Excerpts from Vindicating Capitalism: The Real History of the Standard Oil Company

Excerpts from Vindicating Capitalism: The Real History of the Standard Oil Company (view full article)

Be sure to read the very end of this page!

These three paragraphs couldn’t possibly be stated any better:

To call Rockefeller’s actions “anticompetitive” is to say that “competition” consists in no one ever outperforming anyone else. Economic freedom does not mean the satisfaction of anyone’s arbitrary desires to succeed in any market regardless of ability or performance or consumer preferences; it means that everyone is free to produce and trade by voluntary exchange to mutual consent. If one cannot compete in a certain field or industry, one is free to seek another job—but not to cripple those who are able to compete.

True economic competition—the kind of competition that made kerosene production far cheaper—is not a process in which businessmen are forced by the government to relinquish their advantages, to minimize their profits, to perform at the norm, never rising too far above the mean. Economic competition is a process in which businessmen are free to capitalize on their advantages, to maximize their profits, to perform at the peak of their abilities, to rise as high as their effort and skill take them.

Rockefeller’s meteoric rise and the business practices that made it possible—including his dealings with the railroads—epitomize the beauty of a free market. His story provides a clear demonstration of the kind of life-serving productivity that is the hallmark of laissez-faire competition.

“then everyone’s like, F*C* YOU!”

(Because of government intervention, the teamsters had a huge influence in politics and for years prevented the construction of local pipelines—an incomparably superior form of oil transportation.)

To say that Rockefeller—by cutting his costs, thus enabling himself to sell profitably for lower prices and win over more customers—was rendering competitors “unfree” is like saying that Google is rendering its competitors unfree by building the most appealing search engine.

…most of the refiners in America would have been unable to survive without drastically transforming their businesses. Rockefeller had raised the industry bar, and was expanding; anyone who hoped to compete with him would have to run a refining operation of comparable scale and efficiency.

Cartels are generally viewed as evil, destructive schemes because they are overt attempts by a group of businesses to increase revenues by raising consumers’ prices across an industry. In and of itself, however, seeking higher prices for one’s products is not evil; it is good. The problem with cartels is not that they seek higher profits, but that they shortsightedly attempt to generate them by non-productive means.

By 1879, Rockefeller was the consummate so-called “monopolist,” “controlling” some 90 percent of the refining market. According to antitrust theory, when one “controls” nearly an entire market, he can restrict output and force consumers to pay artificially high prices. Yet output had quadrupled from 1870 to 1880. And as for consumer prices, recall that in 1870 kerosene cost twenty-six cents per gallon and was bankrupting much of the industry; by 1880, Standard Oil was phenomenally profitable, and kerosene cost nine cents per gallon. It had revolutionized the method of producing refined oil, bringing about an explosion of productivity, profit, and improvement to human life. It had shrunk the cost of light by a factor of 30, thereby adding hours to the days of millions around the world. This is the story Henry Lloyd and Ida Tarbell should have told.

Standard Oil enjoyed high market share because it produced a highly desirable product and offered it at a price that the vast majority of people were willing to pay. If someone else had made cheaper kerosene or a better illuminant than kerosene, or if Rockefeller had lowered his standards or raised his prices significantly, his customers would have purchased their goods elsewhere. Such is the nature of the so-called “monopolist’s” control. And such is the nature of economic power. Contrast this with the genuine coercive power commanded by governments—which can create real monopolies by granting certain companies exclusive rights to produce a certain type of product. For example, state governments long gave horse-and-buggy-driving teamsters a monopoly on the local transportation of crude, forbidding the construction of local pipelines—and they long gave railroads a monopoly on long-distance transportation, forbidding the construction of long-distance pipelines. Where Rockefeller’s competitors failed because they could not match his quality and prices, railroads’ and teamsters’ competitors failed because the government forbade others from building a higher-quality, lower-priced product. If one wants an example of monopoly in the 19th century, this is it—and its lesson is this: Keep political power out of the markets.

Today, we take R&D for granted as an inherent aspect of business, but it is not; someone pioneered it, and that someone was Rockefeller.

