Standard Oil Trust Is Organized Summary

  • Last updated on November 10, 2022

The Standard Oil Trust centralized control of the fledgling oil industry in the hands of John D. Rockefeller and the rest of the trust’s shareholders. It became the model for late nineteenth century American business, and its eventual dismantling was a landmark in U.S. antitrust law.

Summary of Event

The importance of big business in the United States economy was confirmed during the last two decades of the nineteenth century as the United States became one of the world’s major industrial powers. The petroleum industry played a leading role in this development and was, in many ways, a harbinger of the new age of U.S. economic supremacy. Although only about thirty years old by 1890, the industry was gigantic—characterized by concentrated ownership in refining and transportation facilities. This concentration had been brought about largely by one dominant organization, the Standard Oil Trust. Formed in 1882, it became the prototype for large-scale U.S. enterprise. Rockefeller, John D. Standard Oil Flagler, Henry M. Petroleum;Standard Oil [kw]Standard Oil Trust Is Organized (Jan. 2, 1882) [kw]Oil Trust Is Organized, Standard (Jan. 2, 1882) [kw]Trust Is Organized, Standard Oil (Jan. 2, 1882) [kw]Organized, Standard Oil Trust Is (Jan. 2, 1882) Rockefeller, John D. Standard Oil Flagler, Henry M. Petroleum;Standard Oil [g]United States;Jan. 2, 1882: Standard Oil Trust Is Organized[5170] [c]Trade and commerce;Jan. 2, 1882: Standard Oil Trust Is Organized[5170] [c]Business and labor;Jan. 2, 1882: Standard Oil Trust Is Organized[5170] Dodd, Samuel C. T. Rockefeller, William Andrews, Samuel J. Chester, George F. Keith, Myron R. Vilas, George H.

The rise of Standard Oil was brought about largely through the efforts of John D. Rockefeller. A Cleveland bookkeeper whose family fortune would surpass all, Rockefeller has been depicted both as the personification of the Horatio Alger myth of success through hard work and intelligence and as a ruthless, obsessive monster motivated by greed. On one hand, he was regarded as a man of great morality and piety. On the other hand, his businesses operated in a culture of secrecy, duplicity, rebates, drawbacks, and convenient memory loss. Undoubtedly, he had great genius at organization, foresight, considerable administrative talents, and the ability to choose able subordinates.

Starting his career at the age of sixteen in a small produce firm and later becoming a partner in a grain commission house during the U.S. Civil War (1861-1865), Rockefeller sensed the possibilities in the new oil regions of northwestern Pennsylvania but was appalled by the disorder and instability of the new industry. In 1860, one year after Edwin Drake Drake, Edwin built the first commercial oil well in Titusville, Pennsylvania, the price of a barrel of oil was twenty dollars. By the end of the next year, it had dropped to ten cents as a result of overproduction. By 1863, Cleveland was linked by rail to the oil fields, and Rockefeller invested in a refinery that soon became the city’s largest. After buying out most of his partners, Rockefeller, his brother William Rockefeller, William Rockefeller, and Samuel J. Andrews Andrews, Samuel J. built a second refinery. William moved to New York to develop the eastern and export trade. Henry M. Flagler became a partner in 1867 and negotiated extremely favorable railroad freight rate arrangements that facilitated the growth of the company.

In 1870, Rockefeller organized the Standard Oil Company (Ohio), which was incorporated as a joint stock company with a capitalization of one million dollars. Rockefeller had begun moving toward vertical integration of his operations. Almost fanatically dedicated to efficiency, he was convinced that destructive and wasteful competition must end if the company were to remain solvent. Therefore, he began acquiring other refineries, first in Cleveland, then in other cities. By the end of 1872, Rockefeller and his associates controlled all the major refineries in Ohio, Ohio;petroleum industry New York New York State;petroleum industry , and Pennsylvania Pennsylvania;petroleum industry . Over the next decade, the company developed a pipeline system, purchased new oil-bearing lands, acquired extensive oil terminal facilities, and constructed an elaborate and efficient marketing system. By 1879, thirty-seven stockholders of the Standard Oil Company, through the parent, subsidiary, and associated companies, controlled more than 90 percent of U.S. refining capacity.

