Titan
In business, John D. Rockefeller operated in a rough, virile world, whereas at home he was surrounded by a harem of doting women that included, at various times, his wife, sister-in-law, mother, mother-in-law, and three daughters. He seemed equally comfortable in these masculine and feminine spheres of existence. When they first got married, John and Cettie lived with his mother Eliza, but she remained behind on Cheshire Street when they moved to Euclid Avenue. For the rest of her life, Eliza rotated among the homes of her five children, who provided her with more security than she had ever known with her prodigal husband. Evidently, she had some idea of where Bill lived, for she had a mailing address and forwarded letters to him from their grandchildren. In a confused manner, the grandchildren knew that their jolly grandfather lived an odd life somewhere out West, but the picture was left deliberately cloudy.
It is hard to retrace Bill’s movements with precision, for John D. seldom referred to him in either his business or private papers; his father’s banishment was no less psychological than geographic. As best one can piece the story together in these middle years, Bill and his second wife, Margaret, moved to Illinois in 1867 and bought a 160-acre farm in Maroa, with John secretly sending money to help complete the purchase. As the area grew too settled for Bill, the couple moved again in 1875 to Freeport, Illinois, and here Margaret’s wanderings, at least, ended. According to stories told later by their Freeport neighbors, Bill—known to them as Dr. William Levingston—was regarded as a profane braggart and con man, a notorious quack doctor who claimed to specialize in cancer and kidney treatments and bought jugs of diuretic from a local druggist that he then resold on the road. Just as the long-suffering Eliza had endured long separations, it was now Margaret’s turn to wait as Bill disappeared for months before returning home with thick wads of money, always careful to fold a $100 bill on the outside. Yet Big Bill never entirely lost touch with his Rockefeller family. From out of the blue, he would materialize in Cleveland, jovial and carefree, and spend several days shooting at targets and playing his fiddle before disappearing for another year. John maintained a frosty civility toward his father, and their meetings tended to be both brief and infrequent. Later on, we shall have more to say about Bill’s queer odyssey, for as his son grew famous, the whereabouts of Doc Rockefeller turned into a national obsession as reporters tried to reconstruct his renegade career.
In marrying Laura “Cettie” Spelman, Rockefeller had found a woman with his mother’s gentle tenacity and religiosity. An 1872 photo shows a short, fragile, dark-haired woman with a wide face, high cheekbones, and deep, earnest eyes. Steeped in religious sentiment, she was more likely to be found meditating on a sermon than gossiping about a shopping expedition. Her marriage to John was harmonious, formal, and devoid of quarrels. Like her husband, Cettie was fiercely democratic, disdaining conspicuous consumption and the snobbery of the rich. “She was no respecter of persons,” said her son. “To her all men were brothers.”25 She scorned frippery and dismissed fashion plates as vain, silly people. Though always supportive of her husband in his ambitions, she inveighed against “the desperate struggle to obtain the ‘almighty dollar.’ ”26 Even more of a pinchpenny than John, she wore patches on her clothes and shocked one acquaintance by stating that a young woman needed just two dresses in her wardrobe. Even as her husband grew rich, she continued to perform much of the housework herself, employing two maids and a coachman when they could have afforded many more.
