Standard Oil Part I
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So history and facts going up through eighteen ninety.

who got. The true got. Easy you, busy you with you see me down. Welcome to season nine.

episode four of acquired the podcast about great technology companies and the stories and playbooks behind them. I'm been gilbert and i'm the cofounder and managing director of seattle based pioneer square labs and our venture fund.

psl ventures. David rosenberg, I am an Angel investor based and seven .

s go and we are your hosts. Today's episode is one hundred and fifty years in the making. David, somehow we miss this IPO. If or when IT happened.

can we still get secondary shares put together? A lob S, P.

V might be of us spin off or something .

like that at this point.

Uh, okay, at least the state oyer that we will cover today never IPO. Ed IT was privately held the whole time. Its financials work very secret. That must be why we've have missed that until now, David.

surely. Ah yeah.

must be, must be. Well, this episode on standard oil is, of course, the oil monopoly founded in the eighteen seventies by john d. rocke. Ella, the wealthiest person in modern human history. Embarrassingly, until I had started to do the research, I didn't realize the oil and status oil did not refer to gasoline, at least until much, much later in the life of the company.

Automate bills model t was like nineteen, ten or so .

totally stand oil pre dates the ford model t by like teen years jane .

becomes the wealthiest person in like modern human history before dashing is a different kind of oil.

Yep, gasol helped later. Turns out compounding can kind of show, especially when the second business line gets layer on top, but we will get in to IT listeners. The other thing that is crazy that I want to point out, I didn't realize how much standard oil is very much with us today.

Despite being famously broken up, the parts went on to become both axon and mobile marathon AA o, which of course, is now a part of bp, chavez and several other companies. When you look at a gas station, you are probably looking at some of standard oil is the wild. So this one will be at least a two partner IT. Turns out the company responsible for creating the entire modern energy industry has a lot of wild stories. Okay, listeners, now is a great time to tell you about long time friend of the show service now.

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Yep, so learn how you can put A I agents to work for your people by clicking the link in the show notes or going to service. Now 点 com slash A I dash agents are right。 Well, listers, before David takes us in, as always, the show is not investment advice. David and I may have investments in the companies we discuss.

unlikely in this case.

This is for information entertainment. And let us know if you find the stand oil stock sticker, we d love to go check that out value with now without further due state or oil.

maybe pitch book get some data on. All right? I just want to give a lot of love to run turn. Now, who is one of america's greatest historians, barra of hamilton.

He wrote the book that hamilton based on .

the that hamilton is based on yet, and also wrote, tighten the definitive biography of john Davis, rock failure. That is the main source for this episode. It's so good. It's good. And I think the perfect place to start is with one to turn out quotes at the very begetting in the introduction to tighten, he says the story of john d rocke.

Eller transports us back to a time when industrial capitalism, with raw and new in america, and the rules of the game were, has got, I think, more than anything we have covered on this show. Standard oil wrote the rules, the way business is done, the way business is done, the unwritten rules. They were at the unwritten rules, and then, you know, congress rules about them.

The era that we should think of here you, this isn't the wild, wild west. This is the wild, wild east, where thirty, forty years after our nation was founded here in the early eighteen hundred hundreds, the frequent civil war hasn't even happened yet.

No, no texas, no. california.

Yes, certainly early in corporate law, but were early in, like all forms of human organization. 对。

SMS love. What is love? Uh, speaking of, okay. So we started in eighteen ten in akron, new york, which is actually like not that far from manhattan, but back in those days was a different world.

We start there with the birth of William, every rovelli big bill. He would also go on to have another neck name. His other nickname is devil bill.

He got because of his profession that he would grow up to party. We're talking about john rock, fEllies father here. Devil bill, big bill was literally a snake il salesman.

Know people use the term, oh, ban, he's a snake. Oil sales like this is where the term comes from. He sold medicine out of his like pack that he wrote in the town on a horse that like profess to be a doctor but didn't do anything.

And then he got out of town before anybody alist. So one day, when he is twenty six years old, in eighteen thirty six, he rolled into a new unsuspecting community to offload his goods on, shall we say, rich ford, new york, far, far, far away in central new york state. There he encounters the Davis family.

The Davis are quite unlike bill and the rock feler clean, the upstanding. They are outstanding. They are devout religious Christian followers. They were different moral compass than bill.

So we say ah and their wealthy .

that is the other thing, they are quite wealthy. So bills wild bills, Young bills, big bills. I has light up when he sees the Davis s and ranch and he so the story goes, I think this is actually true, one of his like tricks of the trade, if you will, with he would pretend to be death and he would Carry like a talk, sleep around his neck, right on to speak.

And he's at the Davis and house and he said to do in this little trade. And he hears the second eldest daughter of the Davison's woman named eliza, pretty Young girl, say, I would marry that man if he weren't defined. M and miraculously, oh my god.

The beauty of Young eliza hears bill of his affliction, and he can speak and he can hear amazing. So the, uh, patriarch of the Davison family, one john Davison, remember that name a is a little suspicious of what's going on here. But nonetheless, we'll aliza.

And they are married shortly thereafter. They get married, they settle down the bill, build a house share, like, literally people built their houses back then. Uh, the way down the road feels like we need a housekeeper here.

And I ve got this old, you know, friend Nancy, when we have Nancy movie in with us. Cpr housekeep. Well, IT turns out Nancy was his .

girlfriend yeah, his old friend. You know, you could help with the kids, the house keeping right to work painting the picture here like you've got this unbelievable swelling concoction of well to do religious by the book mom side of the family, dad side of the family um not quite as upstanding of a human .

being but here they mix and one july evening all of these forces world together and july eighth, eighteen and thirty nine, elisa gives birth to her second child is the first sun they decided to name this child after a liz's father, who was john Davison. They named the boy john Davison rockfeller other boy. Does little J.

