and kerosene cost  nine cents per gallon.<a href="#_edn62" name="_ednref62" id="_ednref62" class="endnote">62</a> It had  revolutionized the <em>method</em> of producing refined oil, bringing about an  explosion of productivity, profit, and improvement to human life. It had shrunk  the cost of light by a factor of 30, thereby adding hours to the days of  millions around the world. This is the story Henry Lloyd and Ida Tarbell should  have told.</p>
		  	  	<h2>The 1880s and the Peril of the &ldquo;Monopolist&rdquo;</h2>
		  	  	<p>If antitrust theory was correct, Standard&rsquo;s  &ldquo;control&rdquo; of 90 percent of the oil refining market, should have made the 1880s  its easiest, least-challenging decade&mdash;one in which it could coast, pick off  competitor fleas with ease, and raise prices into the stratosphere.</p>
		  	  	<p>In fact, the company struggled mightily in that  decade to lower its prices even more&mdash;while facing its greatest competitive  challenges (foreign and domestic), as well as a bedeviling technological  challenge.</p>
		  	  	<p>In the mid-1880s, Standard executives, like many  others in the industry, feared that the world would run out of oil for them to  refine. As late as 1885, there were no significant, well-known oil deposits in  America outside of northwest Pennsylvania, and those appeared to be drying up.  In 1885, the state geologist of Pennsylvania declared that &ldquo;the amazing  exhibition of oil&rdquo; for the past quarter century had been only &ldquo;a temporary and  vanishing phenomenon&mdash;one which young men will live to see come to its natural  end.&rdquo;<a href="#_edn63" name="_ednref63" id="_ednref63" class="endnote">63</a> Some executives at  Standard even suggested, of all things, that Standard Oil exit the oil  business.</p>
		  	  	<p>Others did not feel this desperation but did wonder  where new oil could possibly come from; Pennsylvania was the only known oil  source in America, and prospecting technology was still primitive. In 1885,  when top executive John Archbold was told of oil deposits in Oklahoma, he said  that the chances of finding a large oil field there &ldquo;are at least one hundred  to one against it&rdquo; and that if he was wrong, &ldquo;I&rsquo;ll <em>drink</em> every gallon  produced west of the Mississippi!&rdquo;<a href="#_edn64" name="_ednref64" id="_ednref64" class="endnote">64</a></p>
		  	  	<p>Rockefeller, however, having seen expectations of an  oil apocalypse defied again and again in different parts of Pennsylvania, not  only remained in the refining business; in a crucial vertical integration  involving enormous risk, he also entered Standard Oil into the business of  exploration and production.</p>
		  	  	<p>Happily, by 1887, Standard&rsquo;s new exploration and  production division, along with other oil producers, found an abundant oil  supply in Lima, Ohio. But there was a problem: The oil was virtually useless. </p>
		  	  	<p>All crude oil is not created equal&mdash;different kinds  contain different fractions of potential petroleum products, as well as other  elements that can make it harder or easier to refine. The oil discovered in  Lima was the worst oil known to man. Its kerosene content was lower than  Pennsylvania oil, and the kerosene that could be produced did not burn well,  depositing large amounts of soot in any house it was burned in. Worse, due to  high sulfur content, the oil emitted a skunk-like odor (it came to be called &ldquo;skunk  oil&rdquo;). &ldquo;Even touching this oil,&rdquo; writes historian Burton Folsom, &ldquo;meant a long,  soapy bath or social ostracism.&rdquo;<a href="#_edn65" name="_ednref65" id="_ednref65" class="endnote">65</a> Obviously, kerosene with even a whiff of skunk smell would not appeal to consumers  seeking to light their homes&mdash;and no known process could remove the smell from  the oil.</p>
		  	  	<p>Rockefeller was undeterred. He proceeded to pump or  purchase millions of barrels of the virtually useless oil, confident that with  enough effort and science it would be possible to extract marketable kerosene  and other products. (In the meantime, he was able to sell some as cheap fuel  oil to railroads carrying cargo, for which the smell was not as prohibitive.) </p>
		  	  	<p>As Rockefeller bought millions of barrels of oil at  fifteen cents per barrel, his board, with whom he always collaborated, began to  blanch. At one point, a showdown ensued between Rockefeller and Charles Pratt  (the son of the great refiner), who said that they could no longer fund this  costly experiment. Rockefeller calmly offered to risk $3 million of his own  money. Pratt acquiesced, but Rockefeller no doubt would have invested the  money, about $65 million in today&rsquo;s dollars, himself if need be.</p>
		  	  	<p>Standard had accumulated 40 million barrels of skunk  oil, when, in 1888, there came a breakthrough. On October 13, Rockefeller&rsquo;s  team of scientists, led by a famous German chemist he had hired named Herman  Frasch, announced that they had discovered a way to refine the oil.<a href="#_edn66" name="_ednref66" id="_ednref66" class="endnote">66</a> This was a landmark in the history  of petroleum. Just as previous refiners discovered how to transform ordinary  crude oil from useless glop into black gold, so Standard Oil transformed crude  skunk oil into odorless black gold.</p>
		  	  	<p>At the onset of the 1880s, Standard Oil was known  only as a refiner. Thanks to the Lima discovery, Standard would be the leader  in crude oil production in the 1890s. In 1888, Standard was responsible for  less than 1 percent of crude oil production; in 1891, that number had jumped to  25 percent.<a href="#_edn67" name="_ednref67" id="_ednref67" class="endnote">67</a></p>
		  	  	<p>The triumph at Lima was crucial in providing  Standard cheap oil during the late 1880s and the 1890s&mdash;which it needed in the  face of new, unprecedented competitive challenges from foreign and domestic  sources.</p>
