The Standard Oil Trust

7.7 The Standard oil Trust

The first great industrial trust

Until 1881 the forty companies controlled by John D. Rockefeller and his partners was a cordial alliance, welded by cross holding of shares. Standard Oil's jurist, Samuel Dodd, proposed to unite the alliance in a trust. The shareholders of refining, extracting, trading, retailing companies would hand in their actions to 9 trustees, which would give them in exchange trust certificates. The trustees would then become the directors of all the companies in the system, controlling the totality of the operations. Dividends would be paid to the trust's shareholders.

The project was realized and the Standard Oil Trust built his headquarters at 26 Broadway in New-York.

The new organization perfected the great monopoly and began to look like the Vatican. People from all the world brought information to the generals gathered around John D. Rockefeller. They discussed in the greatest secrecy the affaires of their empire, taking decisions which were quickly transmitted around the world in a seemingly frictionless machine.

Standard Oil's headquarters at 26 Broadway

A reasonable share of oil production ? Maybe, but 90% of the refining capacity in the USA .... Source : Hidy et Hidy, Pioneering in Big Business, NY 1955

7.8 Investigations and trust's dissolution

In 1887, the Standard Oil was one of the best managed companies in the world, mastering almost everything related to its good. Its factories were the most perfect in the whole industry, organized with the greatest economy. Its knowledge of worldwide oil demand was so deep that the company produced only what was necessary to keep prices constant. At the same time marketing departments sold its products all over the world through aggressive campaigns. Who could complain against such a perfect company?

Nevertheless, political pressure was growing. If we leave them, they will have followers, and in 50 years a handful of men will own the country said some, We have the right to lead an independent business, cried others. The sentiment was growing that the public eye should scrutinize the Standard Oil Trust business.

In 1888 a New-York senator investigated the Standard Oil Trust. The investigations wanted to know especially if the control of 90% of the American market was not due to special privileges, like, yes, a preferential rebate from the railroads...

Other investigations ran at the same time, on the sugar trust and the whiskey trust, but no one took the importance of the investigation of the Standard Oil Trust. The latter owned $150 mil of capital, managed by 9 men. Faced with the risk of a court order of the liquidation of the trust, these men decided to liquidate it themselves and to replace the trust certificate by a constant proportion of securities in each of the ensuing 20 companies. John D. Rockefeller personally received 250'000 of the 970'000 shares that came from the liquidation of the Trust. The Standard once again kept its monopoly power and went on paying dividends to its shareholders.

Total annual profit of the Standard Oil and its affiliates, graph is mine