Operations of the Standard Oil Company and its affiliates developed so rapidly and with such complexity that they soon outgrew the structural framework of the parent company, a situation that distressed and perplexed Rockefeller. The Standard Oil Company (Ohio) was a manufacturing company with multitudinous operations outside the state, despite the fact that it had no legal right to own property or stock beyond the borders of Ohio. Ohio;petroleum industry It was the nucleus of the richest and most powerful industrial organization in the country and was almost nationwide in scope.

The company’s expansion, however, had developed in a somewhat haphazard fashion, and its structure lacked coherence and administrative centralization. Between 1873 and 1879, stock in other companies had been acquired in the names of Flagler, William Rockefeller, William Rockefeller, and others acting as trustees. In 1879, this structure was reorganized and systematized. The trustee device gave the Standard Oil Company a flexible means of expanding beyond the borders of Ohio and, equally important, permitted Rockefeller and his associates to camouflage their activities. Following a strict legal interpretation of the nature of trustees—that they were acting on behalf of stockholders and not of the company per se—Standard Oil Company officials, including Rockefeller himself, denied publicly and under oath that the company owned or controlled certain assets.

By 1879, this informal arrangement clearly had weaknesses that transcended its advantages. If a trustee died, there could be difficult legal problems, and disagreements within the management of the Standard Oil Company could create internal dissension. In 1879, a plan to overcome these dangers was developed, probably by Flagler. All Standard Oil Company properties held in the names of various individuals and all possessions outside Ohio were transferred to three trustees, George H. Vilas Vilas, George H. , Myron R. Keith Keith, Myron R. , and George F. Chester Chester, George F. , who were minor employees at the Cleveland office. Theoretically, these men were to manage the various interests for the exclusive use and benefit of the stockholders of the Standard Oil Company, who would receive profits in the form of dividends proportionate to their holdings. This 1879 plan was legally satisfactory, because all the legal holdings of the Standard Oil Company then were concentrated in the Cleveland office, and the danger of conflict of interest among the trustees was minimized.

Cumbersome and risky, the arrangement did not provide adequate administrative centralization, solve many of the problems of planning and coordinating company activities outside Ohio, or deal with the possibility of double, triple, and even quadruple taxation of the same assets by several states. No provision was made for continuity among the trustees in case of resignations or deaths. There was no method or procedure for the transfer of trust certificates. Finally, Vilas, Chester, and Keith Keith, Myron R. had no real power to control or direct the operations of subordinates, and unity or uniformity was maintained only through cumbersome devices such as occasional meetings of Standard Oil Company leaders in executive committees.

In early 1882, these problems were largely solved in a new trust agreement, apparently written by Samuel C. T. Dodd Dodd, Samuel C. T. , the chief attorney for the Standard Oil Company, who refined Flagler’s idea. Signed on January 2, 1882, the agreement welded separate Standard Oil corporations of various states together by pooling the stock of all. The signatories included the stockholders of the Standard Oil Company, together with Vilas Vilas, George H. , Chester, and Keith Keith, Myron R. . All properties owned or controlled by the Standard Oil Company were placed in the hands of nine trustees, including John D. Rockefeller.

Each share of Standard Oil Company (Ohio) stock was exchanged for twenty trust certificates at a par value of one hundred dollars each, enabling investors to buy or sell portions of the pool. The trustees were to exercise general supervision over all Standard Oil companies and over other concerns whose stock was held in trust. In effect, a giant new centralized company, the Standard Oil Trust, had been created, although it did not have a legal existence. The new arrangement gave John D. Rockefeller and his associates the administrative flexibility to direct their worldwide activities effectively. By 1885, 70 percent of Standard Oil’s business was overseas. The trust produced from wells in Pennsylvania Pennsylvania;petroleum industry , Texas, Texas;petroleum industry and California, California;petroleum industry and exported to Europe, the Far East, and, ironically, the Middle East.