		  	  	<p>As was discovered in the late 1880s, large deposits  of oil existed far beyond Pennsylvania and Ohio, most notably in Russia. Locals  in Baku, Russia, had known for hundreds of years that <em>some</em> oil was  there; in the 1880s, explorers from Russia and abroad discovered that there was  a lot of it.</p>
		  	  	<p>The road to this discovery was paved in the 1870s,  when the czar opened up the then state-controlled region to free, economic  development, and small drillers and refiners got involved. Over time, these men  realized that Russia contained oil deposits larger than any known American  source&mdash;and that the oil was relatively easy to extract. Men from two families, the Nobels and the Rothschilds,  having learned from Rockefeller&rsquo;s example, started two soon-to-be formidable  firms. Although these producers faced challenges of their own, they posed a  huge challenge to Standard Oil on the international market&mdash;which comprised most  of Standard&rsquo;s customers.</p>
		  	  	<p>Domestic competitors did not stand still, either. We  have already seen how the Tidewater Company challenged Standard in the realm of  oil delivery&mdash;a challenge that Standard met with the National Transit Company  subsidiary and an expansion resulting in three thousand miles of long-distance  and gathering pipelines and 40 million barrels of storage capacity.<a href="#_edn68" name="_ednref68" id="_ednref68" class="endnote">68</a> But after Lima, Standard was also  challenged in the realms of production and refining. The Lima discovery  inspired the emergence of competitors who sought similar discoveries in Kansas,  Oklahoma, Texas, and California. And these were not the shanty refinery  &ldquo;competitors&rdquo; of decades past; they were large, vertically integrated, technologically  advanced companies.</p>
		  	  	<p>Rockefeller faced further competition from sources  outside the oil industry. Any producer of any product competes not merely with  those businesses selling the same type of product he does, but also with any  seller of any product that serves a similar purpose and thus can be its  substitute.</p>
		  	  	<p>In 1878, a man entirely outside the oil industry  invented a product that would transform the illumination industry. That man was  Thomas Edison; his invention was the electric lightbulb. Although the oil  market involved many more products than kerosene, kerosene was still its main  product and illumination its primary purpose. Thus, as soon as the lightbulb  was announced, the stock prices of publicly traded refiners plummeted. The lightbulb  would become a cheaper, safer alternative to kerosene, just as kerosene had  become a cheaper, safer alternative to whale oil. (Because of the efficiencies  Standard had achieved with kerosene, however, it did take more than a decade  for Edison and company to improve the lightbulb to the point that it was  economically competitive with Rockefeller&rsquo;s cheapest kerosene.)</p>
		  	  	<p>Rockefeller&rsquo;s basic response to these competitive  challenges was to continue doing what he had been doing to make his company the  world leader: He continued to make Standard as efficient as he could, and he  kept a vigilant eye on changes in the market. During the 1880s and into the  1890s, Standard Oil, through its continuing productive achievement, remained  dominant in an ever-growing market. </p>
		  	  	<p>Contrary to the antitrust expectation, Rockefeller  did not artificially restrict supply and dictate higher prices. He neither had  nor sought such power. But he did have the power to be very profitable by  producing an excellent product at low cost and by selling it at low prices. In  1880, kerosene cost 9.33 cents/gallon; in 1885, 8.13 cents; in 1890, 7.38  cents. As for the industry&rsquo;s total output, it increased steadily throughout the  late 1800s; for example, between 1890 and 1897 kerosene production increased 74  percent, lubricating oil production increased 82 percent, and wax production  increased 84 percent.<a href="#_edn69" name="_ednref69" id="_ednref69" class="endnote">69</a></p>
		  	  	<p>The fact that Standard Oil faced such stiff  competition and was driven to expand output and lower prices even further  demonstrates the myth of Rockefeller&rsquo;s &ldquo;control&rdquo; of the market. Markets are not  possessions that one can acquire or control. They are dynamic, evolving systems  of voluntary association, in which competing producers have no ability to force  customers to buy their product, nor any ability to prevent others from offering  their customers superior substitutes. The expression &ldquo;control a market share,&rdquo;  translated into reality, means simply that at a given time one has persuaded a  given group of individuals to buy one&rsquo;s product&mdash;a state of affairs that can  quickly change if someone offers a superior substitute.</p>
		  	  	<p>Standard Oil enjoyed high market share because it  produced a highly desirable product and offered it at a price that the vast  majority of people were willing to pay. If someone else had made cheaper  kerosene or a better illuminant than kerosene, or if Rockefeller had lowered  his standards or raised his prices significantly, his customers would have  purchased their goods elsewhere. Such is the nature of the so-called  &ldquo;monopolist&rsquo;s&rdquo; control. And such is the nature of economic power.</p>
