How Rockefeller Built His Trillion Dollar Oil Empire

When you look at the wealthiest men alive today, topping the charts are tech billionaires  like Jeff Bezos and Bill Gates. But actually, the wealthiest businessman to  have ever lived died almost a century ago. In today’s video, we’ll be looking at a  business empire so vast that even after a hundred years of technological progress,  no man has managed to overtake its founder.

This is the history of Standard Oil. This video was brought to  you by Dollar Shave Club. Visit the link in the description to learn  about the awesome deal they’re offering.

The origins of history’s greatest oil  monopoly are actually pretty humble. It all starts in 1839 with the birth of  John Rockefeller in upstate New York. He was the eldest son of a traveling merchant who  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 with another woman, who he decided to bring back home to his  wife so they could all live together. In this very confusing household, John  would grow up learning how to hustle people for the best deal possible and how  to get the most out of every penny he got. His family would rarely stay in one  place for long, and John would live this nomadic lifestyle ever  since he was three years old.

To help his mother, John would earn any money he could by raising turkeys  or doing work for neighbors. His intelligence was put to good use  when the family moved to Cleveland, Ohio, in 1854, where he got the  chance to attend a proper school. But less than a year later, John dropped out to  work as a bookkeeper at a local produce broker.

He would earn $0. 50 per day, which  obviously wasn’t much at the time, so he would help other companies on the side. But after two years of working there, his  bosses refused to give him a meaningful raise, so he decided to one-up them by  starting his own produce brokerage.

Thanks to his good reputation, he got a loan  of $4,000, which at the time was a huge sum. John started trading hay, grain, and  various meats, and in his first year, he recorded sales of half a million dollars, of which he only got a small fraction as  commissions, but still, it was a huge success. Every bank in Cleveland was begging John to  borrow money, and he was barely 18 years old.

But then, in 1859, something happened  that would change his life forever. Just a hundred miles east of Cleveland, the  first American oil well had been discovered. This marked the beginning of  the Pennsylvania oil rush, and within a year, 4,500 barrels  of oil would be produced.

Now, back then, oil wasn’t quite as valuable as it  is today; gasoline cars hadn’t been invented yet, but oil could still be processed into  kerosene, which people would then use in lamps. John realized, however, that  the biggest profits to be had weren’t in drilling for oil but in refining it. He witnessed many people going  bust before striking oil, so he knew that that business was too risky for him.

Instead, he’d let others go through  the hassle of finding the oil, and he would just buy it off of them. John had to wait until 1863 for the government to build a rail line connecting the  Pennsylvania oil fields to Cleveland. But when that line was built, John was ready for it with a long line of  partners and banks ready to back him up.

He also assembled a team of seasoned chemists  and engineers, who not only optimized the refining process but also discovered various  uses for the byproducts of refining petroleum. You see, the early refineries in Cleveland  could only operate at about 60% efficiency, but John not only increased that percentage, he also started selling all the byproducts,  like paraffin wax, tar, and naphtha. Within two years, the Rockefeller refinery was worth over seventy thousand dollars  and was among the largest in Cleveland.

But John wasn’t done: in 1865,  there were 26 competing refineries, but within five years, John had  acquired all but four of them. By this point, his business was getting  too big to handle as a partnership, so in 1870, he incorporated  as Standard Oil of Ohio. To convince the few remaining  competitors in Cleveland, John would simply invite them  over and show them his books, revealing that he could operate at a loss  far longer than they could stay solvent.

In exchange for a good buyout price, John  would offer his competitors positions in his own company, thus placing the brightest  minds in the industry under his control. Of course, not everyone would give up  immediately, and over time, John eroded the price of oil and kerosene, sometimes by as  much as 80%, in order to strangle competitors. Unsurprisingly, his strategy worked: by  1880, he had acquired refineries across the Northeastern US and was refining over  90% of the entire country’s oil production.

At this point, John was so powerful  that he would invite the owners of the big rail companies and personally  negotiate rebates for using their trains. But this practice of negotiating backroom  deals really got the business world riled up. At the time (and still kind of  today), most industrial goods were transported by rail, and many big  industrialists got worried that John’s abuse of transportation rebates could result  in similar monopolization in their industries.

Over the next decade, businessmen, politicians, and the media would attack Standard  Oil with increasing ferocity. Legislators in Ohio began drafting  antitrust regulations to bring down Rockefeller, but he was one step ahead. In 1882, he reincorporated in New Jersey,  this time creating the Standard Oil Trust, which in turn held stakes  in over 40 local companies.

Then, to showcase his success, John built an impressive headquarters  for his company on Broadway. This moment was the high point  of Rockefeller’s Standard Oil: he owned 20,000 oil wells, 4,000 miles of  pipeline, and employed over 100,000 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 Rothschild family, which spared  no effort in getting that oil to America. Worse yet, in 1890, the federal government  passed the Sherman Antitrust Act, which finally 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.

By that point, however, John  Rockefeller had already cashed in and was no longer actively managing the company. In the final 20 years of his company’s existence, it had paid out over half a  billion dollars in dividends. By some estimates, the true worth of  Standard Oil at its peak was $1 trillion, so the breakup didn’t really come  as a surprise to most people.

In 1911, the Supreme Court  found Standard Oil guilty of anticompetitive practices and broke the  company up into 34 separate entities. Of course, John Rockefeller kept his stake in  those companies until his death and, in fact, it turns out that the breakup was the  most profitable event in his life. You see, over time, many of those  companies merged back with one another.

Today, most of the Standard remnants are  part of either ExxonMobil, Chevron, or BP, which have since become incredibly  large companies in their own right. John Rockefeller’s ownership of these  successor companies made him the richest businessman to have ever lived, with  an estimated net worth of $400 billion. Even today, no one has beaten  Rockefeller on the leaderboard; not even Jeff Bezos himself  seems likely to achieve that.

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In any case, thank you for watching and  huge thanks to all my patrons on Patreon. If you wanna support me on there, you can  get early access to future videos or HD versions of the soundtracks  I use in Business Casual. Anyhow, we’ll see each other again in  two weeks, and until then, stay smart.