0:10 Welcome to Business Books and Company. Every month we read great business books and explore how they can help us navigate our careers. Read along with us so you can become a stronger leader within your company or a more adept entrepreneur. This month we read Titan, The Life of John D. Rockefeller by Ron Chernow. Rockefeller was the founder of Standard Oil, a company that was notorious for its monopolization of the oil industry in the late 19th century. An adept businessman and talented strategist, Rockefeller was demonized throughout his career for his sometimes brutal tactics. During the latter half of his life, Rockefeller became America's foremost philanthropist, establishing a pattern of giving that has been emulated by many later tycoons. In this episode, we'll discuss John D. Rockefeller's life, work, the economics of the late 19th century oil industry, and the lasting legacy of Standard Oil.
1:01 But before we get into the book, let's introduce ourselves. I'm David Short. I'm a product manager. I'm Kevin Hudak, chief research officer at a commercial real estate research and advisory services firm. And I'm David Kopech. I'm an associate professor of computer science at a teaching college. Okay, let's start out with the author, the very highly regarded Ron Chernow. Who is Ron Chernow? Yeah, so Ron Chernow was born in Brooklyn in 1949. His father owned a discount store and later a stock brokerage, and his mother was a bookkeeper. He graduated from Yale and Cambridge with degrees in English literature and began his career as a freelance journalist. As a biographer, he's probably best known for his biography of Alexander Hamilton, which Lin-Manuel Miranda cited as his
1:51 inspiration for the Hamilton musical. And he also won the Pulitzer Prize in 2011 for his biography of Washington, A Life. Now, John D. Rockefeller had a very colorful upbringing. Let's go back to his early life. Where did he grow up? What was his family life like? And how did he receive his education? Yeah, definitely happy to talk through that, Dave, and add some color where you can, as I know that you are very interested in his early life. But essentially, he was born to Eliza and William Avery Rockefeller in upstate New York. And he was part of a fairly large Baptist family. You know, I would say they moved around quite a bit. I'll explain why in a few seconds. But they were very godly. They were economical, spendthrift, living what I would say conservative lives for the most part outside of his father. Big Bill, right, William, or Devil Bill, as Chernow terms him, who was a noted con
2:41 man. He was a snake oil salesman, philanderer in some ways as well. And going back to young John D. Rockefeller, he definitely had that early predilection for math, budgets, bookkeeping, the economies of the world. His mother and then later his wife, obviously both of whom he's actually buried in between, you know, supported him with that great Baptist upbringing, encouragement, elevation, discipline, and support, you know, that served him well so later in life. But going back to his father, as Chernow describes him, Devil Bill, or Big Bill, he definitely had that gregarious, big personality, right? But he was also very inventive in his scams. He would often leave the family for months at a time, pursuing these oddball business schemes with partners from here to
3:29 there. At one point, they were selling curative medicine that could address everything from stomach upset to cancer. He would pose as a doctor or Doc Rockefeller wherever he would go. These are things that would embarrass his family, the thought of that. And particularly John, later in his life, he was a bigamist. He had an entirely different family for about 50 years when he was going under the name of Dr. William Levingston. And this actually became the subject of a national search and national coverage later in John D. Rockefeller's life. But I'd also say some of that Rockefeller clan, they still loved visits from their father or later their grandfather. And Devil Bill did loan John D. Rockefeller some much needed funds in some of his first business ventures. But
4:14 otherwise, in terms of John D's early schooling, it was largely focused around what he was learning at the home. And then also in some of the small classrooms, in some of those upstate New York towns, later Cleveland towns that they went back and forth from. It should be noted that he never went and had a college diploma, that he went into 16, which I'm sure we'll talk about, into his first job. Yeah, that was really great, Kevin. And I think that is really notable. It wasn't super common to go to college back then, but there certainly was a preponderance of white collar folks who were going to college. And John D. Rockefeller was truly a self-made man. He did have the loan from his father, but this wasn't like, you know, at the time, the equivalent of today, a million dollar loan. This was a loan that was significant, but not so large that it probably would have totally
5:04 changed the outcome of his life if he hadn't had it. But it helped him start his first partnership. Yeah. And I'd also say in terms of his education, remember at one point he was also responsible for constructing and planning the family home. He often taught at Sunday school at the various Baptist churches that they were involved in. And his father actually charged him rent in some ways, right? So in speaking of being self-made, despite that loan that he got, there was a lot of internal exchanges of funds going on that Rockefeller family from the start. So John D. definitely made his own way. And I just thought it was crazy that John D. Rockefeller, you know, the richest person in history or whatever, his father was a literal snake oil salesman. It's just such a perfect counterpoint to the story. And I am amazed I
5:50 didn't know it. It's just crazy that there was this nationwide search with Hearst sponsoring people to track him down and everything. It was a really, really colorful part of the story. And when it comes down to it as well, Short, it's great you bring that up because in Chernow's book, you can see him weaving together different episodes at which John Dee was more like his mother, Eliza, but also elements and times when he was more like his father, when some of that devil bill would seep into his both business affairs and personal affairs. So already from the start, it was a very, very interesting book. I thought the other interesting thing was really the relationship between the father and son. Devil bill would lend money to his son, but he would lend it to him at an aggressive interest rate. Devil bill also had this obsession with money that he really translated to John D. Rockefeller, always concerned about every
6:39 last dollar, always very proud of the dollar bills and tens of dollar bills in his pockets. And he would carry actually $1,000 bills on him at any time, which at that time was a huge amount of money. We're talking about the mid 19th century. So this kind of obsession with money was a personality trait that really got translated. But then John D. Rockefeller also tried really hard to avoid some of those negative, immoral characteristics of the father. Okay, let's go to the start of his first business or his first job in business. Let's go even further back. How did John D. Rockefeller get his start in business? Yeah, it's a classic tale where at 16 years old, Rockefeller headed into Cleveland and decided to find himself a job and he made a business out of it. You know, every day he would