Significance

The Standard Oil Trust served as the prototype for other monopolies, until the New Jersey New Jersey;Standard Oil legislature passed a law in 1889 permitting intercorporation stockholding and paving the way for the creation of giant holding companies. One of the first of these would be a successor to the Standard Oil Trust and the target of antimonopoly prosecution, Standard Oil (New Jersey). In a twenty-thousand-word decision rendered in May, 1911, in Standard Oil Company of New Jersey et al. v. United States, the Supreme Court gave Standard Oil six months to dismember its empire, leading to the formation of the major U.S. oil companies of the twentieth century.

As the U.S. economy expanded during the nineteenth century, there were numerous endeavors to consolidate businesses. The Standard Oil Trust of 1882 was the most dynamic product of these trends, exemplifying a milestone in the evolutionary chain stretching from primitive pooling agreements to the development of giant holding companies. Through the Standard Oil Trust, Rockefeller, Flagler, and Dodd Dodd, Samuel C. T. pointed the way toward the complete centralization of giant industries, thus revolutionizing the structure of U.S. business.

Further Reading
  • citation-type="booksimple"

    xlink:type="simple">Bradley, Robert L., Jr. Oil, Gas, and Government: The U.S. Experience. 2 vols. Lanham, Md.: Rowman & Littlefield, 1996. An Enron Corporation economist, Bradley defends the Standard Oil Company against all criticisms other than poorly managing public relations.
  • citation-type="booksimple"

    xlink:type="simple">Chernow, Ron D. Titan: The Life of John D. Rockefeller, Sr. New York: Random House, 1998. Well-written, meticulously researched biography based on newly acquired archival materials. Chernow recounts the details of Rockefeller’s life and career, describing his human side as well as his misdeeds.
  • citation-type="booksimple"

    xlink:type="simple">Cochran, Thomas, and William Miller. The Age of Enterprise: A Social History of Industrial America. New York: Harper & Row, 1961. A well-written, general treatment of late nineteenth century industrial United States that contains a section on pools, trusts, and corporations.
  • citation-type="booksimple"

    xlink:type="simple">Hidy, Ralph, and Muriel Hidy. Pioneering in Big Business, 1882-1911. Vol. 1 in History of Standard Oil Company, New Jersey. New York: Harper & Row, 1955. A detailed study of what would become the most prominent offspring of the Standard Oil Trust.
  • citation-type="booksimple"

    xlink:type="simple">Kirkland, Edward. Industry Comes of Age: Business, Labor, and Public Policy, 1860-1897. New York: Holt, Rinehart and Winston, 1961. A useful survey of late nineteenth century U.S. economic structures and society. Includes an excellent chapter, “The Organization of Production,” dealing with combination.
  • citation-type="booksimple"

    xlink:type="simple">Nevins, Allan. John D. Rockefeller. Abridged by William Greenleaf. New York: Charles Scribner’s Sons, 1959. A condensed version of Nevins’s earlier works on Rockefeller.
  • citation-type="booksimple"

    xlink:type="simple">________. Study in Power: John D. Rockefeller, Industrialist and Philanthropist. 2 vols. New York: Charles Scribner’s Sons, 1953. A comprehensive, well-balanced biography of Rockefeller.
  • citation-type="booksimple"

    xlink:type="simple">Sampson, Anthony. The Seven Sisters. New York: Viking, 1975. Standard Oil features prominently in this well-written history of the world’s seven major oil companies, which has been revised several times.
  • citation-type="booksimple"

    xlink:type="simple">Tarbell, Ida. The History of the Standard Oil Company. 2 vols. New York: McClure, Phillips, 1904. This classic polemic reflects the muckraking attitudes of its times.
  • citation-type="booksimple"

    xlink:type="simple">Williamson, Harold, and Arnold Daum. The American Petroleum Industry: The Age of Illumination, 1859-1899. Evanston, Ill.: Northwestern University Press, 1959. This general study of the petroleum industry includes an excellent study on the Standard Oil Trust.
  • citation-type="booksimple"

    xlink:type="simple">Yergin, Daniel. The Prize. New York: Simon & Schuster, 1992. Important history of the world petroleum industry.

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Diesel Patents the Diesel Engine

Related Article in <i>Great Lives from History: The Nineteenth Century, 1801-1900</i>

John D. Rockefeller. Rockefeller, John D. Standard Oil Flagler, Henry M. Petroleum;Standard Oil

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