D. Have a lot of both john Davison and wild bill rock piller in him? So on the rock veli side, little john is like, totally captivated, totally dotes on him, he thinks is the best, even, even for that, the rest of his life, rock feller would intensely defend his father turn, would write that in no area.

Did bill impress his eldest son more, or did his eldest son prove more impressive than in the magical realm of money. Big bill had an almost sensual love of cash and enjoyed flashing plump roles of bills. And indeed, one of bills companions at the time would say of him, quote, the old man had a passion for money that a mounted almost to a raz. I never met a man who had such a love of money, except, of course, for his son in the future.

And this is where we start to get into the ways in which his son would become like him. But different. And the like him is, of course, in this love for making as much money as possible, the way in which IT is different.

You know, bill would come back from these trips, and he would have a fat water cash, and he would take a hundred dollar bill, and he would put him on the outside. You'd make sure that everybody knew that there was at least one, maybe lots of hundreds, in this fat water cash. Whether john, I would grow up and the test shows of wealth. I mean, the smallest house on the nicest street in cleve one. He mixes his mother's side of the family into these lessons from his father.

oh, told IT. Well, so speaking of of his mother, the device s were that tis and that was what? Not unique, but pretty different than some of the original protestant in groups that had come to america, you know, a generation or two before.

The bad this, you think like church revivals, you think like big showing the atra, the whole point was to eventually lize and to recruit. They didn't think that they were really like the chosen people. They were going after the new land to be by themselves like, no, we're going to take over the world here. We want everybody .

on our side.

Religion told IT. So here's where these two sides of johns maternal and maternal sites here seem like oil and water in body, David.

they're not. The battis .

are all about the money. They think money is also great. They just think it's great for a different reason, which is that the more money, the more influence, the more followers we can recruit into the fold. And this also has a huge impact on J. D.

He would say later, quote, I believe the power to make money is a gift from god, just as are the instincts for art, music and literature to be developed and used to the best of our ability for the good of mankind. Having been in doubt with the gift I have to make money. I believe this is my duty to make money, and still more money, and to use the money I make for the good. My fellow man.

boom. I mean, duty. He heard the word duty in there about making money. That is, god has asked him to go forth and make as much money as humanly possible.

IT is this incredibly unique thing about jane rock fella, where when you describe him as one of the wealthiest business men of all time and the philanthropist st, it's very different then the way that you would described today's billion's as wealthy people. And it's not one then the other, it's not career. And then full anthropy john e held these things to be inter twined, that he should go make as much money as possible and to be simultaneously incredibly philanthropic. And the purpose of making this money was to be philanthropic as if he were a Better charitable allocators than .

any in every dimension, wealth, power, control, philanthropy, impact. Jane makes bill maxara berg look like children, like a swab. So in eighteen fifty three, when john is fourteen and just on the cusp of manhood, bill swooped in, comes back from one of his trips and decides analysts that he is going to move the family away from new york to ohio, specifically to strong ville, which then is, you know, is right next cleveland for sure.

strongs fellow, ohio. It's, uh, what of many wonderful suburbs of the client area.

This is like your help coming this episode.

It's true like a lot of the episode takes place in places that were with them like a half hour .

drive before I grew up. So great. So the stated reason for the move is that bill wants to to go open new territories for his business.

But there's actually another reason, which is he's got another new girlfriend back in new york named Margarett, and he wants to keep the family small separate, but he wants to marry this new golf end. And it's kind of things like this is the world that amErica was back. He like, well, I just get like a state border between the two. Them great. I don't what I can to .

what that is true, there is no internet. State registries are probably pretty hard to go look something up in a different state.

So they moved to ohio, and at first, bill marries his second wife. Concurrently, Margaret, he sends john and his little brother, William to a boarding house in clive to go to like a real high school and client. And that that goes on for about two years. And then when bill actually marries markets, he stands a letter to john and says, you know, this a schooling thing in the plants of change, and I I can't really pay anymore for you and William to go to school so well and basically deputizing you now as head of household. And you're going have to drop out and get a job and find a way to sport family that's like some why thing .

to just here and totally high jacket, your life plans.

totally. This really was not what john was planning, but he decides everything. Love money. What can I do to make money, or what I stay to the money? So he pays forty dollars, and as a three months crash course over the summer in book keeping, and decides that he's gonna become a book keeping.

And this is going to be his pat to supporting the family, ever the sensible fellow. When he finishes his training and he's off to cook a job, he decides that the way is going to job search. He gets a directory of all the businesses in cleveland and he looks up with their credit ratings are and decides that he's only onna target, the ones with the best credit ratings.

He's sMarting. To the extent that he thinks that the access to capital is the thing that, you know he wants to be close to, you may as well only be a part of businesses with the best access capital.

Strength leads to strength, right? So the story goes that you pounds the payment for six weeks. He goes, every firm on is list.

They all reject him, but he's undeterred. And he just starts back up at the top. He was to see all these companies, like at least to some of them, three times. Finally, one company, the partnership of hate.

And they probably just get so tired of this little kid, the sixteen year old kid, banging on their door, the to like, and you can start you, you can work here. You can be a junior book keeper. This happens on september twenty six, eighty and fifty five, and get this for the rest of rock. Fellers believe he celebrates september twenty six as his job day.

I love this like more secret than the birthday job day was the day. It's like the day he was baptized into capitalism by being able to make money in the world.

Solutions, literally. It's like this is the big deal every year in his life like it's bigger than the birthday a job, except is he's starting in labor, not in capital, but he makes the transition prety quick to work. So he gets to work.