7:26 walk to the different businesses that he thought had a good credit and where he could learn something and present himself as, you know, an able-bodied clerk and bookkeeper. And after months of toiling away at this, he finally succeeded and he landed a job at, at Hewitt and Tuttle. So that was his first job at 16. He worked there for about three years and they were, uh, they called them commission merchants and produce shippers, which honestly the book didn't go too much into what exactly that business was. But I get that it's, it's basically some kind of, you know, trading partners. They would probably bring in goods, move goods from place to place in order to, you know, get some kind of arbitrage on. the value of something in one place relative to another. He was very successful from the start, so moved up very rapidly within that firm to really become the right-hand man of the founders and really
8:16 very valuable to them very rapidly. He was very successful there, but it wasn't enough for him. He really wanted to have his own firm. How do you go about creating his own firm and who were his first partners? It's a pretty funny story. Rockefeller actually claims that He went to Hewitt and Tuttle and told them he needed a raise to $800 a year. They hemmed and hawed and eventually said they could give him $700, but that was the most that they could give. He just knew what he was worth and it was $800. If they'd match the $800, he says he would have stayed actually. Who knows how long that would have been for? I don't think Crockefeller really would have stayed for too much longer. But because of that unwillingness to meet the price that he thought he was worth, he set off with Clark and they formed Clark and Rockefeller. He was 18 years old at the time
9:04 and as was mentioned before, he was able to join based off of some money he'd saved as well as a thousand dollar loan from his father, which was at 10% interest above the market rates at the time. But it was something Rockefeller absolutely needed in order to be able to go off on his own. From there, he pretty rapidly changes businesses and I honestly don't remember all the details. So if others want to chime in as well, feel free to. But I know he hopped from first Clark and Rockefeller to then just a year later, Gardner joined and was much older than Rockefeller. And so Rockefeller actually agreed to take his name off. So it became Clark Gardner and Company. Then shortly thereafter that, it became Andrews, Clark and Company. And that was actually a refining business. So moving from the trade into actually getting
9:50 in the oil business. He later then tricked the Clark brothers out of their share of this business. He kind of laid a plan where he was going to inspire the Clark guy to offer to give him, sell his shares and Rockefeller immediately took him up on it. From there, he later formed Rockefeller and Company, Rockefeller Andrews and Flagler, and then finally, what he's best known for, Standard Oil. So yeah, lots of different businesses, but ultimately going from trade into the refining and oil businesses. Great. Thanks a lot for that, David. So the oil industry gets started in the mid 19th century in Pennsylvania. oil gets discovered. Let's talk about that early energy industry. What was it like when oil was discovered and what was that early oil used for? So when we think about oil before what was called Drake's discovery, and I'll
10:38 talk all about that in a second, but it was previously used in much more expensive and rarer forms. So for example, whale oil was used to light the lanterns of the very wealthy and it just wasn't available to much of the population. It was also used as lubricants as well in machinery. And I'd also say that when you look at other sources, it would come from seeps. Some of that were located in Oil Valley already. Sometimes even as byproducts of salt drilling, you would have some of these salt drillers find this smelly byproduct, which was really the oil and petroleum. And really a lot of this action was located in specific areas, particularly in Pennsylvania, Oil Valley, and Titusville. Before I go on to the first discovery, I'd also say, What was surprising for me was that some even used oil for medicinal and
11:26 health purposes as well. And Native American tribes were using it as part of their rituals. And I just never had known that at some point, and that's where I imagine snake oil salesman comes from, that it was used in such a fashion. But really, the oil rush in the U.S. began with Drake's discovery in Titusville, Pennsylvania. And that was when Colonel Edwin Drake in 1859 basically struck black gold. I mean, the town and its environs were quickly swarmed by opportunists, producers, speculators, refiners. You know, the book paints a picture of a bit of a black, oily hellscape that Rockefeller actually visited at one point and trudged through and saw this environment take shape around him. Cities sprung up in what they were calling Oil Valley in Pennsylvania, along with those producers, the speculators and the barrel cooperages. Rockefeller, he saw
12:17 unparalleled opportunity. in this commodity. And funny enough, I think it interesting when we hear about stats on oil production and refining, Drake really started with a wood pump. There's a picture of it in the book and really just about 15 barrels per day in the first year of production. It goes to show you how much this just blew up once you started getting more producers and refiners there to work with the capacity. That's great. And there were many different components to the oil industry. There were, of course, the wells where the oil came from. There were the refineries where it got turned into kerosene and other substances. Can you tell us a bit about wells, a bit about refineries, and also how to get from one to the other? How was oil transported and then ultimately transported to retail locations for distribution? Yeah, I mean,
13:02 the biggest takeaway from this, well, one, obviously Drake's well was considered the first modern well domestically. They call it Drake number one. You know, previously there was some oil extracted from coal, rock oil, et cetera. I mentioned the salt mines as well. But really, when you think about it, you have those oil wells, the producers. The first ones were built of wood. They would pump the oil from the wells and then ship them to refiners. For example, Standard Oil was eventually in Cleveland, and they would be using rail lines, river traffic, boat traffic as well. And then at the site of the refining, the oil would essentially be, quote unquote, washed and refined via both chemical processes. but also intense heating that's used to separate the different products and byproducts, the usable oil from what would be sort of the unusable garbage
13:50 just for a time being. Some of that was actually gasoline, right? Gasoline was actually considered before the advent of the automobile, a byproduct that was unusable. And then obviously from the refineries, it would be shipped predominantly via rail, but also via boat as well to local distributors and wholesalers. I'd emphasize that at that time, It was more on that wholesale side. It was more direct to the wholesalers who then would sell it in their local regions. But again, it was all via rail car. At one point, it was literal barrels, hence the cooperages. And eventually, as we'll explore, that turned into tank cars and more modern, efficient ways of transporting the oil, which is something that Standard Oil was so good at. And I just want to provide a little bit of chronological context for our listeners. We're talking at this point about the 1860s.
