Part 4 (1/2)

Photos of John D Rockefeller always seemed to make him seem so short that thin face, under that copious top hat but in fact he was tall for his time, all of six feet Maybe that's one reason it was so easy to underestian had been born into a rich business that just got bigger and richer under his watch John D Rockefeller, by contrast, lived the econoe 16, as a bookkeeper with a Cleveland merchant house In 1858, he quit to start a partnershi+p called Clark & Rockefeller, a srocery firm in an era characterized by such low-scale businesses Five years later, still a grocer, RockefellerCleveland oil refinery That was in 1863, when the petroleum business was the industrial equivalent of the wild, wild West

The first oil field in the world had been discovered just seven years earlier, in 1856 by Col Edwin Drake in titusville, Pennsylvania, and it was still the only one The deive the business the one thing it wasmen out to make their fortunes By 1870, when Rockefeller founded the Standard Oil Co cities places with names like Oil City literally stank with crude and craith the ht it in, or failed to Hundreds of derricks had been sunk, nearly all of them the work of individual companies Because crude oil is virtually useless unless its refined, hundreds of refineries also sprang up at the other end of the industrial pipeline In Cleveland alone, Rockefeller's Standard Oil was one of 26 refineries fighting for survival in a highly uncertain and hugely volatile single-sourcethe decade of the 1860s, the price of crude went as high at 13 a barrel and as low as 10 cents

Rockefeller, in short, wasn't the first to realize the econo in population and economic vitality Refined into kerosene, oil could help heat ho cities It could also powerthe machinery that was the infrastructure of the newly connected nation Steam-driven locomotives served by coal tenders were a constant fire threat in the dry and delicate grasslands of the American prairie; steam locomotives powered by oil tenders were not

Rockefeller probably also wasn't the first to realize that in a business sense, oil wasn't even the key part of the oil-refining industry All oil from the same oil field and there was only one was essentially the same in physical properties It essentially cost the sa ely the sa removed to make the crude usable; there was no value-added component to separate finished products in the marketplace What created the critical cost difference in such a in-driven industry was transportation The cheaper a refiner could get the oil from the field to his refinery and froin he had to play with Conversely, the more expensive he could make transportation for his competitors, the less they had to play with

For the pious and analytical side of John D Rockefeller, such a realization practically had the force of scripture: Solve the transportation riddle in your favor, and you could bring order to one of America's most chaotic free markets Otherwise, oil would always be an unacceptably volatile industry ”The oil business was in confusion and daily groorse,” he would later explain ”So and sche side, the realization also seems to have had an irresistible draw: Solve the transporta tion riddle, and you could crush your competition and dictate the terh a conspiracy known as the South Improvement Company, Rockefeller et the lion's share of all oil traffic In exchange, Standard Oil would be granted preferential rail rates at the same ti saddled with punitive rates The pact was a secret one, but the secret didn't keep for long As word leaked out in western Pennsylvania, torch-wielding mobs of refiners moved from titusville to Franklin, Oil City, and other oil-field towns, rioting, tearing railroad tracks apart, and raiding Standard Oil cars Rockefeller had been barely known beyond his own business circle: The South Improvement Company deal would cause his name to appear in newsprint for the first time Now, he was the ”Mephistopheles of Cleveland” and he was far froh

Barely two months after it was foral Before that happened, though, Rockefeller had already moved in for the kill In less than 6 weeks, Standard Oil sed up 22 of its 26 Cleveland co the oil men ruined in what came to be known as ”the Cleveland Massacre” was the father of Ida Tarbell, the journalist whose McClure articles would so inspire Teddy Roosevelt to go after the ained momentum, the Cleveland acquisitions were followed in quick order by others Rockefeller would pick up 53 refineries in all and close down 32 of therew even greater thanks to its new econo oil by two-thirds, frorew,about,” Rockefeller had warned one of the Clevelanders who tried to hold out against his juggernaut, and in fact, he did At the time of the Massacre, in 1872, Rockefeller controlled ten percent of the do industry By the start of the 1880s, Standard Oil was refining 90 percent of all the oil in the world, and John D Rockefeller was beginning to become very rich There were still, however, two variables not safely under the company's control To be refined, oil had to come from somewhere, and to have economic value it had to be sold somewhere Until Rockefeller controlled both end points of the operation, he couldn't fully tame the market variables that affected the industry, nor could he fully row uarantee supply, the co, railroad cars, and pipelines until finally it was doing its own exploration and extrication With supply stabilized, Standard Oil turned next to distribution and sales Traditionally, oil had been sold to the ht skiallon of kerosene To Rockefeller, it was both an unforgivable loss and an inefficient way for the co methods far in advance of what then existed,” he would say allons of oil where one had been sold before, and we could not rely upon the usual trade channels then existing to accomplish this”

