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 travelling 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
in order 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 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 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 5 years John had acquired all but 4 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 highpoint of Rockefeller’s
Standard Oil: he owned 20,000 oil wells, 4,000 miles of pipeline, and employed over a 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 it 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
in the leaderboard; not even Jeff Bezos himself seems likely to achieve that. But there’s one thing that Jeff Bezos does
have that John Rockefeller never did despite all his money and that is access to Dollar
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become a member of a club so prestigious that not even John Rockefeller could get in. 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.

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