		  	  	<p>Contrast this with the genuine coercive power  commanded by governments&mdash;which can create real monopolies by granting certain  companies exclusive rights to produce a certain type of product. For example,  state governments long gave horse-and-buggy-driving teamsters a monopoly on the  local transportation of crude, forbidding the construction of local  pipelines&mdash;and they long gave railroads a monopoly on long-distance  transportation, forbidding the construction of long-distance pipelines. Where  Rockefeller&rsquo;s competitors failed because they could not match his quality and  prices, railroads&rsquo; and teamsters&rsquo; competitors failed because the government  forbade others from building a higher-quality, lower-priced product. If one  wants an example of monopoly in the 19th century, this is it&mdash;and its lesson is  this: Keep political power out of the markets.</p>
		  	  	<p>People have long regarded Standard Oil&rsquo;s ability to  maintain a 90 percent market share for twenty years as evidence of coercive  evil. But if one understands what it took to achieve and maintain that share,  one can see that it is evidence only of Rockefeller&rsquo;s productive virtue. </p>
		  	  	<h2>The Standard Oil Trust and the<br />
		  	  	  Science of Corporate Productivity</h2>
		  	  	<p>Standard&rsquo;s success in the face of the  tremendous competitive challenges of the 1880s was made possible by strategic  decisions (such as the Lima venture), by continued improvement in the company&rsquo;s  operations, and by Rockefeller&rsquo;s remarkable leadership.</p>
		  	  	<p>In 1882, the Standard Oil Company became the  Standard Oil Trust. As the company had grown across state lines, it needed a  corporate structure that could enable it to function as a unified, national  corporation. The Trust&mdash;officially combining disparate branches of Standard Oil  under common ownership and control&mdash;was an ingenious way of achieving such  integration. As Dominick Armentano explains:</p>
				<blockquote>
			  	  	<p>Choosing an effective legal  structure was proving particularly bothersome. Almost all states, including  Ohio, did not permit chartered companies to hold the stock of firms  incorporated in other states. Yet Standard, by 1880, effectively controlled  fourteen different firms, and had a considerable stock interest in about  twenty-five others, including the giant National Transit Company. How were  these companies to be legally and efficiently managed? In addition,  Pennsylvania had just unearthed (with the help of Standard&rsquo;s competitors and  some producers) an old state law that allowed a tax on the entire capital stock  of any corporation doing any business within its borders; other states  threatened to follow suit. Thus, a new organizational arrangement was mandatory  to allow effective control of all owned properties and to escape confiscatory  taxation without breaking the law.</p>
			  	  	<p>Standard chose to resurrect an old common law  arrangement known as the <em>trust</em>. In a trust, individuals pool their  property and agree to have a trustee or trustee group manage that property in  the interests of all the owners. Just as incorporation allows incorporators to  pool their property and choose their directors and managers, trusts in the  1880s allowed the same convenience with entire corporate holdings. Thus, a  trust was a modern holding company, but frequently without the formalities of  legal incorporation and the necessity of any public disclosure.</p>
			  	  	<p>The Standard Oil Trust was formed in 1882. . . .  The forty-two stockholders of the thirty-nine companies associated with  Standard agreed to tender their stock to nine designated trustees; in return,  the ex-stockholders received twenty trustee certificates per share of stock  tendered. The original Standard Oil Trust was capitalized at $70 million, and  John D. Rockefeller himself held over 25 percent. Rockefeller, his brother  William, Henry Flagler, John D. Archbold, and five others then managed Standard&rsquo;s  entire operations, setting up committees on transportation, export,  manufacturing, lubricating, and other affairs to advise the executive  committee.<a href="#_edn70" name="_ednref70" id="_ednref70" class="endnote">70</a></p>
				</blockquote>
		  	  	<p>The Trust, often thought of as an economically  destructive device, enabled Standard to achieve still greater  productivity&mdash;every bit of which the company needed in order to face continuing  challenges. Let us examine several important aspects of the Standard Oil Trust  to appreciate how productively it functioned.</p>
		  	  	<p>One cardinal aspect was specialization, the process  of assigning employees to areas of special focus where they could concentrate  their time and effort to become experts at one thing (rather than masters of  none). The more Standard Oil grew, the more specialized Rockefeller made his  divisions and employees. The Standard Oil Trust featured separate divisions and  personnel for every aspect of the productive process&mdash;buying, transporting,  refining, marketing&mdash;and for the different regions of the business. The company  operated on the premise that there are always better ways of doing things,  often involving machinery, and Rockefeller had an insatiable thirst for new  ideas. </p>
		  	  	<p>In particular, Standard pioneered and excelled at  scientific research and development&mdash;the key to successes such as that at Lima. Rockefeller&rsquo;s  investment in Lima became spectacularly profitable and value-creating&mdash;but only  because Rockefeller had the vision and courage to also invest, heavily, in  scientists.</p>
		  	  	<p>Most historians overlook Rockefeller&rsquo;s advances in  corporate science and focus exclusively on discounts he received from  railroads, but this must be rectified. Today, we take R&amp;D for granted as an  inherent aspect of business, but it is not; someone pioneered it, and that  someone was Rockefeller. Rockefeller pioneered both integrated, large-scale  businesses, and the investment of large amounts of capital into scientific  research and technological application. As historian Burton Folsom notes:</p>
		  	  	<blockquote>