14:37 And this is before the invention of the electric light bulb. So people are getting their artificial light from kerosene lamps. And that's why kerosene was so important. And for those that aren't so familiar with technological history, we're still also about 30 or 40 years away from the automobile. So that gasoline is really not useful for a pretty long time. That's that byproduct of the oil refining process. And Dave, there were ways in which You know, members of the middle class were lighting their homes, but for example, there was one I believe called Illuminat, which cost 80 cents per gallon. Ultimately, Standard Oil would be delivering kerosene, which was a warmer, brighter, burning fuel for about 5 cents per gallon. So back then it was achievable, but more
15:22 expensive and lower quality. And as bad as oil ultimately was for the environment, it also was good for getting rid of whale oil, of course, too, which was a pretty negative practice of destroying all the whales on Earth. Okay, so let's get to Standard Oil. Standard Oil is created by John D. Rockefeller and his partners. Why and how? Yeah, so it started as a partnership between Rockefeller, his brother William, Henry Flagler, later of Flagler College in St. Augustine, who also revolutionized travel throughout Florida. There's also a chemist, Samuel Andrews, who really masterfully refined the refining process. And then a few others as well. It was incorporated in Ohio at first and then grew through sales. So for example, the standard in Standard Oil referred to that standard of quality and
16:10 service. And then through acquiring refineries throughout the state and was largely situated in Cleveland. Right. At the beginning, it's all in Cleveland. There's a few refineries in other places. And over time, they spread out to other population centers. Okay, how did Standard Oil go about taking the refineries that are popping up and consolidating them all together into one large trust? Yeah, when I think about Standard Oil and the way that Chernow depicts the early history of Standard Oil, there's three really important elements there. So one, they were super quick to absorb competitors in the refining community in Ohio. You know, at one point they called it the Cleveland Massacre. Standard Oil consumed 22 of the 26 competitors that were out there. And many of those acquisitions were tinged in threats
16:58 that those refineries would be either driven out of business, the lives of their founders would be ruined. At one point, Rockefeller just had to merely show his potential competitors his books, right? Remember that he was an incredible bookkeeper going back to age 16, and they would relent just seeing the force that could be applied to them and the eventuality of defeat, essentially. And sometimes those competitors, the acquired companies, were actually bound in silence so that no one was any the wiser of that new business arrangement, not even some of the high-level employees of those companies. So there was this idea of consolidation fueling that early growth. The second part I'd say is it's really the idea of rebates and price relief and sometimes just Standard Oil controlling or having ownership stakes in some of the key transporters of crude and refined product.
17:48 So primarily that was done via the railroads and we'll talk about some of the railroad rebates later in the show. But really, there was such a small handful of those major players that it was easy to negotiate those rates and really form a very efficient transportation network. I'd also say that in addition to the railroads, the pipes were important ultimately. Ultimately, those oil pipes crisscrossed all those production regions. And Standard Oil, more than any of the other refiners at the time and any of those other firms, they were brutally efficient in installing pipes and pressuring those producers and wells into working with them just because the infrastructure was ready. And then the third element of Standard Oil's early success that I've mentioned is this idea that they skipped the middleman. I mentioned those wholesalers before, some of those traditional, whether it was the corner shop
18:36 or larger sources of goods, they skipped the middleman by showing up in towns and cities with their Standard Oil taker trucks. And they would market their product themselves, right? At one point, they had 11 market regions as they were growing larger. They were able to control both the quality of the product as well as their brand and the distribution of the product. So ultimately, the Standard Oil Trust, which is what it became, it really allowed centralized control of these disparate companies across dozens of states and it was all centrally coordinated by the group of executives, right? They called it the lunch table, ultimately at 26 Broadway. And it was in some of this early consolidation that the government started taking notice and the media as well, which would become thorns in the side of Rockefeller and his colleagues in the future. And I think it's
19:24 worth mentioning that even though Rockefeller was very aggressive and pushy in forcing other companies to sell to Standard Oil, he was also pretty generous in the price that he would pay, at least according to Chernow's research. And he would oftentimes also give these other executives at these companies that got absorbed relatively cushy roles at Standard Oil itself and generous stock options sometimes that ended up being very lucrative to them in the long term. And remember, at the head of that lunch table, it was an amusing anecdote that Chernow presents. Rockefeller never sat at the head of that lunch table. He was just one face on the side of the table. Everyone knew he was the perhaps most important face. But I believe it was actually one of his early competitors named Pratt who sat at the head of that table. And just like you mentioned, Dave, he did give them fair prices and he did give them a seat
20:12 at the table, literally and figuratively going forward. Yeah, it's a really important point because although his business practices, as we'll get into, were very controversial, he never was, and he was kind of cheap in his personal life. He was not cheap about the price that he paid for these companies that he kind of forced to sell to him. Okay. There was a big controversy around something he was trying to set up along with his partners called the Southern Improvement Company. What was the Southern Improvement Company and why was it controversial? So Dave, I think it's interesting that you made the same mistake as a prosecuting attorney who was trying to take Rockefeller on when he asked Rockefeller, do you know of the Southern Improvement Company? And Rockefeller truthfully and without perjuring himself responded, no, I don't, because it's actually called the South Improvement
21:00 Company. You're absolutely right. I wrote it incorrectly in our show notes for the episode for context of the audience. Yeah. And it's, it's, it actually worked out great. It did, and it proves one of the things that Rockefeller, he was always unflappable under some of this scrutiny, particularly when he was on the witness stand. His lawyer, who thought that he was a diminished older gentleman in some of the different testimonies he would have to give later in life, was amazed and said he had found the best client and the best witness that he had ever seen. But going back to the South Improvement Company, mistakenly it's thought to be started by Rockefeller by some, but he actually joined it. It was the Pennsylvania Railroad Company CEO, the one that you know from the monopoly tile, who actually spearheaded it. And it
21:49 started as an alliance between the railroads and the largest oil companies to really make the rail lines more profitable and help those oil companies grow. It was a formal scheme by which some of the largest companies that were transporting crude and refined product ended up getting large rebates. So essentially, Imagine the railroads would continue raising prices for smaller and mid-sized producers and refiners, but then the larger companies would get rebates, which ultimately brought their prices down and made them even more efficient, right, in that rising rate environment. Ultimately, though, it only existed for a short time, and I believe they said it actually never really ended up resulting in the transportation of mass quantities. It was sort of killed in the cradle by some of the negative attention it was
