When you look at the wealthiest men alive today, topping the charts are tech billionaires like Jeff Bezos and Bill Gates. However, the wealthiest businessman to have ever lived, died a century ago. A man who built a business empire so vast that even after a hundred years of technological progress, no man has managed to overtake its founder.
The origins of history’s greatest oil monopoly are actually quite humble.
It all starts in 1839 with the birth of John Rockefeller in upstate New York to a deeply devout Baptist mother and a boisterous, spirited, fun-loving father who was a travelling merchant and identified himself as a ‘botanic physician’ but in reality was selling the 19th century equivalent of homeopathic medicine. He would spend weeks away from home and in fact would have several children from other women, who he brought back home to his wife so they could all live in unison.
After the Rockefeller family moved to Cleveland, Ohio, in 1854, John’s intelligence was put to good use when he got the chance to attend a proper school and did a ten week long course in book keeping. At sixteen, he got his first job as an office clerk at a Cleveland commission firm that bought, sold and shipped grain, coal and other commodities. He earned $0.50 per day, which obviously wasn’t much at the time, so he would help other companies on the side, managing to give some part of his salary to charity.
After working for two years at a stretch, when his bosses refused to give him a meaningful raise, he decided to one-up them by starting his own produce brokerage. Thanks to his good reputation he got a loan of a huge sum of $4000 which of course at that time was an enormous sum. Thereafter, John started dealing and trading hay, grain, and various kinds of meats. In his first year he recorded sales of half a million dollars, of which he only got a minor fraction as commissions, but still this was a huge achievement.
Literally every bank in Cleveland was begging John to borrow money and just imagine, he was barely eighteen years old. But, in 1859 something happened that would change his life forever. The first American oil well had been located just a hundred miles east of Cleveland. This marked the inception of the Pennsylvania oil rush and within a year 4,500 barrels of oil would be produced. Back then oil wasn’t as valuable as it is today. Also gasoline cars hadn’t been invented yet, but oil could still be processed into kerosene, which would then be used by the people in lamps. Later, however, John realized that the biggest profits to be earned was not in drilling oil, but in refining it. He witnessed many people going bust before striking oil, so he know that that business was perilous for him, equivalent to playing with fire. Instead he thought that he would let others go through the hassle of finding the oil and he would just buy it off of them
Until 1863, John had to wait for the government to build a rail line connecting the Pennsylvania oil fields to Cleveland. No sooner the line was built than John was ready for it with a long line of partners and banks who were ready to back him up. He also congregated a team of seasoned chemists and engineers, who not only optimized the refining process but also discovered various by-products of refining petroleum. The earlier refineries in Cleveland could only operate at approximately 60% efficiency. But John being determined, not only escalated that percentage, but also started selling all the by-products, like paraffin wax, tar and naphtha.
In 1865, he borrowed some money to get hold of some of his partners and to take control of his refineries, which had by then become the largest in Cleveland. In the coming few years he acquired new partners and expanded his business interests in the growing oil industry. At that tile kerosene, that was derived from petroleum and used in lamps, had become an economic staple. There were around 26 competing refineries, but within five years John had acquired all but four of them. By 1870, Rockefeller’s business was getting too big to handle as a partnership, so along with a few associates he incorporated the Standard Oil Company (Ohio). Within two years, Rockefeller’s refinery was worth seventy thousand dollars. In order to convince the remaining few competitors in Cleveland, John would simply invite them over and show them his books, to show that he could operate at a loss far longer than they could stay solvent. He would also offer his competitors positions in his company, thereby positioning the brightest minds in the industry under his supervision.
Soon Standard Oil gained monopoly in the industry by taking over all rival refineries and developing companies for marketing and distributing its products around the globe. Over time John eroded the price of oil and kerosene, and sometimes even by as much as 80% in order to strangle competitors. Unsurprisingly, his master plan worked and by 1880 he had retrieved refineries across the North-eastern US and was refining over 90% of the country’s oil production. In order to exploit the economies of scale, Standard Oil did almost everything from employing scientists to figure out new uses for petroleum by-products to building its own oil barrels.
Over the next decade, politicians, businessmen and the media would attack Standard Oil with increasing ferocity. Legislatures in Ohio began drafting anti-trust regulations to bring down Rockefeller, but ofcourse he was one step ahead. In 1882 he re-incorporated in New Jersey and this time created the Standard Oil Trust, which in turn held stakes in more than forty local companies. To showcase his success, John built an impressive headquarters for his company on Broadway. Yes! Indeed, this moment was the highpoint of Rockefeller’s Standard Oil: he owned 20,000 oil wells, 4,000 miles of pipelines and employed over 1,00,000 people. But his grip on the oil industry was loosening both domestically and abroad. Massive oil deposits had been discovered in Russia and in Asia, and were being developed by the family which spared no effort in getting that oil to America, the Rothschild family. Worse was yet to come when in 1890, the federal government passed the Sherman Antitrust Act, which officially gave politicians the teeth to go after the Standard Oil Trust itself.
Of course, the complex legal structure behind all the companies was very difficult to investigate which is why the government couldn’t actually break up Standard Oil until 1911 when the Supreme Court found Standard Oil guilty of anti-competitive practices and broke the company up into 34 separate entities. John kept his stake in those companies until his death. Infact it turns out that the breakup was the most profitable event in his life. John Rockefeller’s ownership of these companies made him the richest businessman to have ever lived, with an estimated net worth of $400 billion.
No sooner did he gain a good reputation as a winning trader in New York than he lost his money again. It appeared as if his ‘winning formula’ could only be applied for swelling profits at bucket shops and not at real stock exchanges. One of the reasons for him being insolvent could be that he was still using numbers from the ticker which was much lagged in contrast to the real market numbers.
Even till date, no one has beaten Rockefeller in the leader board. He was inspired by fellow “glided age” tycoon Andrew Carnegie, who earned an enormous fortune in the steel industry and then became a philanthropist by donating majority of his money. Following his footsteps, John too gave away more than half a billion dollars to various religious, scientific, and educational causes through the Rockefeller Foundation. He also funded the start of the University of Chicago and the Rockefeller University which aided the American out of chronic poverty, educated legions of African Americans, jumpstarted medical research, and also improved the health around the globe. Indeed! John Rockefeller ranks as the greatest philanthropist in American history.