					<p>When Frasch cracked the riddle of  Lima crude, he was probably the only trained petroleum chemist in the United  States. By the time Rockefeller retired, he had a test laboratory in every  refinery and even one on the top floor of 26 Broadway. This was yet another way  in which he converted Standard Oil into a prototype of the modern industrial organization,  its progress assured by the steady application of science.<a href="#_edn71" name="_ednref71" id="_ednref71" class="endnote">71</a></p>
				</blockquote>
		  	  	<p>Standard&rsquo;s focus on science led to many other  profitable breakthroughs&mdash;including the ability to &ldquo;crack&rdquo; crude for maximum  gasoline. (&ldquo;Cracking&rdquo; is changing the molecular structure of crude to increase  the amount of a given fraction.) In science, as in many other areas, Standard&rsquo;s  internal specialization paid off. Just as specialization under the division of  labor in a society makes the society incomparably more productive than a  society in which each individual has to produce everything for himself,  specialization under the division of labor within Standard Oil had similar  results for the company. </p>
		  	  	<p>The heart of Standard&rsquo;s corporate management  structure was its <em>committee system</em>. Its goal was to maximize individual  autonomy and creativity, while ensuring that all elements of the company were  integrated in the direction Rockefeller chose.</p>
		  	  	<p>An executive committee comprising Rockefeller&rsquo;s top  associates was in charge of the general direction of the company. This  committee oversaw and monitored various specialized subcommittees that dealt  with all different aspects of the business: manufacturing, transportation,  purchasing, pipelines, export trade, and so on. And these subcommittees oversaw  various subsidiaries in their line of the business, giving them basic direction  and enabling them to share and grow their knowledge. As Rockefeller expressed  the value of this arrangement:</p>
		  	  	<blockquote>
					<p>A company of men, for example, were  specialists in manufacture. These were chosen experts, who had daily sessions  and study of their problems, new as well as old, constantly arising. The  benefit of their research, their study, was available for each of the different  concerns whose shares were held by these trustees.<a href="#_edn72" name="_ednref72" id="_ednref72" class="endnote">72</a></p>
				</blockquote>
		  	  	<p>These subsidiaries even competed with one another,  circulating their performance figures and always seeking to improve their  performance. As a result, every realm of Standard&rsquo;s productive process got  better and better.</p>
		  	  	<p>Giving the various aspects of the company both  independence and an integrated purpose were vital to Standard&rsquo;s ability to take  on increasingly more functions of the oil refining industry. A case in point is  Standard&rsquo;s entry into the business of <em>distributing </em>refined oil, a  business that it had long left to middlemen.</p>
		  	  	<p>Standard&rsquo;s pre-integration approach to distribution  was simply to pay three cents a gallon for existing, antiquated distribution  methods. Middlemen would remove barrels of kerosene from trains, pile them onto  a horse-drawn carriage, and make their rounds selling them to retailers. The  efficiency of this process was comparable to the efficiency of transporting  crude oil before the advent of tank cars. The quantity, cost-effectiveness, and  safety of the arrangement were far less than they could have been. So Standard  invested in and utilized high-capacity <em>tank-wagons</em>, delivering crude  straight to customers in the precise quantities they wanted, cutting out both  the middlemen and the barrels.</p>
		  	  	<p>Taking a swath of the industry that had been the  province of others for years and quickly revolutionizing it was a common  practice at Standard, one made possible by the organizational system that  achieved both autonomy and unity among the company&rsquo;s employees.</p>
		  	  	<p>Rockefeller&rsquo;s management techniques attracted great  minds to Standard, for it gave them work that stimulated their intellect and  excited their passions. Rockefeller recognized that nothing mattered more to  his organization than talented, thinking men who could generate and execute new  ideas. &ldquo;Has anyone given you the law of these offices?&rdquo; he asked a new  executive. &ldquo;No? It is this: nobody does anything if he can get anybody else to  do it. . . . As soon as you can, get some one whom you can rely on, train him  in the work, sit down, cock up your heels, and think out some way for the  Standard Oil to make some money.&rdquo;<a href="#_edn73" name="_ednref73" id="_ednref73" class="endnote">73</a></p>
		  	  	<p>Of his ability to attract and coordinate talent,  Rockefeller said: &ldquo;It is chiefly to my confidence in men and my ability to  inspire their confidence in me that I owe my success in life.&rdquo;<a href="#_edn74" name="_ednref74" id="_ednref74" class="endnote">74</a> &ldquo;I&rsquo;ve never heard of his equal,&rdquo;  said Thomas Wheeler, one of his oil buyers, &ldquo;in getting together a lot of the  very best men in one team, and inspiring in each man to do his best for the  enterprise.&rdquo;<a href="#_edn75" name="_ednref75" id="_ednref75" class="endnote">75</a></p>
		  	  	<p>A key trait Rockefeller exhibited enabled him to  bring out greatness in his employees: He communicated in every way he could the  importance of the work they were doing&mdash;its importance to him, to Standard Oil,  and therefore, as he always stressed, to the advancement of human life. He paid  higher than market wages to attract the best employees. He awarded shares in  the company to employees, explaining: &ldquo;I would have every man a capitalist,  every man, woman and child. I would have everyone save his earnings, not  squander it; own the industries, own the railroads, own the telegraph lines.&rdquo;<a href="#_edn76" name="_ednref76" id="_ednref76" class="endnote">76</a> He called Standard Oil a  &ldquo;family&rdquo;&mdash;and he meant it. Wheeler describes how Rockefeller </p>