For starters, Rockefeller disintermediated the independents and replaced them with his own distribution and sales force: He had h clout now to call the shots almost at will In their place, he provided a fleet of newly built coons, manned by company employees, to deliver company oil to hardware stores and markets across the country Where the population was dense enough, the wagons even sold door to door, breaching the line betholesale and retail, and further reinforcing the sense that all oil was Standard Oil By the century's end, the company not only controlled nearly all do but pumped a third of Aest steel mill, and controlled a fleet of thousands of railroad cars, barges, and shi+ps By then, too, it had expanded its reach into coal and iron ore

”By the 1890s the vertical integration was coerial practices for the May 1999 issue of Inc azine

Oil noed froh a Standard Oil pipeline, was cleansed in a Standard Oil refinery, was shi+pped in a Standard Oil tank car, and was even sold at the doorstep by a Standard Oil sales agent By internalizing each transaction in the process (”everything being within ourselves,” Andrew Carnegie had called it), Standard Oil was no longer at the mercy of uncooperative suppliers, incoaries of the marketplace Rockefeller had achieved order

From that point on, the money just poured in Over the next several decades John D Rockefeller would areatest fortune: At a ti two dollars a day, Rockefeller was earning almost 2 a second, more than 50 million a year

John D Rockefeller wasn't the only e to s his corated corporation capable of controlling its product with an iron first Trust, monopolies, octopuses call them what you will, they were all over the place Rockefeller just did the controlling better, inventing virtually on his own aenterprise

Technology helped him, certainly By 1885, when Standard Oil moved into its new corporate headquarters at 26 Broadway in Manhattan, the telegraph had advanced the nation's communication network as surely as the completion of the Transcontinental Railroad had advanced its transportation network two decades earlier and as surely as the Internet would re-revolutionize communications a century later From his rolltop desk at Standard Oil headquarters, Rockefeller could stay in touch with the whole enterprise he had created, on an hourly or even eh, was to resist the teh the exercise of his own ego or personality or through a cult of fear and other robber barons tried all three approaches Rockefeller ran Standard Oil by co, the purchasing co Today, it sounds axioo, Rockefeller's committee system was a bold creation tailor-made for the efficient supervision of the bold enterprise he had put together by dint of a ruthless will Rockefeller's biographer, Ron Chernow, notes that even at executive cos, where his word finally was the law, the bosscreated an empire of unfathoh to see that he had to subh, too, to realize that he had loosed upon the world so it had hitherto not knohat business historian Alfred D ChandlerJr has called ”a new subspecies of econohly the tilobal doers in the United States soared more than sixfold, fros Institution To o and the University of California both launched another new subspecies, this one of education: the business school By the start of the new century, New York University and Dartmouth were both in the business-education business The Harvard Business School opened its doors in 1908

Standard Oil, Rockefeller said late in life, had been ”the origin of the whole system of econo business all over the world” Beyond doubt, he was right, but as he frequently did in his later years, Rockefeller was also sanitizing a goodthe way In a remarkable series of interviews undertaken between 1917 and 1920 with New York newspaperlis, Rockefeller offered a point by point rebuttal to virtually every accusation leveled against him and Standard Oil by his critics, especially Ida Tarbell Whether the intervieere ever meant to be seen they were never aired until 60 years after his death or were meant simply to ease Rockefeller's conscience and prepare him for his maker is unclear Either way, they paint a history often at odds with fact It's not by accident, one suspects, that when Nelson Rockefeller asked to interview his grandfather for a Dartmouth senior thesis randfather sent back word that he'd just as soon not How hard it would have been for hirandson who shared his birthday