22:35 getting. But still, the railroad rebates went on, just under a different name, under different auspices. Let's get more into those. So what were the railroad rebates? So I think railroad rebates took a lot of different particular incarnations. The basic idea is that instead of the headline rate that Rockefeller and Standard Oil were paying, there was ultimately some kind of kickback that would happen down the line. So on the books, they would say Rockefeller was paying. similarly to his competitors, but in reality, the railroad would then give some amount of that money back to them or give them credit towards future purchases, etc. So there were all these different structures that they put that ultimately just gave a cheaper price for
23:21 oil delivery to Rockefeller than to any of his competitors, which is really critical to the ultimate success of Standard Oil and its ability to provide cheap oil to the masses. The most interesting part about it, I think, is that Well, and there's a lot that's interesting, so feel free to chime in from others, was that tanker cars were actually a really critical component of this as well, which was that the Rockefeller companies would actually own the tanker cars and then lease them to the railroad companies and use that in order to get all kinds of kickbacks as well, including they would get charged the same amount to move a tanker car of oil as a regular car full of barrels of oil would get charged. even though you're moving dramatically more oil in that tanker car. So anyway, it was a lot of
24:08 cool little tricks of the trade. Yeah, and I had two thoughts too, Dave, since you invited us in for some commentary. One, when we think about anti-competitive practices, lack of transparency with the railroad rebates, on the first hand, there's definitely a strong argument to be made that there were some significant cost savings and efficiencies for the railroads in working with standard versus competitors. So you would think in some ways these rebates could be considered fairly legitimate. But I would also say it's really tough to prove that the size of that cost saving actually match the size of the rebates. And that's where we get into the deeper discussion. And then one thing I just mentioned in looking at the scale and scope of Rockefeller's business operations, eventually they moved
24:53 into pipes and the railroads were not nearly as involved as they used to be. But it's amazing how the negativity towards the railroad rebates was always an arrow in the quiver of his opponents, right? Much of the negativity going into the trust busting pointed back to the railroad rebates, even though largely the pipelines had taken over most of their transportation. And for me, one of the business lessons I took from that is you really just need to look far down the field when you are planning out your business, right? Understand that this small cost saver early on could create such a mess later on. And it brought me back to when we were looking at the Schwarzman book, the idea of management debt. Right. And that was a little bit of management debt. It seems like Rockefeller took early on and that I don't think it created his company. It did not make it as big as it was railroad
25:40 rebates alone, but it was an advantage. Was it worth it in the end? I think that goes along with the South Improvement Company. The South Improvement Company actually never happened. The railroad rebates were actually totally legal. And as you mentioned, Kevin, they were really temporary because ultimately pipelines replaced railroads. And yet these are the things that he was most lambasted for. I mean, his career was much longer than the South Improvement Company. That was a blip in it. And the railroad rebates were just for really a temporary point for the industry until pipelines took over. And yet that's what he had to answer for in biographies 30, 40 years later. So it's interesting how kind of the media can run with a story that might have been controversial, but might not have actually had that much impact on the long term operations of the
26:29 business. David, I'm curious about your opinion. The rebates were legal, but do you think that they were unfair? Should they have been illegal when they happened? I struggle with it. I think it gets especially complicated when Rockefeller is ultimately like the largest shareholder of some of these railroads. So I think in those cases, some like fair play and like not like giving advantage to the owners relative to other customers are things that I think like start to make sense and even like, you know, just acting in the best interests of the shareholders of the company beyond that core owner start to be reasons why you might think you should change. But to Kevin's point, they had infrastructure that actually made it a lot easier to operate with Standard Oil. So I think charging them less in those cases totally makes sense. I mean, FedEx and
27:17 UPS charge differentiated rates and they're going to give you a deal if you're moving a lot more volume with them. So I don't think there's anything fundamentally wrong with that. But I think it gets a little bit complicated when the shared ownership gets involved. You can correct me if I'm wrong, but I think in economics, that's called first degree price discrimination, where you actually charge something different to just a different customer instead of a different market. If I remember correctly, a different market is like second degree price discrimination. You can correct me if I'm wrong. But anyway, let's move on. Do you believe that Standard Oil and Rockefeller's tactics, including both the South Improvement Company, the aggressive consolidation of the industry, the railroad rebates, I mean, we can get into some more tactics that are used to. Did they deserve the demonization that they received in his time? Do you think he was an unethical business person? Yeah, so
28:05 again, there's a lot of fuzziness. I mentioned before with Chernow and how he paints the picture of Rockefeller. I think that there's no doubt that viewed through the modern lens, the modern context, that some of Rockefeller's tactics were definitely unethical. I mentioned before we started recording that there was this idea, though, at that point that this was the Wild West. Rockefeller was the architect of one of the first major monopolies, right? And there weren't regulations that spoke in that language just yet when he was first forming the company. Did he deserve that much demonization? I don't think so, based on my reading of Chernow, right? And based on the contemporaries, his contemporaries and their tactics that existed at the time, right? So it becomes a tough question. And I really do think that when you look at pro-Rockefeller folks would likely say that
28:53 the whole is greater than the sum of its parts, that the negatives of Rockefeller, the small companies that were dismantled or acquired were outweighed by his positives, right? But one thing I thought was interesting is that, you know, when you think about the standard and standard oil post the bust, the sum of standard ended up being greater than the whole, right? Because as we later see, and we can later discuss in the show, we see that there was more money to be made as 20 plus different companies then as them together, right? I wonder if a more ethical Rockefeller in contemporary terms, you know, could have achieved the same outcome. So, you know, for example, when you think about Standard, it at different points had many innovators, right? When they started using sulfuric acid in the early refining process, right? That was
29:42 one of his business partners and in their efforts to make the Lima, Ohio crude, less caustic and higher quality for some of their customers. He brought in scientists from around the world, in one instance, to rise to these challenges. On the charitable side of Rockefeller, he made a science of philanthropy. He added a methodology to it. He professionalized it in such a way that he's impacted millions, if not billions today. So really what it comes down for me and the demonization of Rockefeller is that if Standard Oil's business acumen, these points of real innovation they brought up, what if they started there, right? What if they had resorted to more ethical, in contemporary lenses, tricks to get to that same result? Could they have done that, right?