		  	  	<blockquote>
					<p>sometimes joined the men in their  work, and urged them on. At 6:30 in the morning, there was Rockefeller, this  billionaire, rolling barrels, piling hoops, and wheeling out shavings. In the  oil fields, there was Rockefeller trying to fit 9 barrels on an 8 barrel wagon.  He came to know the oil business inside and out and won the respect of his  workers. Praise he would give, rebukes he would avoid. &ldquo;Very well kept, very  well indeed,&rdquo; said Rockefeller to an accountant about his books before pointing  out a minor error, and leaving.<a href="#_edn77" name="_ednref77" id="_ednref77" class="endnote">77</a></p>
				</blockquote>
		  	  	<p>Rockefeller commanded a huge amount of respect, but  did not need to demand it. Burton Folsom tells a story that illustrates how  unconcerned Rockefeller was about deference:</p>
				<blockquote>
			  	  	<p>One time a new accountant moved  into a room where Rockefeller kept an exercise machine. Not knowing what  Rockefeller looked like, the accountant saw him, and ordered him to remove it.  &ldquo;Alright,&rdquo; said Rockefeller, and he politely took it away. Later when the  embarrassed accountant found out whom he had chided he expected to be fired.  But Rockefeller never mentioned it.<a href="#_edn78" name="_ednref78" id="_ednref78" class="endnote">78</a></p>
				</blockquote>
		  	  	<p>Everyone in the family was valued, but none more  than his leading thinkers, the top managers:</p>
				<blockquote>
			  	  	<p>Rockefeller treated his top  managers as conquering heroes and gave them praise, rest, and comfort. He knew  that good ideas were almost priceless. They were the foundation for the future  of Standard Oil. To one of his oil buyers Rockefeller wrote, &ldquo;I trust you will  not worry about the business. Your health is more important to you and to us  than the business.&rdquo; Long vacations at full pay were Rockefeller&rsquo;s antidotes for  his weary leaders. After Johnson M. Camden consolidated the West Virginia/Maryland  refiner for Standard Oil, Rockefeller said, &ldquo;Please feel at perfect liberty to  break away 3, 6, 12, 15 months, more or less. Your salary will not cease,  however long you decide to remain away from business.&rdquo; But neither Camden nor  the others rested long. They were too anxious to succeed at what they were  doing and to please the leader who trusted them so.<a href="#_edn79" name="_ednref79" id="_ednref79" class="endnote">79</a></p>
				</blockquote>
		  	  	<p>Would you want to work for such a manager? That so  many did and were inspired to be their best was no doubt indispensable to  making the company as innovative and efficient as it was. It is no wonder,  then, that many people who are intimately familiar with Rockefeller believe  that, in the words of one of his biographers, &ldquo;Rockefeller must be accepted as  the greatest business administrator America has produced.&rdquo;<a href="#_edn80" name="_ednref80" id="_ednref80" class="endnote">80</a> Without such innovative  administration, surely no oil company would have achieved anywhere near  Standard&rsquo;s degree of success.</p>
		  	  	<h2>Lessons Not Learned </h2>
		  	  	<p>Given the tenuous, voluntary nature of  Standard&rsquo;s market share, it was inevitable that at some point the market would  expand beyond its reach. Given the explosion of possibilities in the oil  industry&mdash;the rise of the automobile and the need for gasoline, the discovery of  oil in all corners of the planet&mdash;not even Standard Oil could be the best at  everything. It certainly did not help that Rockefeller became progressively  less involved in the company&rsquo;s affairs starting in the 1890s.</p>
		  	  	<p>The fact that Standard was bound to lose market  share did not prevent it from growing. It could and did continue to grow, while  others grew, too. Its market percentage shrank, even as its market grew&mdash;and  changed.</p>
		  	  	<p>Between 1899 and 1914, the market for kerosene  shrank with the rise and continuous improvement of Edison&rsquo;s lightbulb, and with  the rise of the automobile. Kerosene dropped from 58 to 25 percent of refined  products, whereas gasoline rose from 15 to 48 percent. The age of kerosene,  which Standard had dominated, was over.</p>
		  	  	<p>In the early 1900s, many more competitors came on  the scene, some of whom remain household names: Associated Oil and Gas, Texaco,  Gulf, Sun Oil, and Union Oil, to name a few. Whereas the number of refineries  had once shrunk due to a glut of inefficient ones, new demand across a wide  variety of locations along with better business organization and better  technology led to a growth in the number of separate refineries&mdash;from 125 in  1908 to 147 in 1911.</p>
		  	  	<p>Between 1898 and 1906, Standard&rsquo;s oil production  increased, but its market share of oil production declined from 34 to 11  percent. Similarly, in the realm of refining, Standard&rsquo;s market share declined,  while its volume increased steadily from 39 million barrels in 1892 to 99  million in 1911.<a href="#_edn81" name="_ednref81" id="_ednref81" class="endnote">81</a></p>
		  	  	<p>By the early 1900s, Standard Oil had provided the  world with an illustration of the magnificent productive achievements that are  made possible by economic freedom. It had shown that when companies are free to  produce and trade as they choose, to sell to as many willing customers as they  can, a man or a company of extraordinary ability can make staggering contributions  to human life&mdash;in this case, lighting up the world, fueling transportation, and  pioneering corporate structures that would make every other industry more  productive in the decades to come. And, with the emergence of highly profitable  competitors in the early 1900s, the notion that Standard &ldquo;controlled&rdquo; the  market should have been scrapped once and for all.</p>