John D Rockefeller was fond of noting that the law seemed to be applied ex post facto to his person and his business The secret railroad deal that led to the Cleveland Massacre was, after all, not illegal at the tiainst it Railroad rebates in general only becaal with the creation of the Interstate Commerce Commission in 1887, and combinations in restraint of trade the lifeblood of vertically integrated trusts and octopuses weren't outlawed until the Sherh, both Rockefeller and Standard Oil frequently operated on the fringes or even just over the fringes of the law In researching his biography, Ron Chernow found numerous instances in Rockefeller's correspondence where he was siislation The 250,000 to the 1896 McKinley can was only the most draarded as a necessary business expense Nor did the Interstate Commerce Commission or the Sherman Antitrust Act necessarily affect Rockefeller's behavior Rather, he seeal annoyances iler and John D Archibald, he had powerful lieutenants even less troubled by the fine points of the law and ethics than he was

In his own lifetime, the muckrakers Henry Demarest Lloyd and,as on the part of Rockefeller and Standard Oil, yet it wasn't until 1906-a year after Tarbell's McClure's series had concluded that Standard Oil hired its first publicist and set out to ie In part, perhaps, Rockefeller siainst him, the power of the press, and the determination of Teddy Roosevelt to turn hi paid off politicians soany other way of dealing with thenore the storing business of its inefficiencies was service not just to the econoone from office, replaced by Williaht up with John D Rockefeller On May 15, 1911, after 21 years, 23 volues, and 11 separate trials, the last one involving 444 witnesses, the U S Supreme Court ruled that the Standard Oil trust was indeed a monopoly and ordered the coolf course His only response was to tell his golfing partners to buy stock in Standard Oil It was aive

Standard Oil would be broken into 34 separate co them the parent companies of such modernday industry leaders as ExxonMobil, BP Ah Ponds and JD Rockefeller would maintain control over each and every one of them In 1911, when the Supreme Court decision came down, Rockefeller orth around 300been punished by the federal govern the antitrust case turned out to be the greatest windfall of his career By then, too, oil had found a new use: the automobile

Not only was John D Rockefeller made far richer by the Supreme Court decision; he also seems to have been unrepentant about it When some twenty thousand strikers were evicted from their company-owned homes at a Rockefellercontrolled coal unned the strikers and set fire to the tent colony where they had taken refuge More than a dozen women and children died in the blaze the infa his father's sentiments, John D Jr bla on their right to a union

How much money was 900 million in 1913? Somewhere in excess of 13 billion in current dollars, but as Ron Chernow points out, focusing on that number is only one way to look at the story The entire federal budget for the year 1913 amounted to just 715 million, nearly 200 million less than one citizen's net worth The federal debt then was 12 billion; Rockefeller could have retired three-quarters of that as well Maybe ly, Rockefeller's wealth equaled about 25 percent of the gross national product Judged by the same measure, the net worth of the overnment for antitrust violations, Bill Gates, is only about onefifth of that, but Gates, in his defense, has been allowed to keep less of his earnings Rockefeller turned 70 years old four days before Congress proposed the Sixteenth Aovernment the power to levy an income tax

Rockefeller once estiave away, he would have been three ti, he had a fine ures But the issue would see and giving seeold coin

9

HENRY FORD

Building Cars and the Markets for Thereat industries, and as the twentieth century dawned, Areat fortunes had been built ie was 12 years old when his farated to western Pennsylvania froie would work as a bobbin boy in a cotton factory, an engine tender, and a telegraph e 18, with the Pennsylvania Railroad By the late 1860s, still in his 30s, Carnegie startedthe steel from which the railroad cars were made, and by 1888 he controlled, in addition to his steel mills, coal and iron stocks to feed them, plus more than four hundred miles of track and a fleet of steaie published his faued that the first half of a richit away in a manner that most benefited the coanized byJP Morgan bought out Carnegie and consolidated his holdings into the US Steel Coie, who pocketed 240 million in the deal, set out to distribute his fortune, hout the United States and Great Britain