30:29 If anything, he should be demonized for not necessarily starting at that point and going straight to some of the aggression and some of the low-hanging fruit for his opponents that thought he was being unethical. But it's easy to say that in hindsight. And who knows what would Standard Oil have been if they relied on simple innovation. Personally, I didn't actually have a problem with the aggressive buying out of competitors, especially when he was doing it with a very fair price. I think if you're paying somebody a lot and you're saying to them, hey, look, if you keep competing with me, I'm so big, you're going to end up losing. But I'm willing to actually pay you above market rates and you can be sold to me in a period when that was not illegal. I don't actually find a big ethical concern with that. The
31:17 railroad rebates being secret, again, on its own, I don't find completely concerning because, again, it was legal. So if I can have a competitive advantage by not sharing my agreement with another company to my competitors, why would I not do that? Where I had real ethical concerns with Rockefeller was where he was paying off politicians. And it seems like he wasn't doing it always directly. And so I'm not sure that Chernow was able to completely implicate him in all of the cases. It would be other people at Standard Oil who were making those payments to the politicians. But I think that's really where he crossed the line. I mean, that was illegal even in the 19th century. And it's, of course, immoral, right, to subvert the political process by using money to buy votes in the U.S. Senate and the U.S. House of
32:04 Representatives. Well, and Dave, you've convinced me when it comes to the transparency around the offers for acquisition. For sure, I was just going where you went right there. Part of it was John Rockefeller made some of those bribes and payments. In fact, he almost made them just to taint the politicians themselves. It seemed like what really, where things turned a bit more unethical was in his delegation to his protege, John Archbold. And when you read about Archbold, Rockefeller took a bit of plausible deniability even though he likely stayed in tune with everything Archbold was doing, he was a bit of a rogue, right? Archbold really stepped in and went to new lows. So for example, he was increasing domestic kerosene prices and keeping them artificially low overseas for
32:50 market share. You know, when you look at Rockefeller, he had always prided himself on cheaper, better kerosene. Literally the company was called Standard Oil. And it's one of the first anecdotes that Chernow has in his book. You mentioned the elected officials. Archbold was freely bribing elected officials left and right and was even more aggressive on that front. It was political, it was not polite, it was not representative of what Rockefeller had earlier tried to embody and deliver through the lens of his Baptist upbringing. At one point, Archbold bribed officials to the tunes of dozens of thousands of peace over two years. That would be like giving a politician today $1.4 million in bribes over two years. And what you mentioned, Dave, not only did the book say that
33:36 Rockefeller didn't often bribe public officials, but he was loathe to do that. That was his last resort. At the same time, Chernow also says literally, Archibald had studied corruption at his master's feet. So it's definitely a gray area in the book and in Rockefeller's life for sure. You know, Kevin, I think it's a step too far, even if the corruption is the last resort. And I'm sure you agree. But it went beyond just business. It went even into his personal life. I believe he had his son, John Jr. He encouraged a marriage between John Jr. and the daughter of a Senator Aldrich. Senator Aldrich was known to be a very corrupt senator from Rhode Island. And he used that connection to try to influence the US Senate and its policies towards Standard Oil. Yeah, and this is really an example where you start
34:22 to see the different faces of John D. Rockefeller, right? Whether it's the dedicated Sunday school teacher who would enjoy going back to the church of his Baptist upbringing versus the ruthless businessman versus the fairly typical businessman and then the family man as well. And sometimes it would bridge all those gulfs and it comes back to Chernow's focus on the devil bill qualities of Rockefeller and his family versus the Eliza qualities of Rockefeller and his family. Yeah, this really is the key to the whole book. And I think what makes it so interesting is that dichotomy within Rockefeller, the good and the evil, and that I think he really was a harsh businessman who believed in cutting corners to get things done, although he probably felt
35:11 like he was doing what had to be done, even with the political corruption. I agree it's wrong, but I think in his own mind, I think he did believe it was like this was just what had to be done to get the business done. While at the same time, ultimately, as we're going to talk a lot about, dedicating so much of his life to philanthropy, to religion, not drinking. He was very, very fixed in his morals in a lot of ways. He, I think, did believe he was doing the right thing and that he needed to succeed in business to do God's will ultimately in all these other ways. But I think that ultimately the tactics he took were not legitimate. I think you need to look on it in that way, ultimately. I am really pleased with the way Chernow presented