		  	  	<p>Unfortunately, blinded by bad ideas and bad motives,  the most prominent reporters on Rockefeller and his company did not see this  illustration of the glory of laissez-faire&mdash;and did not depict it for others to  see. Instead, they painted the false picture that has, to this day, tarnished a  great man, a great company, and a great economic system.</p>
		  	  	<p>In 1902, Ida Tarbell began publishing her <em>History  of the Standard Oil Company</em> as a series of articles in <em>McClure&rsquo;s</em> magazine. Meanwhile, Rockefeller critics in the press and in politics called  for an end to this &ldquo;menacing monopoly.&rdquo; According to antitrust historian  Dominick Armentano, &ldquo;Between 1904 and 1906, at least twenty-one state antitrust  suits were brought against Standard Oil subsidiaries in ten states. And on  November 15, 1906, the federal government filed its Sherman Act case and  petitioned for the dissolution of Standard Oil of New Jersey.&rdquo;<a href="#_edn82" name="_ednref82" id="_ednref82" class="endnote">82</a></p>
		  	  	<p>The intellectual and political groundwork for a  breakup of Standard Oil&mdash;and for preventing potential future Standard Oils from  reaching its degree of success&mdash;had been laid more than a decade earlier when,  in 1890, the Sherman Antitrust Act was made law. The act was a fundamental  attack on economic freedom&mdash;on the premise, as Chernow later put it, that &ldquo;Free  markets, if left completely to their own devices can wind up terribly <em>un</em>free.&rdquo; Freedom, in other words, requires  government force.</p>
		  	  	<p>Consider the key clause of the Sherman Act: &ldquo;Every  contract, combination . . . or conspiracy, in restraint of trade or commerce  among the several States, or with foreign nations, is declared to be illegal.&rdquo;<a href="#_edn83" name="_ednref83" id="_ednref83" class="endnote">83</a> This explicitly denies businesses  the freedom to associate with other businesses and with customers on terms of  their choosing; it means that any voluntary arrangement deemed by the government  to be in &ldquo;restraint of trade&rdquo; can be stopped and punished. And the standard  story of Standard Oil gave (and continues to give) supporters of this law ample  ammunition.</p>
		  	  	<p>Thus it is not surprising that, in 1911, the U.S.  Supreme Court ruled that Standard Oil had violated the Sherman Act&mdash;and broke up  the company into thirty-four pieces. The only problem with the proceeding, most  believed and still believe, is that it had not taken place many decades  earlier, when Standard was &ldquo;monopolizing&rdquo; the market in the 1870s.</p>
		  	  	<p>But having seen the benevolent, life-giving process  that actually constituted this &ldquo;monopolization,&rdquo; we should feel intensely  relieved that the Sherman Act was not a factor during Rockefeller&rsquo;s rise. Had  it been, his company would have been stunted in its infancy. The original  interpretation of the Sherman Act regarded <em>any</em> combination or merger as  a &ldquo;restraint of trade&rdquo; and thus illegal. Recall that Rockefeller&rsquo;s investments  in science, his abilities to hire diverse minds and deliver the cheapest,  highest-quality petroleum products to people across the nation depended on  Standard being a national corporation&mdash;and for that, given the legal framework  at the time, the Trust was necessary. And under today&rsquo;s interpretation of  antitrust law, a company &ldquo;controlling&rdquo; more than 30 percent of the market is  often considered &ldquo;anticompetitive&rdquo; and thus criminal. Standard had a 30 percent  market share in the early 1870s, when it had achieved only a fraction of what  it would later achieve. Where would we be today if the young genius from  Cleveland had had his vision quashed in his youth? How much would corporate  efficiency, research and development, and effective management have suffered,  not just in the petroleum industry, but in all of American industry? And, most  importantly, how unjust would that have been to a man who wanted nothing more  than to earn a living by producing kerosene and gasoline as cheaply and  plentifully as possible?</p>
		  	  	<p>All men&mdash;including exceptional men such as  Rockefeller&mdash;have a right to take their enterprises as far as their vision and  effort will take them. To throttle an individual because he is a superlative  producer who supplies an abundance of life-serving goods to people eager to pay for them is to assault the central requirement  of human life: the virtue of productivity. </p>
		  	  	<p>It is time to bury the myth of Rockefeller the  &ldquo;robber baron&rdquo; and to replace it with the truth about this paragon of  production. And it is time to repeal the assault on such men that is antitrust  law and replace it with the full legal recognition of individual rights. </p>
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		  	  	<div id="endnotes">
					<h2>Endnotes</h2>
					<p><a href="#_ednref1" name="_edn1" id="_edn1" class="endnote">1</a> David Freeman  Hawke, ed., <em>The William O. Inglis Interview with John D. Rockefeller,  1917&ndash;1920</em> (Westport, CT: Meckler Publishing, 1984), microfiche.</p>
				  	<p><a href="#_ednref2" name="_edn2" id="_edn2" class="endnote">2</a> Henry Demarest Lloyd, &ldquo;The Story of a Great  Monopoly,&rdquo; <em>Atlantic Monthly</em>, March 1881,  http://www.theatlantic.com/doc/188103/monopoly.</p>
					<p><a href="#_ednref3" name="_edn3" id="_edn3" class="endnote">3</a> Felicity Barringer, &ldquo;Journalism&rsquo;s Greatest  Hits: Two Lists of a Century&rsquo;s Top Stories,&rdquo; <em>New York Times</em>, March 1,  1999, http://query.nytimes.com/gst/fullpage.html?res=9407E3D6123CF932A35750C0A96F958260.</p>
