[Editor Note: This five-part series by Mr. Epstein, originally published in The Objective Standard, revisits the Standard Oil Trust controversy in this the 100th anniversary of the breakup of the Trust. Part I reviewed the flawed textbook interpretation of Rockefeller’s accomplishment; Part II sketched the rise of Standard Oil and defended the free-market practice of rebating. Part III examined the missing context of Standard Oil’s rise to dominance. Part IV was on Standard’s pioneering innovations as a big business.]
Given the tenuous, voluntary nature of Standard’s market share, it was inevitable that at some point the market would expand beyond its reach. Given the explosion of possibilities in the oil industry—the rise of the automobile and the need for gasoline, the discovery of oil in all corners of the planet—not even Standard Oil could be the best at everything. It certainly did not help that Rockefeller became progressively less involved in the company’s affairs starting in the 1890s.
The fact that Standard was bound to lose market share did not prevent it from growing. It could and did continue to grow, while others grew, too. Its market percentage shrank, even as its market grew—and changed.
Between 1899 and 1914, the market for kerosene shrank with the rise and continuous improvement of Edison’s lightbulb, and with the rise of the automobile. Kerosene dropped from 58 to 25 percent of refined products, whereas gasoline rose from 15 to 48 percent. The age of kerosene, which Standard had dominated, was over.
In the early 1900s, many more competitors came on the scene, some of whom remain household names: Associated Oil and Gas, Texaco, Gulf, Sun Oil, and Union Oil, to name a few. Whereas the number of refineries had once shrunk due to a glut of inefficient ones, new demand across a wide variety of locations along with better business organization and better technology led to a growth in the number of separate refineries—from 125 in 1908 to 147 in 1911.
Between 1898 and 1906, Standard’s oil production increased, but its market share of oil production declined from 34 to 11 percent. Similarly, in the realm of refining, Standard’s market share declined, while its volume increased steadily from 39 million barrels in 1892 to 99 million in 1911.81
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.
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.
Standard’s Critics and the Sherman Act
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.”82
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.
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.”83
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?
Standard: Why Punishment?
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.