He becomes basically like the best book keeper that history had seen before, since at least until pilot turn out rights about this, john betray a special affinity for accounting and an almost mystic faith in numbers for recovered ledges or sacred books that guided decisions and saved one from fallible emotion. Well, of course they're secret. The numbers in the books are money. It's the divine, you know, god given path to be close to the money and get as much of IT as possible.

absent the divinity. This is very buffet desk. I mean, at a Young age, having this sort of respecting obsession with the numbers.

supposedly when john was a Younger kid, he would also like go to the general store and buy like a big black Candy and cut IT up into little pieces and then sell the little pieces. And the other kids, yeah, just like buffet and gun, right, ticks a one. yes.

So he goes to work in this form. Now, what is he would in? They are a merchant trading firm that specializes in produce commodities like food.

Stuff s like things that people who eat, you know, meat, vegetables, product stuff that's coming off the 反而 不是 going into cities is like they assume they mostly dealt t in food。 Stuff s that came into clever to then be solin stores and consumed by the newly rising urban popular. So jane is rising quickly through the ranks.

Pretty much immediately. They give him fifty percent raise because he's doing so well, even his little kid in the beginning of a teen, fifty seven h so not quite two years after john in the firm, todd, the junior partner, leaves to go seek his own fortunes, help from under the thun of the senior part huit. And here was a guy.

Well, john, you, your, my new a partner, not partner, but you know, you, you're going to take turtles role here. John is like, well, that tonight, so you gonna pay me like a partner and he was like, do you are like, seventy years old like now john is undeterred though. This is pret crazy.

So he's like heads of households supporting his family. He's already making a lot of money. He's got this great role.

But the next year, in eighteen fifty eight, he's like, I think I am doing the work of a partner in emerging trading firm. I'm going to be a partner in a merchant trading firm. So he hooks up with a much older gentleman, Morris clerk, that he had met doing his bookkeeping training. And they go in fifty fifty on a new urgent firm called Clark and rock veller and like doing .

the same thing, still produce and meat and trading food stuff exactly.

food stuffs produce. Things go like, okay, at first for a couple years.

what is is like eighteen, fifty nine and sixty yeah.

fifty nine and sixty. They manage between the two of them to put four thousand dollars in capital into the firm to start the trading Operations, which was a lot of money. And rock feller put in .

half of IT IT wasn't rockfeller like finding ways to borrow from devil bill.

Devil bill definitely had his sticky fingers in all this. That is for sure. So things go like OK, but they have some losses. They actually have to bring in a third partner, I think, in eighteen sixty to sort of shore up some losses and bring more capital into the firm.

And just to put a point on that, the reason the capital so important is they basically need have enough on hand to basically make the purchases and then hold the inventory until they can go and sell IT. There's a cash flow cycle there that they need to have enough capital to be able to manage that cash flow cycle.

Yeah, so you know, things are going on. okay. And then eighteen, sixty one, something big happens in america.

Something very big. The north goes to war with the south.

Yeah, for the sumpter, the civil war one roc fella doesn't fight in the civil war despite being what would you be twenty one, twenty two years, all at that point time. Like prime fighting, A G hires a substitute there. What's technically a looper? He was. If you were head of family.

you didn't have to fight. You know, rock fella is careful in how he messages the strife going on in his family. He never throws his data to the bus. He always holds everyone at least outward in the highest of a steam. Uh, and so the way that he sort of drops a hint here at some point as he says, how could I go fight in the war when the business would die? IT was Young, I was flexing, and so many relied on IT and that sort of him looting to like look like my whole family kind needs this business to stay aliyah.

So he doesn't go fight, but for his business that he needs to survive. The war is a pretty big boon for commodity Prices, specifically food stuff Prices.

I mean, a supply army with food somehow.

Yes, there are a lot more orders and demand for, you know, pork belly and the like coming in, thanks to the war. So this drives up the Price of food stuff s through the roof in eighteen sixty two, the first like fully here, the war, the firm clean and rockville. Er, they make a trading profit of seventeen thousand dollars, which I believe was four times all the money that they had made in all the previous years of Operations of the firm.

Wa, they are living large like they're swimming in profits. They can buy enough, but they gotta put this. Money somewhere. So what do they do? Well, right around this time, people in clavel's are starting to hear about an interesting development. Had that happening not too, too far away in western pennsylvania, in a tiny, little hammet called title fill, then obviously smiling.

Here some of you are maybe smiling yeah I just ilan hours of.

but probably most of you like, what are you talking about about here? Like title field pencil video like I have no idea where you with this.

Everyone knows, David, that the center of the oil world is not the middle ast or russia or alaska, texas, but western pennsylvania.

western pennsylvania. That's right. So I had no freaking clue until reading tighten during the research for this episode. For like decades, the entire center of the oil industry in the world was this small little town for .

like fifty years.

like literally, I think there were some producers is some oil ics elsewhere, but like very small. Like most of the oil in the world came from the ville pennsylania. Ia.

yeah, crazy. Just wall. And not just tide fell, but oil cream and other areas of western pa that had oil discovers .

this not that far away from for the first couple years of this going on up until the civil war. The whole industry is to space. The entities, fact, they draw for the oil, the oil comes out the ground. They refine the oil they make crazy .

when we say they were refining like IT was a pretty rough process, I think pretty early. They figured out you could use sophistic acid to refine and separate the care sy out, but a crap ton of sl herc acid and doing this in large wooden boxes with cracks in IT everywhere, and it's just slaughtering around and spill in all over the ground like IT, is a nearly process of court refining.

Yeah, super, super nearly. But right as rock falling cark at all this money, if they need to have something to do, if people come up with the idea, with the oil they are finding in the care sine, care sine, the main use was to burn in lamps. And where do you need laughs and artificial late more than anywhere else you needed in cities, people realized you don't actually have to refine the oil in the same place they drill for the oil.