Because it never was consolidated in the same way steel was, the railroad industry created more but lesser fortunes, many of them as meenerosity by which they were distributed Collis Huntington, Leland Stanford, and the others who profited htily from the completion of the Transcontinental Railroad were only representative of their breed Jay Gould andJa the market with fraudulent stock to protect their rail interests Cornelius Vanderbilt, who started out in the shi+pping business before switching his interests to trains, would loseGould and Fisk for the Erie Railway Vanderbilt still e of 100 million before his death in 1877, but his major bequest 1 million to endow Vanderbilt University in Nashville, Tennessee seeess

Oil, of course, gave industry its greatest and one of its most ruthless consolidators and both the richest enerous: John D Rockefeller To produce history's first billionaire, though, would require the intersection of three things: a new invention that could do what the railroads couldn't do let people go wherever they had a o there; a nation built on the aesthetic of wide open spaces; and a h to marry mass production to mass consumption and to help provide the es would make the steel barons and Rockefellers richer still: They were made mostly of steel, after all, and they opened up a vast new market for Standard Oil and its refined petroleum But the automobile would make Henry Ford richer than them all

Self-propulsion is a dream as old as mankind, but it had also been a reality if not a terribly practical one for more than two centuries before Henry Ford unleashed his ”Tin Lizzie” on the Ae built by a Jesuit missionary had been demonstrated successfully in China in the late seventeenth century Nearly a hundred years earlier, two-masted, wind-propelled land ”shi+ps” in Holland were ers on board, so long as the weather cooperated The eighteenth century saw successful experiines (the clock method) and others powered by compressed air The first forerunner of the modern auto would seem to be a steanot, and an i invention it truly was: A 1769 version capable of carrying four people ran for 20 ine, a direct ancestor of today's internal coines, was the brainchild of another Frenchman, Alphonse Beau de Rochas Two Geret credit for refining the gasoline-powered engine to a point where commercial production was feasible Benz sold his first car to a Parisian in 1887 A few years later, Daih the two ed in 1926 into Daimler-Benz, ets credit for the technical innovations that launched the auto industry, it was in the United States that the industry caught hold and flourished Europe had raphy, the United States had the greater need and by the start of the twentieth century it also had the native capital to support the growth Frank and Charles Duryea began installing gasoline-powered engines into old horse car riages in the early 1890s By 1903, there were eleven thousand cars on the roads of America The next year, in 1904, Ransom Olds added 5,000 more with his 3-horsepower Oldsmobiles and proved that it was possible toin 1903 and extended over the next 5 years, a full 20 dozen auto- fir one founded by a backyard Michigan inventor na, the autoh to afford one: Ransom Olds' earliest 1900 models sold for 1,250, e factory worker Ford, though, had a different vision Sell a car cheaply enough, and you'll create a in you fail to make on unit sales will be made backa play thing of the rich, the automobile will become a necessity of the Aan producing the Model T -faster than a horse, sturdy enough to withstand America's primitive roads, unremarkable as to its parts and looks, but at 825 closer to affordable for the working Joe and both car and vision ran like a dream Ford sold more than ten thousand Model T's in its first year of production, bringing in more than 9 million to a company that had been capitalized with 28,000 only 5 years earlier and had set up shop with a dozen workmen in a plant all of 250 feet by 50 feet

Born on a faran, in 1863 and educated in one-room school houses, Henry Ford was barely able to handle his McGuffey reader when he quit fore 15, but he was an ace at mathematics and he loved machinery Ford was 16 years old when he walked to Detroit to take a job as an apprentice engineer, a position he was fired from in less than a week Undaunted, heon shi+p engines, two skills he would never forget Decades later --a billionaire and a global figure Ford still took delight in taking apart and reasse down on the factory floor with one of his greasy engines