					<p><a href="#_ednref4" name="_edn4" id="_edn4" class="endnote">4</a> Ida Tarbell, <em>The History of the Standard  Oil Company</em> (New York, NY: McClure, Phillips &amp; Company, 1904), pp.  36&ndash;37.</p>
					<p><a href="#_ednref5" name="_edn5" id="_edn5" class="endnote">5</a> Ibid., p. 37. It is worth noting that in this  legendary work of journalism, Tarbell fails to meet basic standards of  disclosure by not stating that her father was an oilman in the Oil Regions&mdash;and  that her brother was the treasurer of the Pure Oil Company, a competitor of  Standard Oil that began in the late 1800s.</p>
					<p><a href="#_ednref6" name="_edn6" id="_edn6" class="endnote">6</a> Howard Zinn, <em>A People&rsquo;s History of the  United States: 1492&ndash;Present</em> (New York, NY: Perennial Classics, 2003), p.  256.</p>
					<p><a href="#_ednref7" name="_edn7" id="_edn7" class="endnote">7</a> Paul Krugman, &ldquo;Lifting the Fog From  Antitrust,&rdquo; <em>Fortune</em>, June 8, 1998,  http://money.cnn.com/magazines/fortune/fortune_archive/1998/06/08/243492/index.htm.</p>
					<p><a href="#_ednref8" name="_edn8" id="_edn8" class="endnote">8</a> Ron Chernow, <em>Titan</em> (city, state:  Vintage, 2004), p. 297.</p>
					<p><a href="#_ednref9" name="_edn9" id="_edn9" class="endnote">9</a> http://www.justice.gov/atr/public/speeches/0114.htm.</p>
				  	<p><a href="#_ednref10" name="_edn10" id="_edn10" class="endnote">10</a> Robert L. Bradley, <em>Oil, Gas, and  Government: The U.S. Experience, vol. 1</em> (London: Rowman &amp; Littlefield,  1996), pp. 1073&ndash;74.</p>
					<p><a href="#_ednref11" name="_edn11" id="_edn11" class="endnote">11</a> Harold F. Williamson and Arnold R. Daum, The  American Petroleum Industry 1859&ndash;1899: The Age of Illumination (Evanston, IL:  Northwestern University: 1963), p. 212.</p>
					<p><a href="#_ednref12" name="_edn12" id="_edn12" class="endnote">12</a> Charles R. Morris, <em>The Tycoons: How Andrew  Carnegie, John D. Rockefeller, Jay Gould, and J.P. Morgan Invented the American  Supereconomy</em> (New York, NY: Times Books, 2005), p. 80.</p>
					<p><a href="#_ednref13" name="_edn13" id="_edn13" class="endnote">13</a> Dominick Armentano, <em>Antitrust and Monopoly:  Anatomy of a Policy Failure </em>(Oakland , CA: The Independent Institute,  1999), p. 55.</p>
					<p><a href="#_ednref14" name="_edn14" id="_edn14" class="endnote">14</a> Williamson and Daum, <em>American Petroleum  Industry</em>, p. 320.</p>
					<p><a href="#_ednref15" name="_edn15" id="_edn15" class="endnote">15</a> Armentano, <em>Antitrust and Monopoly</em>, p.  56.</p>
					<p><a href="#_ednref16" name="_edn16" id="_edn16" class="endnote">16</a> Ibid.</p>
					<p><a href="#_ednref17" name="_edn17" id="_edn17" class="endnote">17</a> Daniel Yergin, <em>The Prize: The Quest for  Oil, Money &amp; Power</em> (New York: Free Press, 1992), p. 50.</p>
					<p><a href="#_ednref18" name="_edn18" id="_edn18" class="endnote">18</a> Williamson and Daum, <em>American Petroleum  Industry</em>, pp. 203&ndash;12.</p>
					<p><a href="#_ednref19" name="_edn19" id="_edn19" class="endnote">19</a> Ibid., p. 211. </p>
					<p><a href="#_ednref20" name="_edn20" id="_edn20" class="endnote">20</a> <em>The Encyclopedia Americana: A Library of  Universal Knowledge</em> (New York, NY: Encyclopedia Americana Corp., 1920), p.  479.</p>
					<p><a href="#_ednref21" name="_edn21" id="_edn21" class="endnote">21</a> Morris, <em>Tycoons</em>, p. 82.</p>
					<p><a href="#_ednref22" name="_edn2" id="_edn22" class="endnote">22</a> Burton W. Folsom, <em>The Myth of the Robber  Barons</em> (Herndon, VA: Young America&rsquo;s Foundation, 1996), p.  85.</p>
					<p><a href="#_ednref23" name="_edn23" id="_edn23" class="endnote">23</a> Williamson and Daum, <em>American Petroleum  Industry</em>, p. 292.</p>
					<p><a href="#_ednref24" name="_edn24" id="_edn24" class="endnote">24</a> Morris, <em>Tycoons</em>, p. 18.</p>
					<p><a href="#_ednref25" name="_edn25" id="_edn25" class="endnote">25</a> Bradley, <em>Oil, Gas, and Government</em>, p.  1070.</p>
					<p><a href="#_ednref26" name="_edn26" id="_edn26" class="endnote">26</a> Williamson and Daum, <em>American Petroleum  Industry</em>, p. 212.</p>
					<p><a href="#_ednref27" name="_edn27" id="_edn27" class="endnote">27</a> Morris, <em>Tycoons</em>, p. 18.</p>
					<p><a href="#_ednref28" name="_edn28" id="_edn28" class="endnote">28</a> Chernow, <em>Titan</em>, p. 46.</p>
					<p><a href="#_ednref29" name="_edn29" id="_edn29" class="endnote">29</a> Ibid., pp. 44&ndash;45.</p>
					<p><a href="#_ednref30" name="_edn30" id="_edn30" class="endnote">30</a> Folsom, <em>Myth of the Robber Barons</em>, p. 86.</p>
					<p><a href="#_ednref31" name="_edn31" id="_edn31" class="endnote">31</a> Allan Nevins, <em>Study in Power: John D.  Rockefeller Industrialist and Philanthropist</em>, vol. 1 (New York: Charles  Scribner&rsquo;s Sons, 1953), p. 71.</p>
					<p><a href="#_ednref32" name="_edn32" id="_edn32" class="endnote">32</a> Williamson and Daum, <em>American Petroleum  Industry</em>, p. 285.</p>
					<p><a href="#_ednref33" name="_edn33" id="_edn33" class="endnote">33</a> John D. Rockefeller, <em>Random Reminiscences  of Men and Events</em> (New York, NY: Doubleday, Page &amp; Company, 1909), pp.  87&ndash;88.</p>
					<p><a href="#_ednref34" name="_edn34" id="_edn34" class="endnote">34</a> Williamson and Daum, <em>American Petroleum Industry</em>,  p. 225. </p>
					<p><a href="#_ednref35" name="_edn35" id="_edn35" class="endnote">35</a> Armentano, <em>Antitrust and Monopoly</em>, p.  58.</p>
					<p><a href="#_ednref36" name="_edn36" id="_edn36" class="endnote">36</a> Chernow, <em>Titan</em>, pp. 86&ndash;87.</p>
					<p><a href="#_ednref37" name="_edn37" id="_edn37" class="endnote">37</a> Williamson and Daum, <em>American Petroleum  Industry</em>, p. 302.</p>