So all the sudden now people like we are, we can buy the oil that comes out the ground, crude oil from tis fill, bring IT into our cities. We're fine IT in the cities and then sell the crossing in the city. That's like a really good business. That's a good place to park some capital totally.

And at the same time, all these interesting tail winds are happening where cities are blowing up. I mean, you have this sort of like industrial revolution that's happening where people don't just live in rural areas, in farm anymore. They're starting to be a lot more industry cities.

You have for a while, only rich people could basically get oil to burn at night. Most people were just the decide to go down. And then they have no late, they're go to bed.

But like that they would use whale oil yeah for a wail industry.

which isn't that where half way of away.

But he seems like way cheaper .

than whil loyal, which had a massive shortage and is obviously terrible that we kill whales to harvest wheel will like way cheaper, way more plentiful. It's pretty clean thing to burn relative to the other stuff that people were trying to burn.

This is huge. And the key, or just, it's cheaper, of course, easier to drill into the ground and go like harpo whale.

Yeah, this is an infinite resource here.

Yeah, totally. But the planning is the key word. So like he said, was only rich people that use whaling oil that they could have late at night.

But the new demand, like IT, with the civil war going on the war and industrializing afterwards, you need light for commerce, for like industry, like it's not just so that rich people can have late. You need like Operate factor isn't like, do all this stuff, you need light. So there's a lot of demand and Carry sine is the answer. So rock for is like, oh, OK cool like this, a new commodity, uh, they start treating a little bit. And a clan rock failure, they start making some profits.

But of course, rockefellers feeling a little hesitant to do too much of IT because he's like, this is speculative, like, who knows when this i'll dry up and you know, they're already been some like boom bus cycles in this. Like food stuffs are kind of our thing. So I don't want to double too much in the speculative weird oil thing.

And I think initially they were trading crude. But then, like I said, people start to realize weight that we can refine in the cities. And this is like really like early knowledge. This would be like in, uh, I don't know twenty eleven if somebody came to you and relax, hey, this think thick and now don't just buy IT.

But like, I know how to set up rigs to mind IT, you know what? Why don't we just take some old computers you haven't like? IT, so this is like really hard to acknowledge and IT just so happens that the one guy and clever and get Samuel Andrews, who knows how to refine oil is bud's with rockfeller partner, Clark. Well.

that works out. He's like a chemist, right?

He's a chemist. Chemist what? Well.

but there's like real science involved in like applying the Sophia acid and you know separating the currency from the gale in another craft that's left over that you do everything to do with which.

by the way, they just pour that stuff into the river.

Oh, totally. In fact, this a fun little clavo trivia. The kaoha river caught fire many times. There's a great light blueing company, ty beer, called burning river.

And this is where IT comes from, totally.

because under the cover of night, these refineries would have all this extra gasoline. Leftover cars wouldn't be a thing for thirty, forty more years. They thought the gasoline was like useless words, and they would just like.

ripped into the river. Yeah, awful. Just just wild, just wild. So Andrews, the chemist who knows how to refine carrizo, he's buzz with clerk.

He goes to clerk one day in the office, the merchant office that they have. And h he asks if is like K, I think IT be a pretty good investment. I know how to do this.

Nobody else around here really knows how to do this. I think be a good investment. Want you investing me and will set up a refiner.

And we're start refining here in cleveland. So the story goes that Clark is like, look, not too interested in this, but rock feeler over. Here's what's going on and he pipes in in his lake.

Hey, actually, I think that's not a bad idea. I'm interested in that. And Clark, of course, knows that in iraq, fellow is really good at this stuff.

And it's like, okay, fine, they turn on. They invest four thousand dollars on the spot to go set up a new refiner wow. So later that year, they open the excelsior works refinery and a strategic chosen tell you then you'll know exactly where this is in the flats, right? Uh yeah thinking the flats is an area that has access both to the cahoga river and to the terminals of new rail lines that are going into yeah i'd like super industrial area actually the .

last few years has been like an amazing amount of renovation and like cool stuff that's going on there. So you have this like interesting confluence of the river and like everything left over from the standard oil days and like the steel boom that happened in clever and and now this redevelopment. But yeah, totally the city area that up against the water front.

I just to go to a field trip there, for sure, do a travel trip. So he is like a pig mud here every day. He was a book keeping so particulars. He loves money. He loves profit.

He was focused on trading before, but now he's got this Operation, this refinery, and he becomes like, literally, he's like the moist chain of oil refineries he's experimenting with, constantly tweak the process. You know, Andrews the chemist is like do unlike the technical talent for rock fellers, like everything around that, the Operations, how crude comes in, where things are located in the factory. He's A B test keys.

Do wow all sorts of stuff. He's always look like any efficiency. And it's all with a view to IT. It's not just like Better is good, but it's all the view to like profitability, like we've want to run this as clean as possible, make as much money.

God told me to make a profit, and I am here to make a profit, by the way, put a pin in that more is change thing because there's an interesting way that they are very much like T S, M, C. That I want to talk about later.

So he's focus like this is so different. You there are other people that are setting up refineries cleve on and elsewhere, but they don't care about optimization, they don't care about efficiency. They're just like lick, it's a gold rushing, give you the gold and i'll just take as much of IT as possible. If IT goes away tomorrow, that's fine.

Yeah the high margin dollars is just flying out of the ground.

All of this the behavior of the other folks, this causes huge generations in Price. And IT really is. It's like the early days of IT.

I still today crypt to like things are flying around like all the time. Like Prices could be twelve dollars a barrel. That could be twelve cents a bear .

for oil and IT. All depends on, I mean, two things. One is who found what? And two is, what do people believe people have found recently? And so like, Prices would be impacted by word of mouth traveling and saying, hey, I heard there's a big gusher going on in this city right now and people would be like, well, I guess i'm not gona buy for a while. I heard there's a big gusher and so Prices .

are going to go down yeah so rock fly though he's just got these visionaries like, oh, man, the more profit I make, the more money, more capital I can put into this, the more oil I can hold, the more I can produce. And when the Price crashes, how do you keep by? Like, how does he he's like, he buys the depth like over, over and over again.