36:00 it, really giving you both sides, because I think we tend to think of him more as this corrupt businessman who ultimately got busted up by Teddy Roosevelt. I feel like that's the dime store modern version of Rockefeller. And for our listeners who are familiar with kind of the modern world, I think there's a lot of parallels there with Bill Gates. Bill Gates did a lot of business practices that some people feel are unethical. Ultimately, his company was also challenged by the US government as potentially being a monopoly. And ultimately, he also became a great philanthropist. And he also might have felt when he was using those harsh business practices, that it was justified by the necessities of the business and that ultimately was better for the industry and for the customers in the long run. So I think there's some great parallels there between
36:49 John Rockefeller and Bill Gates. Okay. Standard Oil really controlled the oil industry at one point having as much as 90% market share, but who were its competitors? So I'm going to take a little bit of a different angle here and In Chernow's book, there is about 200 pages, maybe not that much, where he does go through all of the different companies that were acquired, the refineries that were acquired by Rockefeller. And I would say that would do best in terms of a Scorsese film with a great montage and some great audio in the background. I don't really consider them his competitors. He was so ready and able to acquire and absorb those companies. I don't really consider them that notable. I think about the macro competitors. When I think about the macro competitors, As Standard Oil matured, it was really the government, it was the
37:36 antitrusters, it was the media. I would say, seven years before the trust busters came to dismantle Standard Oil, there were some notable competitors rising due to new production in Russia and overseas. On the West Coast, there was a company called Pure Oil Company, which actually had some nemeses and enemies of Rockefeller on their board and in leadership and had about 30 refiners, if I'm remembering correctly. But really, the main competition was public perception at different points and public authorities and the media. And I would say too, when you think about some of those smaller refiners who either put out of business or acquired or maybe alienated, a lot of them came back later in life to haunt him, right? And not only that, some people say,
38:22 well, it's not personal, it's business. A lot of those refiners came back in some of these proceedings, testimonies, subpoenas, et cetera. more, it's not business, it's personal now. And that's when you started seeing some of the cracks in Standard Oil, its public perception, which really weren't fixed until John D. Rockefeller came out on the public stage a bit more. And he was actually not just respected, but admired when they hired Ivy Lee as the first corporate PR specialist to join Standard Oil. But that was really the early competition, the early perception of Standard Oil. So we've been kind of dancing around the central issue with Standard Oil, which was that it was a monopoly, at least considered to be a monopoly ultimately by the US government and by most commentators of the time. So I'm curious how the book made you
39:11 feel about monopoly. And one thing I found interesting in the book was Rockefeller's opinion on monopoly. There's actually a whole chapter where Chernow really gets into this. And he says that Rockefeller argued that monopoly is actually a natural organizational structure that reduces inefficiencies. And if you've ever taken industrial organization and an economics degree, there is a lot of talk about that, that there's actually some benefits to monopolies. And Rockefeller himself saw it as a system that's somewhere between free market competition and socialism. And as you might imagine, being the richest man in the world, he was not a fan of socialism. So he was a pretty big fan of how can we consolidate and have power without going fully into socialism. Monopolizing also may have actually saved the oil industry in the early 1870s when it was still very nascent, it was still developing,
39:59 and there was so much competition that prices got very depressed, so depressed that it was no longer profitable to actually produce kerosene. And so the consolidation that Standard Oil enabled actually was able to keep prices high enough that the industry could survive this crisis. So it's possible that without Standard Oil, the oil industry would have taken a lot longer to fully develop. Did you find Rockefeller's arguments that were pro-monopoly compelling? And how do you feel about monopoly as a whole after reading this book? Yeah, so in some ways, it's almost like Chernow at different points in the book is torn on monopolies as well. So moving from the extremely coercive ways that Rockefeller drove competing refineries to sell to all the maladies we spoke about earlier to,
40:45 like you said, Dave, lauding the efficiency, the solvency of the standard monopoly. during some tough pricing times and that brought the early industry through that storm. I definitely support free markets, but I would say this was the wild west of monopolies. Like I mentioned before, this was one of the first ever. And I think the combination of coercion, those secret and unannounced deals with competitors, the railroad rebates, the bribing of elected officials, definitely made this monopoly less palatable than ones that may come forward. There's the efficiencies though, like you mentioned, I said before that You know, lighting your home went from an 80 cent per gallon proposition to five cents per gallon. You know, I think that Rockefeller definitely had a point that it's important for organizations and trusts to transact in states that aren't their own, right? I completely agree there.
