Document Analysis What Effect Did John D
Document Analysis – What effect did John D. Rockefeller have on the American Economy?
By 1900 almost every branch of manufacturing was dominated by a small number of large producers. The size and power of these trusts alarmed many Americans. They were afraid that the trusts would destroy small companies and cheat consumers by charging high prices once competition had been eliminated.
Throughout her life, muckraker Ida Tarbell was concerned about the lack of competition between the small oil producers of Pennsylvania and Standard Oil Company. In the following excerpt, from The History of the Standard Oil Company, Tarbell wrote about how Standard Oil dealt with competition. Her information is based on interviews with former Standard Oil employees.
The marketing department of the Standard Oil Company is organized to cover the entire country,
and aims to sell all the oil sold in each of its divisions. To eliminate competition it had organized an elaborate secret service for locating the quantity, quality, and selling price of independent or competitor shipments. Having located an order for independent oil with a dealer, Standard Oil persuades the independent dealer, if possible, to cancel the order. If this is impossible, Standard Oil threatens ‘predatory competition,’ that is, to sell at cost or less until the rival is worn out…The sureness and promptness with which Standard Oil located their competitors’ shipments was remarkable. The ruthlessness and persistency with which Standard Oil cut and continued to cut their prices drove small independent oil producers to despair.
1. According to Ida Tarbell, how did Standard Oil eliminate competition?
2. If you were an independent oil producer in the late 1800s, how would you have responded to
Rockefeller’s business methods?
John D. Rockefeller, the leader most responsible for business combinations, often defended the practice of creating combinations. His defense was simple. He was in business to make money, and combinations were more profitable. He told a government commission:
“Question. What are…the chief advantages of industrial combinations?
“Answer. It is too late to argue about the advantages of industrial combinations. They are a
necessity. And if Americans are to have the privilege of extending their business in all the states of the Union, and into foreign countries as well, they are a necessity on a large scale, and require the agency of more than one corporation. Their chief advantages are:
(1) Command of necessary capital.
(2) Extension of limits of business
(3) Increase in the number of people interested in business.
(4) Economy in business.
(5) Improvements and economies which are derived from knowledge of many interested
persons of wide experience.
(6) Power to give the public improved products at less prices and still make a profit for
Stockholders
(7) Permanent work and good wages for laborers…
I Speak from experience…Our first combination was a partnership and afterwards a corporation in
Ohio. That was sufficient for a local refining business. But dependent solely upon local business we should have failed years ago. We were forced to extend our markets and to seek for export trade.
We soon discovered as the business grew that the primary method of transporting oil in barrels could not last…Hence we…adopted the pipe-line system, and found capital for pipe-line construction…To perfect the pipe-line system required fifty millions in capital. This could not be obtained or maintained without industrial combination.
Every step taken was necessary in the business if it was to be properly developed, and only through
successive steps and by such an industrial combination is America to-day to furnish the world with the best and cheapest light ever known.”
1. Why did Rockefeller believe that combinations (monopolies) were a necessity to the economy?
2. How do you think Rockefeller felt about the people such as Ida Tarbell, who were calling for
reform of big business?
In his two-volume biography, John D. Rockefeller, The Heroic Age of American Enterprise, historian an Allan Nevins both criticized Rockefeller and presented him as one of the great pioneers in American industrial history.
This is not to say that much of the criticism heaped upon Rockefeller and the Standard Oil Company was not entirely true. The great combination made a cruel use in its early years, and particularly in 1875-79, of railroad rate discriminations. It practiced espionage. It employed phony independent companies. It used “local price-slashing” to eliminate competitors. Its part in politics was sometimes blameworthy. It paid less attention than it should have to systematic price-reduction. All this can be set off against its constructive achievements. The Standard Oil Company eliminated waste and introduced many economies. It applied the Frasch process which removed sulfur from crude oil and the Burton cracking, or refining process, which doubled the yield of gasoline extracted from crude oil. It standardized products on a high level of quality. It developed valuable by-products such as kerosene, gas oil, and lubricating oil. It assisted other industries in developing and improving lubricants, such as petroleum jelly. It improved home distribution of its products.
1. List three constructive achievements of the Standard Oil Company based on the above excerpt.
2. Based on Tarbell’s critical account, Rockefeller’s own words in defense of combinations, and
Nevin’s list of Standard Oil Company’s achievements, do you think Rockefeller had more of a
positive or negative affect on the American economy? Write an essay illustrating your argument.