And because his Operations are so much more efficient and so much more profitable, he can afford to pay like more than anybody else. He can afford to hold this stuff longer. He's like really thinking long term in a way that none of his other competitors are.

Oh, and we should say like when we say he's tweaking stuff, he's so much more profitable. He is both horizon and vertically integrating. So let's talk about vertical of integrating first. He's doing things like realizing jez were hiring a lot of plumbers to come in.

I've lave this pipe .

every time we do a build out. And so they do things like hire their own plumber and hire their own blackSmith and decide, actually, we should do this ourselves. That way we can save all this money on piping. Instead of buying IT from a third party contractor later down the road, he even plans a forest, like, buys up a forest, so that they can cut down the trees themselves to build the barrels out of.

make their own barrels. yeah. Oh my god.

this is. And they see all this money rather than buying barrels from somebody else. And then, of course, they can innovate on the burrow making process.

So he figures out of if we treat the word in the forest, then it's lighter and cheaper to ship back to the refiner. So we save all this money on transportation. So that's like the vertical integration side of things, which would be crazy enough, but he's figuring out that way.

We do this process. How can we sort of use the whole buffo? Like what can we sell the gasoline for? What I think they invent gasoline.

I think they buy the company that events famine, but yet they like like patrol. I am jelli y, which is one of the buy products they commercialize IT. So rockfeller is like, he's like, found his calling here.

Like, this is like divine passion here. This is this one problem, which is the partner. Clark.

Clark is like, not so in the how much capital rock feller is timing up in the business here is like, hey, we're like merchant traders. The point is profits and then we keep the profits. And rock fell is like, no like reinvested our indeed like capex and inventory.

So rock valley tates go around all the banks and all the finances in cleveland and lining up. He's not even using just the profits from their Operations. He's getting more external financing to finance growth here.

Oh, totally like when I say both vertically and horizontally integrating and the horizon onal sense, he is obsessed with trying to figure out how to be the sole supplier of oil to the world. Like as soon as he figures out that there's economies of scale here, he's like, okay, cool. How do we start to fly? We'll get as much capital as possible, build out as much production as possible, start having agreements with whoever got rights to the land as possible, so we can start vending to the world.

yep, and own this super strategic choke point of refining in cities. So Clark is like spooked by all this turnout, has this amazing quote that finds from rocket failure. I don't know where you've found this.

I should look up in the note at the end of time. This is so good. Rock failure, fairly like rote, or said this at some point, Clark was an old grandmother and was scared to death because we owed money to the bank.

Ah, so great. So rock filet engineers a coup. This is so good. And some of Clark brothers are also partners in the business at this point time. They get into all these arguments. So john bates them one day into threatening that they should just dissolve the partnership and dance like, okay, great, let's dissolve the partnership.

He knows that if he goes to them and says, look, first of all, I don't think you are, rest are enough. Second of all, I don't think you're upstanding and so I want out like, he knows that he loses leverage by doing that. So that's why he bates them into doing their Normal thing of getting all up. And if IT and saying we're .

get back out totally, so rac. Veller immediately goes to the local paper and places and notice that the partnership is dissolving and that there's going to be an auction for the assets of the partnership, including the oil refineries. And IT sets up the show down where the Clark brothers and rocket fella bit against each other for each other fifty percent stake in the business, which is.

by the way, a great way to do IT. Like if you've got a partnership that's blowing up, alright, whoever wants to pay more to buy the other person out is the person that should get to own the whole thing. And so the idea of a bidding war between the two of them to figure out how to value the business makes total .

sense between the two principles. As a rock valley there, remember, he's been going to get in the relationships with all the banks and financiers. He lines up financing in advance of the oxen.

So he's got basically unlimited resources, although it's still the Price ends up stressing him out. He pays Clarks fifty percent of the oil business for seventy two thousand five hundred dollars. And an exchange also gives Clark rockefeller gives us Clark his fifty percent share of the produce trading.

which, by the way, that something the pride buys him out for, like three to four million dollars, something like that in twenty .

twenty one dollars. Yeah, so good unk a change. But that fifty percent, that's seventy two thousand five hundred dollars here.

You know, however, you want to think about IT, that's fifty percent of standard oil right there. Wow, rock feller would say later IT was the day that determined my career pretty bigger than job day. I felt the bigness of IT, but I was as calm as I am talking to you.

Now this is like what we're going to see, like this man has ice, that ice water, like literally solid ice running through his veins. It's crazy. So this was a big Price.

IT was more than rock filer wanted to pay. But this happens in eighteen sixty five, in the beginning, in february of eighteen sixty five. Back to whats going on in america, two months later, generally surrenders to grant.

And the civil war is over. And with the civil war over, what's less important? Commodity produced trading. And what is all of a sudden a hell of a lot more important? Oil industry, urbanization, everything.

all these soldiers are coming back and getting jobs in factories like you, sort of an industrial boom here. And it's interesting how rock feller sort of obsessed with i'm not a speculator, you know, i'm not one of these people rushing to prospect, you know, various plots of land and western pennsylania. It's only that it's A I would say a pix and shovels play. I guess the point to make here is he's doing the predictable, reliable, stable, very strategic part of the value chain. He's not out prospecting land yeah .

to just doubly underscore strategic did rock fell? I know the war was gonna in two months. Probably I think sherman probably march into the sea at this point.