41:34 And that's ultimately what standard trust was doing. You know, and even then Roosevelt himself, who later went on to, you know, contribute to the dismantling of the monopoly and busting the trust, right? He distinguished between the good trusts, those that had fair prices and good service, And then bad trusts, the ones that gouge consumers. I'm a little bit hesitant towards that because then who is really judging the good trust versus the bad trust? It's government, it's regulators, right? It's not necessarily the consumers that are speaking with their wallets. So just like Chernow, I'm a little fuzzy and in the gray area when it comes to standard oil, but it definitely was a great education in some of the dynamics of monopolies. You know, the most important one that I think of is ultimately when there was that partnership between Carnegie and
42:20 Rockefeller and steel and iron ore, when they start expanding into those realms, when you have a monopoly, not just monopolize one market, but then go into many others. Remember, Rockefeller was also going to natural gas. I think about the impact that the monopoly had on that one market and a lot of those participants who wanted to enter a free market. And I start to be discouraged about what that would have looked like if it expanded and grew even more. And that's where we start to get into trouble when we're judging which monopolies are appropriate and good trusts, which are bad trusts. So very complex question. Did not answer it completely. But I think Chernow really addressed it well. And it was an education. I think that it is a really hard question. And I don't think anyone has like a golden perfect answer. But what
43:06 I found interesting about all of it was, so I mean, Rockefeller's basic perspective is that the only way the like animal instincts of the oil markets could be tamed was through a monopoly. If you didn't have this, this industry wouldn't work at all. You would never be able to provide reliable oil to people because there's constant booms and busts as new supply gets uncovered. People rush in, they take too much of it out rapidly. That creates a glut in the market that leads to price crashes, which then leads to the collapse of all the companies. He has good examples of all of that happening in the industry that he took over. And so I think he's probably right that oil kind of does naturally lead itself towards more and more monopolization as a commodity product that has a
43:54 lot of highly specialized technology, et cetera, that having more and more concentration and can obviously have economies of scale that can bring down prices and all of those sort of classic economic concepts we see about the potential benefits of monopoly. That being said, I think Rockefeller did a lot of things that were not like pure action of like monopolistic, like success. Like he did actually, you know, do things to put people out of business in a way that were not just because of, you know, the efficiencies that he was going to be able to build. He didn't just charge less than, than everyone broadly and like force them out through that. Like he did a lot of like specific things to mess with their, you know, rates with other companies, et cetera, in order to like cause his competition to fail. So I
44:41 think those are the things that start to like, verge on criminal activity and the things that ultimately he's known for in a lot of ways. So I guess my perspective is I don't think government determination of what is and is a monopoly is going to effectively allocate resources in an economy. But at the same time, when they are acting in criminal ways with that monopoly power, you definitely need to enforce at that point. So I don't know. It's a hard thing to think through. And I also think about where would folks like Archbold and later leaders have really taken the company as well? And that's what I had mentioned at the end of my comments. But when you think about projecting this forward, what would Standard Oil have looked like if it would have been allowed to have remained together? And for the first 20
45:28 years after that, it pretty much did still operate in lockstep. I think an interesting way of framing this question is by thinking about whether you're looking at it through the lens of competitors or customers. And I read a book a few years ago called The Abolition of Antitrust that studied a lot the whole standard oil debacle. And they made the case in that book that really standard oil was delivering a better product at a lower cost for consumers than you would have seen in the alternative world where they didn't exist. And so who was really clamoring for the breakup of standard oil? Was it the consumer who was getting low cost, high quality kerosene? Or was it the competitors who couldn't compete with it? And I think you'll find that there was a lot of special interests amongst the competitors who actually were clamoring for
46:15 antitrust laws, not just in the oil industry, but in other industries as well. So who should government be looking out for? Should government actually be encouraging a monopoly that's bringing a high quality product at a low cost to consumers in a very standardized way? When you think about it through that lens, it kind of can change your opinion on antitrust. That said, I'm not arguing that the company should have been broken up. Obviously, they were abusing their monopoly power doing illegal activities through that monopoly power beyond just being a big company in the first place. Yeah. One of the other interesting things that came out in the book was that while Rockefeller was in charge, they were providing a great cheap product. But then after he had stepped back, his successor, who I'm blanking on his name and someone should fill it in if they can. That was Archibald. Sure. Yeah, Archibald. He then did start raising prices. And so
47:04 he was providing really cheap oil globally. because there was competition there and he was dealing with Royal Dutch Shell and the Russians and the other European oligarchs. And so in global trade, Standard Oil continued to be this brand of the cheapest, most reliable thing. But because they did have such incredible dominance in the US market, they did start to milk the US customers in order to be able to undercharge in the rest of the world. That being said, it was still much, much, much cheaper than the alternative. customers were still getting a great deal relative to anything else they possibly could have done. But I think it sort of crept up from those five cent prices when they first were really launching. Yeah, absolutely. And again, I'm not arguing that they should have kept Standard Oil around, but at
47:53 the same time, it's hard to say what the counterfactual would have been. And I think there's also good monopolies and there's bad monopolies. Standard Oil under Rockefeller might have been a good monopoly in terms of for consumers, I mean, not in terms of their tactics. And maybe Standard Oil under Archibald was a bad monopoly, but there's also ways of regulating monopoly. So perhaps you can regulate it and ensure that prices stay at a certain level. Not always a good idea to have price controls. But if you think about it, a lot of the energy industry today is municipal energy companies that are effectively government monopolies that are supposed to be benevolent monopolies, right? And what's better, a private company that's a monopoly that's regulated or a government monopoly where no competitors could even ever rise up because it's controlled by the government? Yeah, and this leads to the question that I know that we want to cover, you know, really
48:39 should Standard Oil have been broken up? And we're already answering that in some ways, but I also want to produce a few more points too. So for example, you know, Mark Twain is involved in the Chernow book, right? Because he was friendly with John D. Rockefeller Jr. as well as Rogers at Standard Oil, obviously was a contemporary of John D. Rockefeller Sr. as well. But you know, what Mark Twain noted was, quote, the Standard Oil chiefs cannot be altogether bad or they would oppress their 65,000 employees from habit and instinct if they are so constituted that it's instinctive with them to oppress everybody else, right? So he was almost defending the monopoly and opposing the busting of the trust. I mean, when you look at Ida Tarbell, who was one of Rockefeller and Standard Oil's biggest adversaries, not necessarily most impactful adversaries,
49:28 raising public perception, but not a market competitor, Also, Ida Tarbell did have a bit of a chip on her shoulder based on her upbringing near Titusville, right? Rockefeller and his activities put her father out of business, but she hated Rockefeller and Standard Oil, but even she said, quote, the legitimate greatness of the Standard Oil Company. There was not a lazy bone in their organization, not an incompetent hand, not a stupid head, right? They never played fair though, and that ruined the greatness for me. So it's interesting how even in those contemporary times, they were not necessarily struggling, but having this very same debate, not debate per se, but discussion that we're having today. And just when it comes to Standard Oil being broken up, I found it so interesting that Chernow started one of the chapters with an anecdote or a vignette of the Ohio
50:15 Attorney General, William Cook. And as you know, and listeners of our podcast know, I always love those cinematic moments, but he wandered into a small bookstore and he found a book, it was called Trusts, the Recent Combinations in Trade. an older book, and it had Standard Oil's trust deed reproduced in the book as an example, right? And he noticed that Standard Oil had violated their own state charter in Ohio by transferring control of the organization to mostly out-of-state trustees in New York. So when we think about Standard Oil being broken up, in addition to the media attention, the government attention, part of it came from a bookstore in Ohio with the Attorney General of Ohio finding their charter and actually reading it for the first time.