Since he left the house each day and trafficked in a sinful world, John was a broader person than his wife, whose interests contracted sharply after she married. Despite her early bluestocking bent, she lost much of her intellectual brightness as she made the transition from teacher to pedagogical mother, relentlessly molding her children. She liked to quote the maxim, “To be a good wife and mother is the highest and hardest privilege of woman.” 27 Where John derived escapist pleasure from the children, Laura took her maternal duties too seriously and was a firm, if loving, martinet. As her son said, she “talked to us constantly about duty—and displeasing the Lord and pleasing your parents. She instilled a personal consciousness of right and wrong, training our wills and getting us to want to do the things we ought to do.”28 No less than her husband, she believed in the economical use of time. As one observer said, “She realized her responsibilities, subjecting herself to a fixed daily regimen of duties, dividing her day off methodically into hours and minutes for each, that no moment might be misspent, and no duty neglected.”29
There was danger in the very congruence of values between John and Cettie, for it made their intellectual life rather airless, allowing no room for disagreement. Had their opinions clashed, John might have been exposed to critical perspectives that could have saved him from his business excesses. Instead, his marriage strengthened his virtuous sense that he was one of God’s soldiers and therefore bound to be vilified by sinners. Cettie was similarly braced for the terrible ostracism that came with Rockefeller’s wealth. “She was always like the Spartan mothers,” said her daughter Edith. “Everything which came to her she accepted, and she bore her frailty of body with uncomplaining patience. . . . She had faith and trust in those she loved and never questioned or criticized.”30
Cettie’s sister Lucy—Aunt Lute, as the children called her—acted as something of a leavening influence in this arid setting. The close relationship of the two sisters was touching since Lute, two years older, was an adopted child. By a strange coincidence, they looked so much alike that everybody assumed they were biological sisters. Lute was bright and cultivated, read contemporary literature, and gave John and Laura a window on secular culture when she read aloud after dinner. Though he was extremely fond of his sister-in-law, Rockefeller found her comically prim and spinsterish and delighted in mimicking the way she lifted her skirts as she mounted the staircase; she would often turn and find him stealthily climbing the steps behind her, aping her in his cutaway coat, much to the family’s amusement. In time, Lute developed the prissy manner of the proverbial old maid, and the children, for all their love, found her a little trying. But she was a beloved figure and an integral part of the family, and she introduced some needed cultural enrichment into a household that conformed rigidly to Christian doctrine.
CHAPTER 8
Conspirators
The great industrial revolution that transformed America after the Civil War triggered an inflationary boom that swamped the country with goods. When this expanded supply led to lower prices and a deflationary bust, it set the pattern for the rest of the nineteenth century, which experienced huge economic advances, punctuated by treacherous slumps. Lured by easy profits, legions of investors rushed into a promising new field and, when big gluts developed from overproduction, they found it impossible to recoup their investment. This was especially true in new industries where people lacked the caution bred by experience and thus expanded with reckless abandon. As a result, many businessmen began to distrust unfettered competition and flirted with newfangled notions of cooperation—pools, monopolies, and other marketing arrangements that might curb production and artificially buoy prices.
While all commodity prices fluctuated, crude-oil prices were especially volatile. Based on locating deep, unseen pools, the industry was an unpredictable, nerve-racking affair. Every time some lucky devil hit a gusher, this bonanza drove prices down. In 1865, producers began to torpedo wells by exploding gunpowder (later nitroglycerine) deep inside them to shake loose more oil, swelling the surplus. Within a year or two after the Civil War, the oil flood caused prices to skid to as low as $2.40 a barrel—they had traded as high as $12 in 1864—leading producers to contemplate forming a cartel to boost prices. The same predicament roiled refining, which had generated astronomical profits at first. As Rockefeller said tartly, the spoiled refiners “were disappointed if they did not make one hundred percent profit in a year—sometimes in six months.”1 With sky-high profits and ridiculously low start-up costs, the field had soon grown overcrowd
ed. “In came the tinkers and the tailors and the boys who followed the plow, all eager for this large profit,” said Rockefeller.2
By the late 1860s, this dynamic produced a pervasive slump in the oil industry, keeping it depressed for the next five years. Low kerosene prices, a boon to consumers, were catastrophic for refiners, who saw the profit margin between crude- and refined-oil prices shrink to a vanishing point. Rampant speculation had so overbuilt the industry that total refining capacity in 1870 was triple the amount of crude oil being pumped. By then, Rockefeller estimated, 90 percent of all refineries were operating in the red. At this bleak impasse, a leading Cleveland rival, John H. Alexander, offered to sell his interest to William Rockefeller at ten cents on the dollar, as the entire industry faced ruin. Worse, the oil market wasn’t correcting itself according to the self-regulating mechanism dear to neoclassical economists. Producers and refiners didn’t shut down operations in the expected numbers, causing Rockefeller to doubt the workings of Adam Smith’s theoretical invisible hand: “So many wells were flowing that the price of oil kept falling, yet they went right on drilling.”3 The industry was trapped in a full-blown crisis of overproduction with no relief in sight.