So turn out rights to the war had stimulated growth in the use of character by cutting off the supply of southern turbine, which had yield ded arrival illuminate called the campaign. The war had also disrupted the whaling industry and LED to a doubling of whale oil Prices. Moving into the vacuum, carosse emerged as an economic staple and was prime for a serious postwar boom.

This burning fluid extended the day in cities and removed much of the lonely darkness from rural life. Soon, john I iraq feller would rain as the undisputed king of that world. Ah, so he's now got the oil Operations.

They are finding business all to himself. December of eighteen sixty five, the wars over all the scout on, he opens a second refiner in cleveland, next to the excessive works with the new name that he really, he choose us. He wants to let everybody know that his oil, his currency in his business, his Operations is gonna be bigger than anyone else. It's gonna be the best quality. And IT is gonna rain from sea to see what is he call the new Operation .

standard oil. Well.

first it's the factor is the standard works. And then IT really yeah the first finding was the excessive works. And then the standard works is the name that he chooses. The standard is setting the standard.

And importantly yet, it's about setting industry standards. I mean, for him, he was observing, I know, hammering home on this like speculators and cowboys thing, but like, especially after the war, you've got all these soldiers who are trying to figure what to do with their lives. And they're going and they're working and drilling.

And so you have all these people that have, I think, in the book that refers to someone with A A gun and the canteen and, you know, the plot of land and pennsylvania. And I think rockfeller is basically observing that the carousin that could power the world is valuable in Price. People are scared that it's not safe because it's being refined in questionable ways.

So people's houses are burning down. There is not professionalized in the carosse industry the way that he wants to bring IT. So this notion of standard is levs like kind of like the T S M C chip yellow thing, like everything that comes off of our line is super high quality.

totally. That is exactly the same analogy. Like this is not necessarily easy stuff to do. They're going to set the standard.

And by the way, at this point, he's now figured out that he can run the factory on gasoline.

I didn't realize that.

So the standard oil factories are burning less cold of their competitors and using the gasoline by product.

Oh, that's so great. So they're literally feeding themselves. So you said something a minute ago when you're talking about this. You said selling this oil, this carosse to the world. So by the very next year in nineteen sixty six, you know, amErica is a big market and is gonna grow hugely, especially after the civil war. But do you know what's a bigger market the rest of the world.

especially at this point in time? I mean, amErica is not amErica yet. It's probably thirty, forty million people.

Yeah, maybe if that are .

you keep talking in my google.

this okay, okay, great. So by the very next year, in one hundred and sixty six, the flagged standard oil company is already selling two thirds of their cache overseas, primarily to ear up. So like one third domestic.

thirty one million people in eighteen fifty five.

wow. So they are signing most of their oil overseas. Brack vali dispatches his little brother William, who is now working in the business to new york city, to go handle all of the export business for standard.

Do you know the story about when he needed to raise? I think IT was fifty thousand dollars. H.

I don't know.

Oh yeah, what's a great story? So this is in turn out, his book, rocka. Fellar has a bit of his father in him, a sort of a flair for show manship. And he really needs fifteen thousand dollars like he needs alone pretty quickly.

And he sort of looking around for a financiers, for IT, and he dresses very nicely, and he presents himself nicely, and he walks in areas where he shared a bum into people. And at some point someone stops his carriage and looks over and says, oh, mr. Rockefeller, could you use a fifty thousand dollar a loan? And of course, rock fellers like the pot.

And he sort of looks at him like without breaking. And he looks in him. He got.

Could you give me twenty four hours to think IT over? yeah. And of course, by doing that, he gets like the best terms on the loan.

So not sure I really need this.

He's unbelievable that like getting his hands and way more capital that way Better terms than other people would be able to.

A now the Williams in new york, and the family has got, the family, a has got Operations in new york. They can get like, h mr. Sir, rock fellers, could you use two hundred and fifty thousand dollars or five hundred thousand dollars? So pretty soon they're like bringing a bazooka to a like a fist fight with the other refiners out there.

And it's kind of like this whole part of the story just reminded me so much of like the uber days. You remember when uber left in 滴滴 and all the global competitor， is that like was that was they overplayed? But except IT really worked.

Yeah speaking of uber, right after William goes to new york, the sort of, shall we say, a meal, Michael, character standards I but an interesting, colorful character comes into the fold in the flexing standard oil empire. Ah i've been posting on twitter like all the fun stuff, like just could have been enjoying this research so much. And I posted about this guy Henry Morrison flagler on twitter and h andy Sparks replied to my tweet with, I think like the best one liner about flagler possible he says, could flagler was savage? And he was really like, you know, rocket failure.

He's driven by this divine calling. He's willing to go to the matt. He's willing to do just about whatever. But IT was flagged and then some of the other lootenants that he brought in that were like, they are the ones who did the dirty work.

Oh yeah, because rocket fella know he needed to preserve applausive deniability left, right in sector, especially once they figured out all the business tactics that were really gonna, let them press their advantage. No, he had some very bad lutte so he could stay as lauber good as possible.

Black vali was pressure the one. So flag laws coming into the business because he has a wealthy relative. And I am even harkness who hears about what's going on in and wants to invest like equity dollars into this new standard Operation. So he invest one hundred thousand dollars in Operation, oh, my good is like I didn't actually find like what the network of the hardness family ends up being because that is put like enormous .

yeah has to be just generational wealth.

And his sort of one term that he asked for as part of investing is that he wants, I think maybe he flagler was his neck w or something. He wants fly, go to join the firm as treasurer to could, keeping eye on his investment. And so slightly joins.

And literally, this is what he twist. He keeps a quote on his desk at standard oil for all the time he's working there. The quote says, do unto others as they would do unto you, and do IT first.