51:01 Yeah. And just a little side note for context for our listeners, Ida Tarbell wrote probably the most popular biography of Rockefeller of the early 20th century. I think it was 1904, 1905 it came out. And it was very, very critical of Rockefeller. And as Chernow finds in his research, actually a lot of things in the biography were inaccurate, but it created such a storm around Rockefeller and his family that it's implied in the Chernow book that it actually caused them all kinds of medical maladies from all the stress of having to deal with what the public thought of them after the Tarbell book came out. Okay, let's move on. So ultimately, of course, Standard Oil is broken up. What's the result of that breakup? It's really fascinating.
51:49 Ultimately, the constituent companies basically get broken into different pieces. I don't have at the tip of my fingers the total numbers, but it was many, many different companies. But they allowed the same ownership to continue. And so actually what ends up happening is that these same groups of people now just own dozens of different businesses. And now that these businesses are broken up and are traded separately, they actually end up being worth a lot more money than Standard Oil was originally. After all of this, the net output is that Rockefeller becomes the richest he ever is in his life shortly after the breakup of the company. And ultimately, at the time of the writing of the book, four out of the 50 largest companies
52:35 in the world were formerly pieces of Standard Oil, Exxon, Mobil, Chevron, and I forget what the fourth one is. But funny thing is, since this book was written in 96, Exxon and Mobil merged back together. Even the former constituent parts of Standard Oil are now coming back together as well. And for our listeners, I think it's important to note that this actually rose to the level of the Supreme Court, right? And to Dave Short's point, one of the key reasons why all of the stock prices and the profitability and the success of the now spun off components of Standard Oil, one reason it happened was because the removal of now the regulatory challenges that came by just being separated into their different
53:21 constituents. So it's an interesting self-fulfilling prophecy and I doubt that many of Rockefeller's opponents foresaw that or had hoped that that would happen. In this episode, we've mostly concentrated on the business life of John D. Rockefeller because that's what our podcast is about. But Rockefeller also became one of the foremost American philanthropists of his time. What were some of his biggest philanthropic achievements Do you think his philanthropic strategies made sense? Were there any that you disagreed with? Yeah. So just as a primer on some of his biggest philanthropic achievements, you know, in addition to founding the University of Chicago, you know, one notable element of that is he never even had a building named for him there until after his death, right? That was one of his key precepts. He wasn't about building buildings and naming them like Carnegie would be. He was more
54:11 about the outcomes that funding that charity would enable. He also supported the Spelman College, which was named after his wife's maiden name, essentially, and her family. It was designed for the education of Southern Black women. I would also say that three of his other bigger achievements would be the General Education Board, which promoted educational institutions at all levels. There was the Rockefeller Institute for Medical Research, RIMR, and the Rockefeller Foundation, which was committed to public health initiatives in collaboration with the government even. So it's funny, on one hand, he's under attack by the government. On the other hand, he created the Rockefeller Foundation, which was almost like a public-private partnership to address some of the emerging sanitary and health-related challenges of the day. When you think about
54:59 his full investment in contemporary dollars, it was about $540 million. And really his philanthropic commitment originated in being so overwhelmed with appeals for help as his prominence rose and reports of his net worth were disseminated, right? He needed to find a way that was feasible and aligned with his Baptist Christian background to actually help people. And what I took away from this is he really did this in an approach like the teach a man to fish, right? Approach. For Spelman Seminary, which ultimately became Spelman College, for example, he never wanted to give them enough that they were too comfortable. He always wanted them to be creative in their approach, creative in their fundraising from others, right? And I love this idea too, that he went
55:46 into this not thinking that he was trying to fix his reputation by doing this. He also didn't think that he was really doing anything wrong. But Chernow quotes, you know, Rockefeller felt no need to cleanse his reputation and rebelled against any insinuation that his charity, selfishly motivated and he would turn away at the door from the door anyone who came in and said this was an opportunity to fix his reputation you know when you think about his charitable giving what i saw in rockefeller what i think is important it was the first example of adding a business methodology to philanthropic activities adding a methodology to it uh where those institutions wouldn't depend on him but outgrow him and i thought that was unique for the time He even had a head of his portfolio, Frederick Gates, his portfolio manager and philanthropic advisor who he called
56:32 his secret weapon. I love this quote from Churchill, quote, the founder of the Standard Oil Company would not have felt the need of paying hush money to heaven. It really puts some of his objectives and his drivers, particularly with the medical charities as well. When it comes to the medical charities that he either built or invested in, His idea was he wanted to strengthen the recipients of his charity, better prepare them for evolutionary struggle, in his words, equip them to compete, but don't tamper with the outcomes. And it was the first example, I think, of preventative charitable work versus direct relief. One other notable thing is it really started more sectarian with his Baptist upbringing. And so he was always donating to Baptist causes and organizations. And then obviously it
57:18 moved to less sectarian, right? UChicago. started as a more sectarian school and then he ultimately moved away from it and removed the requirement that they do uh you know be a leader in baptist teaching right and so as i said before versus a carnegie or others of his times his philanthropy wasn't about the naming of the buildings it was not about the sustaining of physical infrastructure it was about the creation of knowledge and you know true to true to that i believe the rockfeller foundation other charities that still exist to this day really do carry on that
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