To one of his oil buyers Rockefeller wrote, “I trust you will not worry about the business. Your health is more important to you and to us than the business.” Long vacations at full pay were Rockefeller’s antidotes for his weary leaders. After Johnson M. Camden consolidated the West Virginia/Maryland refiner for Standard Oil, Rockefeller said, “Please feel at perfect liberty to break away 3, 6, 12, 15 months, more or less. Your salary will not cease, however long you decide to remain away from business.” But neither Camden nor the others rested long. They were too anxious to succeed at what they were doing and to please the leader who trusted them so.

By the early 1900s, Standard Oil had provided the world with an illustration of the magnificent productive achievements that are made possible by economic freedom. It had shown that when companies are free to produce and trade as they choose, to sell to as many willing customers as they can, a man or a company of extraordinary ability can make staggering contributions to human life—in this case, lighting up the world, fueling transportation, and pioneering corporate structures that would make every other industry more productive in the decades to come. And, with the emergence of highly profitable competitors in the early 1900s, the notion that Standard “controlled” the market should have been scrapped once and for all.

The intellectual and political groundwork for a breakup of Standard Oil—and for preventing potential future Standard Oils from reaching its degree of success—had been laid more than a decade earlier when, in 1890, the Sherman Antitrust Act was made law. The act was a fundamental attack on economic freedom—on the premise, as Chernow later put it, that “Free markets, if left completely to their own devices can wind up terribly unfree.” Freedom, in other words, requires government force.

The article closes with the following cryptic thoughts:

Unfortunately, blinded by bad ideas and bad motives, the most prominent reporters on Rockefeller and his company did not see this illustration of the glory of laissez-faire—and did not depict it for others to see. Instead, they painted the false picture that has, to this day, tarnished a great man, a great company, and a great economic system.

In 1902, Ida Tarbell began publishing her History of the Standard Oil Company as a series of articles in McClure’s magazine. Meanwhile, Rockefeller critics in the press and in politics called for an end to this “menacing monopoly.” According to antitrust historian Dominick Armentano, “Between 1904 and 1906, at least twenty-one state antitrust suits were brought against Standard Oil subsidiaries in ten states. And on November 15, 1906, the federal government filed its Sherman Act case and petitioned for the dissolution of Standard Oil of New Jersey.”

Consider the key clause of the Sherman Act: “Every contract, combination . . . or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal.” This explicitly denies businesses the freedom to associate with other businesses and with customers on terms of their choosing; it means that any voluntary arrangement deemed by the government to be in “restraint of trade” can be stopped and punished. And the standard story of Standard Oil gave (and continues to give) supporters of this law ample ammunition.

Thus it is not surprising that, in 1911, the U.S. Supreme Court ruled that Standard Oil had violated the Sherman Act—and broke up the company into thirty-four pieces. The only problem with the proceeding, most believed and still believe, is that it had not taken place many decades earlier, when Standard was “monopolizing” the market in the 1870s.

But having seen the benevolent, life-giving process that actually constituted this “monopolization,” we should feel intensely relieved that the Sherman Act was not a factor during Rockefeller’s rise. Had it been, his company would have been stunted in its infancy. The original interpretation of the Sherman Act regarded any combination or merger as a “restraint of trade” and thus illegal. Recall that Rockefeller’s investments in science, his abilities to hire diverse minds and deliver the cheapest, highest-quality petroleum products to people across the nation depended on Standard being a national corporation—and for that, given the legal framework at the time, the Trust was necessary. And under today’s interpretation of antitrust law, a company “controlling” more than 30 percent of the market is often considered “anticompetitive” and thus criminal. Standard had a 30 percent market share in the early 1870s, when it had achieved only a fraction of what it would later achieve. Where would we be today if the young genius from Cleveland had had his vision quashed in his youth? How much would corporate efficiency, research and development, and effective management have suffered, not just in the petroleum industry, but in all of American industry? And, most importantly, how unjust would that have been to a man who wanted nothing more than to earn a living by producing kerosene and gasoline as cheaply and plentifully as possible?

All men—including exceptional men such as Rockefeller—have a right to take their enterprises as far as their vision and effort will take them. To throttle an individual because he is a superlative producer who supplies an abundance of life-serving goods to people eager to pay for them is to assault the central requirement of human life: the virtue of productivity.

It is time to bury the myth of Rockefeller the “robber baron” and to replace it with the truth about this paragon of production. And it is time to repeal the assault on such men that is antitrust law and replace it with the full legal recognition of individual rights.