Oh my god. So flagler takes over the negotiations for shipping of oil with the railroads. If you know anything about standard oil, you can see where this is going. When rockefeller was running negotiations with the railroad, he always was able to get pretty good rates, shipping rates, because he had a baton being there in clever on later.

totally, during the summer months, in the spring and fall, we can ship way cheaper by sending IT out by water.

by water. Yp, so all the crude coming in from title fail to be refined in cleveland. That standard could come in over the water or by rail.

And then when IT was going out to then go off to the rest of the country and the rest of the world, he had another option. Flagger is like, this is nice. Let's cute.

Let's exercise our power a different way yeah .

what about if we go to the railroads and really like, hey guys, it's really expensive to Operate these railroads. What would you say if we were to guarantee a really, really, really large amount of minimum shipments oil that will do with you and exchange for us, guarantee you guys like an unbelievable amount of volume that will do on your railroads? You give us an equally unbelievable shipping rate like cost of doing this. The role ads are like, uh, yeah.

that sounds good, except the road. Roads are like, wait a minute, but you don't make them a joy. Where's all this oil going to come from?

Well, specifically, the railroads think this sounds really good because with the amount of volume that they're talking about, this means they can run dedicated lines of just oil tank cars. So not mixed trains with like bx cars and no oil cars like just oil tanks between tis fill and cleveland with no stops. So if you think about Operating a railroad, if you have different types of product that you're loading on the train and that takes more time and money.

they were like being forced to stop, to pick up like one car to the train.

exactly. And then all the stuff s that just adds up. You know, a cost money. You know, time is money here. So they they love this. But as you said, but they're for how, uh hendering like this is a great idea, but how you gonna do IT you don't know of capacity. And two other .

things before I answer that question, one is just to give, like the magnus de, of how much to help them IT lets own way less cars also like the railroad they get to go from something like needing to have one hundred and fifty cars to be able to like make the same animal on, like forty or something, just like dramatically smaller. And the other thing is, standard oil has started to like really build up some credibility here, because when people were putting oil on trains before they were slashing around in like open wooden boxes and like standard oil pie in your hate work, get to put him in like tanks. And that eventually metal tanks and IT really like professionalized the .

and eventually we're going to make railroad cars that are like, the car itself is just a tank and fast fording a little bit like, oh, railroads. What if we made those tanks for you? We're get to ahead of ourselves.

So fight was like, don't know guys, I got this. So he goes around to all the other refiners like everybody else in live in and he's like key guys, I have a negotiated a great, great for all of us. Do you want to come on board together? And we all like pull are uh, shipments that we're all getting in failed. And h by doing this all together, we've got this great right. This is an answer that they can't refuse.

And not only can they sort of not refuse IT because uh, uh what happens if we say no, but this is their major cost driver. There are in a commodity industry at this point. And so distribution of the oil is actually the big driver of the business.

Yeah, so, okay, everybody is a, well, this is fantastic. I was like, okay, great, great. Let's do this. But, uh, you know one thing, let's not right.

And you this down, okay, let's just keep this old gentleman's agreement between all of us and the railroads. Nobody knew. We don't need any friends, you know, sniff and around if quote and quote if they even warned that.

Well, basically, if anybody ever asks us if we have an agreement, there's no agreement. Everybody can look at each other and go.

I haven't seen agreement. Yep, totally. So this agreement comes to be known as the lakeshore agreement, because that was the lake shore railroad, was the main railroad, the, and this is huge.

So by doing this until this point time, cleveland is a city. So if you should forget the individual companies, of which standard is one, we think. But just think about refining production of oil in america.

Kevin was actually the number two largest center for oil refining behind at this time. Once they do this deal, cleveland is like fast tract and becomes number one and standard and rocket failure and flagged. They they got they're like they just brought all the other families and clever like to heal like they run the collective now.

And this starts a playbook of like if there's oil leaving the city, either its ours or we have some agreement in place where like it's good for us even if it's not actually are. And maybe I will eventually become R S.

So the dominant cleveland, cleveland becomes the number one oil refining center in america. But you know, that's not enough for Young rocket fella. He's got his site set on the whole industry like pitzer g philadephia. There is some refining happening and tides fill some in west Virginia, in new york. He wants all of so are you going to do this as you eluded to at the top of the show? There actually is no legal framework at this point time for businesses to Operate outside their own states.

Importantly, they cannot own property in other states.

Yeah, they can own property. They can of Operations. literally. This is the united states was like, this is all changing after the civil war, but IT was united states, like the states were the sovereign know, or near sovereign entities here. totally.

And it's really only recently that you could just sort of incorporate your own business as you please at all without getting express written consent from the government. I mean, in the days of england and early in the U. S, like incorporating a company, a corporation was like the government's granting you a special right to Operate this business. And so already the .

doors are charted.

literally blown wide open that you can just start a company. But we're not yet to the era of like go I can start a national corporation.

So they think for a while, this whole little crew, standard oil and and levent about how they're going to do that. They know that if they want to consolidate the whole industry in the whole country, they need A A lot of capital and be an ability to Operate outside the borders of ohio. So flagger comes up with this idea.

It's financial and corporate law. Innovation.

innovation. I did you read about how he comes up with the new structure that they use or or I guess was an old structure, but that they wasn't very popular. Od, but they turn to the joint stock company. Did you read a how flagler was not a lawyer? Drew up the actual .

like incorporation .

was in like a yellow, which partially, I think, was just because that how like this was still in a wild west type stuff. But also, I think they didn't want anybody really know about this. They one of this to be a super secret.

So flagged comes up with the ideas like joint that companies, which I think I think like wasn't IT takes this idea, but not many other companies were doing IT. He says if we were a joint stock company, then we could buy shares in other joint that companies. We could also sell shares in ourselves, you know raise money or to strategic partners who we might want to have a vested interest in our success.

This is interesting. This might solve some of the capital requirements, okay? Or that's interesting.