Autoht Henry Ford's greatest attention A little afterhis first experimental car in a brick shed behind the duplex where he and his wife, Clara, were living Dubbed a ”Quadricycle” and a scant five hundred pounds in weight, the car ran on four bicycle tires Three years later, he successfully de it roundtrip froan, and soon formed his first business, the Detroit Automobile Company, with 15,000 raised from a dozen shareholders The coed to build less than two dozen cars but his reputation in the nascent auto industry didn't suffer By 1903, Ford had established hi cars and formed the Ford Motor Company

Like nearly all other autoChassis and engines both came from a machine shop run by two of his e Ford simply asseh, Ford would take a first critical step toward separating his co multitude Other auto makers created, at best, loose associations with dealers and left servicing up to the inventiveness of locals The Ford Motor Company was barely two years old before it had factory-trainedto bring the entire product under one roof By 1912, the co its own crankcases, axles, and other critical parts The next year, Ford bought out the Dodge brothers' interest in his coines and finished chassis as well Now he could direct his attention not only to the product but to the entiresuper rich, Henry Ford was about to become super famous

Like the automobile itself, the principles of the assembly line were far from new by the time Ford ca with standardized musket parts even before the Alish, which alloorkers to make identical parts in series Ford himself would credit the inspiration for the asseo meat packers and the overhead trolley they used to carry carcasses along a line while butchers, in effect, disasse principles and married them to necessity By the early 191 Os, histhe maximuoing to create a true mass market for his automobiles, he would need to mass manufacture them, and that meant the assembly line Ford never doubted that he could sell cars as fast as his people could e Solve that, and the mass raphy My Life & Work, one of three that Ford would collaborate on during his life, he described how the first automobile assembly line came to be Initially, he wrote, a Ford car had been assembled ”in exactly the same way one builds a house”

”We siether at a spot on the floor and workht to it the parts as they were needed[but] the rapid press of production made it necessary to devise plans of production that would avoid having the work ers falling over one another” To do that, Ford went on, ”we began taking the work to the eneral principles in all operations that a man shall never have to take more than one step, if possibly it can be avoided, and that no man need ever stoop over”

The principles of assembly are these: 1 Place the tools and the men in the sequence of the operation so that each component part shall travel the least possible distance while in the process of finishi+ng

2 Use work slides or some other form of carrier so that when a workman completes his operation, he drops the part always in the same place which place must always be the ravity carry the part to the next work lines by which the parts to be assembled are delivered at convenient distances

The net result of the application of these principles is the reduction of the necessity for thought on the part of the worker and the reduction of his movements to awith only one movement

Ford had already built and put into operation the most modern factory in the autohland Park plant, which opened in early 1910 There, in April 1913, he launched his first experi with the flywheel enerate electricity in an internal-coine) Previously the job had been perfornetos at the rate of about one every twenty minutes Now the same job was spread into 29 assee assembly time was cut by more than a third, to 13 ht of the assee production tiht the time down to 5 minutes

Si applied to the engine as a whole Instead of onean entire motor from start to finish, the as split into 84 operations and productivity was raised threefold Soon, the experi to the process as a whole Within months of full assembly-line production, the time needed to turn out a Model T had been cut fro up the sawdust, s, and coke dust fro them to the steam-power plant, Ford found that he could save another 600,000 a year in fuel costs With production costs slashed dramatically, Ford slashed the price of the car nearly twenty years after it was first produced, a Model T coupe would be selling for less than a third of what it had originally cost As the price dropped, sales quadrupled: By the end of 1914, almost half of all cars sold in America were Henry Ford's Model T's

”Time loves to be wasted,” Ford had fumed back in the days when it seemed to take forever to turn out his auto reporters that mass production was the ”new messiah” As if to prove the practical application of his words, Henry and Clara Ford moved into ”Fair Lane,” a 2,000-acre estate near where he had been born their eleventh address in 23 years of reat industry and ensconced at last in a o Tribune's Charles Wheeler that ”History is more or less bunk The only history that is worth a tinker's damn is the history we make today” Before he could turn the world industrial order coh, Henry Ford would have to solve his labor problems

The executives of the Ford Motor Company and their beancounters loved the assembly line and the econoh, had a different take on the process ”The reduction of his movements to a minimum” that Henry Ford wrote about must have pleased ht on the part of the worker” was very nearly insulting