Thus, in 1869, one year after his stellar railroad coup, Rockefeller feared that his wealth might be snatched away from him. As someone who tended toward optimism, “seeing opportunity in every disaster,” he studied the situation exhaustively instead of bemoaning his bad luck.4 He saw that his individual success as a refiner was now menaced by industrywide failure and that it therefore demanded a systemic solution. This was a momentous insight, pregnant with consequences. Instead of just tending to his own business, he began to conceive of the industry as a gigantic, interrelated mechanism and thought in terms of strategic alliances and long-term planning.
Rockefeller cited the years 1869 and 1870 as the start of his campaign to replace competition with cooperation in the industry. The culprit, he decided, was “the over-development of the refining industry,” which had created “ruinous competition.”5 If this fractious industry was to be made profitable and enduring, he would have to tame and discipline it. A trailblazer who improvised solutions without any guidance from economic texts, he began to envision a giant cartel that would reduce overcapacity, stabilize prices, and rationalize the industry. If Rockefeller first expounded this idea among refiners, he was anticipated by the very drillers who later railed at his machinations. During the Civil War, they had formed an Oil Creek Association to curtail production and lift prices, and on February 1, 1869, they again met in Oil City to create the Petroleum Producers’ Association to protect their interests.
To devise a comprehensive solution for the industry, Rockefeller again needed money: money to create economies of scale, money to build cash reserves to endure downturns, money to heighten efficiency. “And to buy in the many refineries that were a source of overproduction and confusion we needed a great deal of money.”6 The tricky part for Rockefeller and Flagler was how to supplement their capital without relinquishing control; the solution was to incorporate, which would enable them to sell shares to select outside investors. “I wish I’d had the brains to think of it,” said Rockefeller. “It was Henry M. Flagler.”7
The chaotic, derrick-covered slopes of Oil Creek, Pennsylvania, in 1865. (Courtesy of the Drake Well Museum)
Luckily, many states had now passed laws permitting companies to incorporate. The one hitch—and it was a formidable one for Rockefeller—was that these firms couldn’t own property outside their state of incorporation; to finesse this restriction would require endless legal legerdemain. On January 10, 1870, the partnership of Rockefeller, Andrews and Flagler was abolished and replaced by a joint-stock firm called the Standard Oil Company (Ohio), with John D. Rockefeller as president, William Rockefeller as vice president, and Henry M. Flagler as secretary and treasurer. Besides echoing their Standard Works refinery, the name advertised the uniform quality of their kerosene at a time when consumers feared explosions from impurities. With $1 million in capital—$11 million in contemporary money—the new company became an instant landmark in business history, for “there was no other concern in the country organized with such a capital,” Rockefeller said.8 Already a mini-empire, Standard Oil controlled 10 percent of American petroleum refining, as well as a barrel-making plant, warehouses, shipping facilities, and a fleet of tank cars. From the outset, Rockefeller’s plans had a wide streak of megalomania. As he told Cleveland businessman John Prindle, “The Standard Oil Company will some day refine all the oil and make all the barrels.”9
Despite his lack of legal training, Henry M. Flagler drew up the act of incorporation. Nearly sixty years later, when this document was dredged up in a legal dispute, people were stunned by its simplicity. Instead of a fancy embossed paper, dripping with seals, one reporter described it as “a cheap looking legal paper, faded yellow and of evident poor material, granting the Standard Oil Company the right to engage in business.”10 This economical, no-nonsense approach appealed to investors, as did Rockefeller’s decision that the leading men would receive no salary but would profit solely from the appreciation of their shares and rising dividends—which Rockefeller thought a more potent stimulus to work.
Standard Oil started out in a modest suite of offices in a four-story building known as the Cushing Block on the Public Square. The office shared by Rockefeller and Flagler was somber and austere. Furnished with funereal dignity, it had a black leather couch and four black walnut chairs with elaborately carved backs and arms, plus a fireplace to provide warmth in winter. Rockefeller never allowed his office decor to flaunt the prosperity of his business, lest it arouse unwanted curiosity.