					<p><a href="#_ednref38" name="_edn38" id="_edn38" class="endnote">38</a> Ibid., p. 305.</p>
					<p><a href="#_ednref39" name="_edn39" id="_edn39" class="endnote">39</a> Ibid., p. 303.</p>
					<p><a href="#_ednref40" name="_edn40" id="_edn40" class="endnote">40</a> Hawke, <em>William O. Inglis Interview</em>.</p>
					<p><a href="#_ednref41" name="_edn41" id="_edn41" class="endnote">41</a> Tarbell, <em>History of the Standard Oil  Company</em>, pp. 44&ndash;46.</p>
					<p><a href="#_ednref42" name="_edn42" id="_edn42" class="endnote">42</a> Ibid., p. 306.</p>
					<p><a href="#_ednref43" name="_edn43" id="_edn43" class="endnote">43</a> Ibid.</p>
					<p><a href="#_ednref44" name="_edn44" id="_edn44" class="endnote">44</a> Armentano, <em>Antitrust and Monopoly</em>, p.  62.</p>
					<p><a href="#_ednref45" name="_edn45" id="_edn45" class="endnote">45</a> Hawke, <em>William O. Inglis Interview</em>.</p>
					<p><a href="#_ednref46" name="_edn46" id="_edn46" class="endnote">46</a> Morris, <em>Tycoons</em>, p. 82.</p>
					<p><a href="#_ednref47" name="_edn47" id="_edn47" class="endnote">47</a> Nevins, <em>Study in Power</em>, p. 96.</p>
					<p><a href="#_ednref48" name="_edn48" id="_edn48" class="endnote">48</a> Williamson and Daum, <em>American Petroleum  Industry</em>, p. 307.</p>
					<p><a href="#_ednref49" name="_edn49" id="_edn49" class="endnote">49</a> Ibid.</p>
					<p><a href="#_ednref50" name="_edn50" id="_edn50" class="endnote">50</a> Armentano, <em>Antitrust and Monopoly</em>, p.  59.</p>
					<p><a href="#_ednref51" name="_edn51" id="_edn51" class="endnote">51</a> Morris, <em>Tycoons</em>, p. 85. </p>
					<p><a href="#_ednref52" name="_edn52" id="_edn52" class="endnote">52</a> Williamson and Daum, <em>American Petroleum  Industry</em>, p. 359.</p>
					<p><a href="#_ednref53" name="_edn53" id="_edn53" class="endnote">53</a> Morris, <em>Tycoons</em>, p. 84.</p>
					<p><a href="#_ednref54" name="_edn54" id="_edn54" class="endnote">54</a> Bradley, <em>Oil, Gas, and Government</em>, p.  1071. </p>
					<p><a href="#_ednref55" name="_edn55" id="_edn55" class="endnote">55</a> John S. McGee, &ldquo;Predatory Price Cutting: The  Standard Oil (N. J.) Case,&rdquo; <em>Journal of Law and Economics</em>, vol. 1  (October 1958), pp. 137&ndash;69.</p>
					<p><a href="#_ednref56" name="_edn56" id="_edn56" class="endnote">56</a> Hawke, <em>William O. Inglis Interview</em>. </p>
					<p><a href="#_ednref57" name="_edn57" id="_edn57" class="endnote">57</a> Williamson and Daum, <em>American Petroleum  Industry</em>, p. 367.</p>
					<p><a href="#_ednref58" name="_edn58" id="_edn58" class="endnote">58</a> Hawke, <em>William O. Inglis Interview</em>.</p>
					<p><a href="#_ednref59" name="_edn59" id="_edn59" class="endnote">59</a> Morris, <em>Tycoons</em>, p. 151.</p>
					<p><a href="#_ednref60" name="_edn60" id="_edn60" class="endnote">60</a> Chernow, <em>Titan</em>, pp. 188&ndash;89.</p>
					<p><a href="#_ednref61" name="_edn61" id="_edn61" class="endnote">61</a> Bradley, <em>Oil, Gas, and Government</em>, pp.  615&ndash;16.</p>
					<p><a href="#_ednref62" name="_edn62" id="_edn62" class="endnote">62</a> Armentano, <em>Antitrust and Monopoly</em>, p.  66.</p>
					<p><a href="#_ednref63" name="_edn63" id="_edn63" class="endnote">63</a> &ldquo;Natural Gas and Coal Gas,&rdquo; <em>New York Times</em>,  December 28, 1886,  http://query.nytimes.com/gst/abstract.html?res=9E0DE7DA133FE533A2575BC2A9649D94679FD7CF. </p>
					<p><a href="#_ednref64" name="_edn64" id="_edn64" class="endnote">64</a> Chernow, <em>Titan</em>, p. 283.</p>
					<p><a href="#_ednref65" name="_edn65" id="_edn65" class="endnote">65</a> Folsom, <em>Myth of the Robber Barons</em>, p.  89.</p>
					<p><a href="#_ednref66" name="_edn66" id="_edn66" class="endnote">66</a> Ibid., p. 90.</p>
					<p><a href="#_ednref67" name="_edn67" id="_edn67" class="endnote">67</a> Bradley, <em>Oil, Gas, and Government</em>, pp.  1073&ndash;74.</p>
					<p><a href="#_ednref68" name="_edn68" id="_edn68" class="endnote">68</a> Ibid., p. 615.</p>
					<p><a href="#_ednref69" name="_edn69" id="_edn69" class="endnote">69</a> Armentano, <em>Antitrust and Monopoly</em>, p.  66.</p>
					<p><a href="#_ednref70" name="_edn70" id="_edn70" class="endnote">70</a> Ibid., pp. 64&ndash;65.</p>
					<p><a href="#_ednref71" name="_edn71" id="_edn71" class="endnote">71</a> Chernow, <em>Titan</em>, p. 287.</p>
					<p><a href="#_ednref72" name="_edn72" id="_edn72" class="endnote">72</a> Ibid., p. 229.</p>
					<p><a href="#_ednref73" name="_edn73" id="_edn73" class="endnote">73</a> Ibid., p. 179.</p>
					<p><a href="#_ednref74" name="_edn74" id="_edn74" class="endnote">74</a> Michael D. Mumford, <em>Pathways to Outstanding  Leadership</em>, (Mahwah, NJ: Lawrence Erlbaum Associates, Inc., 2006), p. 165.</p>
					<p><a href="#_ednref75" name="_edn75" id="_edn75" class="endnote">75</a> Folsom, <em>Myth of the Robber Barons</em>, p.  94.</p>
					<p><a href="#_ednref76" name="_edn76" id="_edn76" class="endnote">76</a> Chernow, <em>Titan</em>, p. 227.</p>
					<p><a href="#_ednref77" name="_edn77" id="_edn77" class="endnote">77</a> Folsom, <em>Myth of the Robber Barons</em>, p.  93.</p>
					<p><a href="#_ednref78" name="_edn78" id="_edn78" class="endnote">78</a> Ibid.</p>
					<p><a href="#_ednref79" name="_edn79" id="_edn79" class="endnote">79</a> Ibid., p. 94.</p>
					<p><a href="#_ednref80" name="_edn80" id="_edn80" class="endnote">80</a> Chernow, <em>Titan</em>, p. 228.</p>
					<p><a href="#_ednref81" name="_edn81" id="_edn81" class="endnote">81</a> Armentano, <em>Antitrust and Monopoly</em>, p.  67.</p>
					<p><a href="#_ednref82" name="_edn82" id="_edn82" class="endnote">82</a> Ibid., p. 68.</p>
					<p><a href="#_ednref83" name="_edn83" id="_edn83" class="endnote">83</a> Sherman Antitrust Act,  http://www.justice.gov/atr/foia/divisionmanual/ch2.htm.</p>
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