7.1 The South Improvement Company
In 1863, the young Rockefeller started with a partner a small refinery in
Cleveland. The company does well and grows. In 1870 he reorganizes his company and found
the Standard Oil Company. In 1871, some refiners discuss the possibility of
making an alliance big enough to convince the railroads to give them special rebates for
the shipping of oil, and extra premiums for their competitors. They realized that the
speculative nature of their business would be done with if they became the only buyers and
only sellers. Looking for an existing company to buy its name and charter, they found the South
Improvement Company. The name was good, as it meant nothing. People involved in this
company stood for no more that 10% of the total American refining business, but told the
railroads that they stood for the majority. The Standard Oil was the main
shareholder and led the operations. This was the beginning of the alliance with the
railroads described above. The advantage over the competition was decisive, and the
leverage on the producers was soon to be felt.
7.2 The 1872 Oil War
In early 1872, after a leak, a rumor spread through the Oil Regions, a rumor of a
"great scheme between the railroads and the refiners to control the purchase and
shipping of crude oil". At the same time, an employee disclosed prematurely the new
railroads rates, twice as expensive as before. The rage of the producers immediately led
to demonstrations, a press campaign in the Oil City Derrick and petitions to
the Pennsylvania legislature and to Washington. The producers decided not to deliver a
drop of oil more. The Standard Oil Company had to close its refineries for technical
unemployment and waited patiently for greed and hunger to break the enemy's front.
After an investigation had revealed the preferential rebates given for rail transport,
a court ordered a unique rate. Congress concluded that the South Improvement Company
was the most enormous and most daring of all the conspirations that a free country had
ever seen. An other man would have let the anger and despise win over him, but not
Rockefeller. He had a mind that, when faced to wall, tried to circumvent it subreptiously
or to find a hole. And so was did he do ?
He went on asking for preferential rebates ! And the railroads had to yield, as the
means of transportation between oil fields and refineries were numerous (several railroads
and a canal) and a big client like the Standard could have his will done, always menacing
to switch to a competitor in case of non cooperation. The only thing that changed was that
the importance of keeping these deals secret were now clearer.
This oil war had after all a nice ending for Mr. Rockefeller, but he had still a
lot to do. Too many independent refiners were left to let him make an monopolist price,
and he quickly settled to eradicate them.