From the start, he owned more shares of Standard Oil than anybody else and exploited every opportunity to augment his stake. Of the original 10,000 shares, he took 2,667, while Flagler, Andrews, and William Rockefeller each took 1,333; Stephen Harkness took 1,334; and the former partners of Rockefeller, Andrews and Flagler divided another 1,000. The final 1,000 shares went to Oliver B. Jennings, William Rockefeller’s brother-in-law and the first outside investor. An adventurous figure, Jennings had gone to California during the gold rush and profited from selling supplies to prospectors.
Rich investors did not line up to invest in Standard Oil, among other reasons because it was an inauspicious time for new ventures. On September 24, 1869—the infamous Black Friday—Jay Gould and Jim Fisk’s scheme to corner the gold market by manipulating President Grant’s monetary policy collapsed, fomenting financial panic and ruining more than a dozen Wall Street houses. Beyond that, the speculative aura of the oil industry still deterred many reputable businessmen. Rockefeller never forgot how his scheme was savagely derided as a “rope of sand” or how sage businessmen told him that similar attempts to create a Great Lakes shipping cartel had misfired. “Either this experiment will result in a great success or a dismal failure,” one aging financier warned him.11 As Rockefeller recalled, it was “a course which older and more conservative business men shrank back from and regarded as reckless, almost to the point of insanity.” 12 Embittered by these skeptics and set to prove them wrong, Rockefeller managed to pay dividends of 105 percent on Standard Oil stock during the first year of operations despite one of the worst financial bloodbaths in the industry’s early history.
The man with the hypertrophied craving for order was about to impose his iron rule on this lawless, godless business. As Ida Tarbell described Rockefeller in 1870, he was “a brooding, cautious, secretive man, seeing all the possible dangers as well as all the possible opportunities in things, and he studied, as a player at chess, all the possible combinations, which might imperil his supremacy.”13 As he scanned the field of battle, the first target of opportunity lay close to home: the twenty-six rival Cleveland refiners. His strategy would be to subjugate one part of the battlefield, consolidate his forces, then move briskly on to the next conquest. His victory over the Cleveland refiners would be the first but also the mo
st controversial campaign of his career.
For his admirers, 1872 was the annus mirabilis of John D. Rockefeller’s life, while for his critics it constituted the darkest chapter. The year revealed both his finest and most problematic qualities as a businessman: his visionary leadership, his courageous persistence, his capacity to think in strategic terms, but also his lust for domination, his messianic self-righteousness, and his contempt for those shortsighted mortals who made the mistake of standing in his way. What rivals saw as a naked power grab, Rockefeller regarded as a heroic act of salvation, nothing less than the rescue of the oil business.
The state of the kerosene trade had further deteriorated in 1871 as prices sagged another 25 percent. As competitors skidded into bankruptcy, Standard Oil declared a 40 percent dividend, with a small surplus to spare. Despite this, John D. Rockefeller sold off a small block of Standard Oil shares—the only time he ever lost heart momentarily—prompting brother William to lament, “Your anxiety to sell makes me feel uneasy.” 14 This discouragement was short-lived. In late 1871, Rockefeller engineered the covert acquisition of Bostwick and Tilford, New York’s premier oil buyers, who owned barges, lighters, and a large refinery at Hunter’s Point on the East River. A former Kentucky banker who had also dealt in cotton and grain and peddled Bibles, Jabez Abel Bostwick was a devout Baptist in the Rockefeller mold: “strict almost to sternness in his business dealings, preferring justice to sentiment,” as one contemporary said.15 The purchase of Bostwick’s firm gave Rockefeller a sophisticated purchasing agency at a critical moment. Oil prices were now being set on exchanges in western Pennsylvania, with powerful syndicates pushing aside the lone speculators who had once dominated trading. The move set a pattern of stealth that shadowed Rockefeller’s career: Renamed J. A. Bostwick and Company, the newly acquired firm brazenly feigned independence of Standard Oil while acting as its cat’s-paw.