And also this like selling shares to raise. I could capital thing rocker fellers like, my god, that is brilliant. How did I not think of this before?

Is flagged that comes up with this. amazing. So on january twenty, eighteen seventy, they are owlish the old partnership, and they pour all of its assets into the new joint star company, the standard oil company of ohio.

boom. It's porn. They capitalize this new joint stock CoOperation with one million dollars of liquid assets like that is how enormous this had become, already unheard of.

I don't think that there was any other organized enterprise in amErica with that amount of capital period. Any other industry like already, that's how big the citizen. We're still just getting started.

So this doesn't solve the interstate commerce issue, though. So they come up with another absolutely brilliant and diabolical plan to solve this, which is the trust. And what they decide to do is they say, like OK, technically, companies can own shares and other companies outside the state. But what if we create a trust, then this trust holds shares in companies all around the country.

The trust could have some trust. Is that sort of get decide what happens with maybe all the companies that roll up to the trust. We can sort of uh, make sure that these corporations, each of which are nicely situated inside their own state and don't know any property outside their own state, but like we the trust is sort of get to decide how those companies might work together.

yep. And there's no law that says that officers of you know, any given company can be trust, ease of trust, their own shares and other companies. So this is the looper around as they create this trust.

And the trust is just a dictate to the other companies that they purchase what to do. But also be, this is important, all the dividends from all the other companies. The trustees designate the beneficiaries as the individual shareholders of standard oil of ohio. So nothing ever touches the actual company stand oil of ohio IT all goes to the trustees and then to the individual shareholders. And that's how they get around this.

interesting. So the individuals who own the corporation.

you literally everybody on the captain ha.

end up being the sort of property or controller and beneficiaries of all these other entities.

So rocket failure is like, h, this is amazing. He comes up with the idea that none of them are gone to take a salary. They're gonna focus solely on these dividends that are and as like A A source of a value and income, but also even more importantly, focus on the appreciation of the value of, you know, this whole enterprise.

This was new thing. Like now people listen to public, uh yeah I like, uh, equity. Nobody had ever thought this way before like the idea that equity and divide could like that.

That could be your primary. Source of income and and wealth generation and that you could use that to incentivise new people who are bringing into the organization as employees. Our partners are companies you're buying.

Yeah the idea that like your competitors could become your friends by being able to offer them ownership in the joint combined company, where as we win in this industry and this industry gets bigger, we all win by holding shares of this thing together.

Yeah, turn our rates. Whenever the debates about his ethics, economists and history have unanimously extol rock fellers role as a pioneer of the modern corporation, and then coding from another bag for a rag felt rock failure must be accepted as the greatest business administrator amErica has ever produced. And IT is this.

So this is how well this works. In the very first year of the trust, eighteen seventy first year of all this getting set up. Remember, there's one million dollars in total capital.

They gets put into this structure. They pay a one hundred and five percent dividend at the end of the year, including also reinvesting tons of cash flow back into the business and expecting a buying other companies. So like the million dollars that was in there, they pay over a million dollars out to the shareholders and have many other millions of dollars to go to other things crazy.

They're extremely profitable and they're growing like crazy. Yeah and let's talk about this rockefellers argument to the societal benefit for a moment, which is like a it's silly that the state borders are preventing up.

Like why should that really be a thing? Like to the extent that i've been able to rapidly expand in cleveland and we've been able to create great product for consumers at a low Price, quality of life for people has gotten Better. And like that has all happened because we've expanded here.

Why shouldn't we just be able to do that for people everywhere? And his argument is really like this is for the veteran of consumers. Now my competitors, who when I move into these states, probably don't like IT, but like ultimately the american public wins.

And he's right. He's totally right. Just like jep, us. Would probably say the same thing today. All right. Listeners are next sponsor is a new friend of the show huntress. Huntress is one of the fastest growing and most loved cyber security companies today. Its purpose for small mid size businesses and provides enterprise grade security with the technology, services and expertise needed to protect you.

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Yeah, fanta is the perfect example of the quote that we talk about all the time here and acquired jeff bases his idea that the company should only focus on what actually makes your beer taste Better. I E spend your time and resources only on what's actually gonna, move the needle figure product and your customers and outsource everything else that does IT. Every company needs compliance and trust with their vendors and customers. IT plays a major role in enabling revenue because customers and partners demand IT, but yet IT add zero flavor to your actual product that IT takes .

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happens? Uh, this is so great from, just like the story is the smile on my face is so right right now, whether it's juicy, yeah great is up for debate. So in the structure of the joint stock company, they can buy and hold stock, and other companies that can issue shares holding them.

What are they going to do here? Remember, we said the railroads are the most strategic important supplier and show point. The industry standard goes to the three biggest railroads, the pencil vanov, the storage huge, enormous pennsylvania.

I think that's an monopoly board.

IT is IT is literally on to an opposite part like that is how defences venia the new york central and the area, real worlds. And they say, uh, so we got this new thing. This new thing lets us do things with other companies.

Do you want to CoOperate as a part of our? And do you think .

you want to CoOperate? How about we all do something together? And the real words, like, yeah, we would like, do in stuff that sounds very good.

So they get together. They set up a shell corporation called the south improvement company. Uh, this is so you see.

which is intentionally nebulously named.

yes. And in fact, a later in life, when rock fellow would be getting grilled in federal depositions, he would be if he was ever a director or involved in the southern improvement company.

which, of course, is not a thing. No idea.

Standard was never involved in the southern increment company I got is so great. Obviously, he was not purging ing himself by saying that because the questioner get the .

name wrong though I think he did perjure mp in other as I see related yeah.

I think he did. So here's the deal. Standard oil is going to set up and control most of the south improvement company through their new trust and join stack corporation structure.

The real roads will own uh, a token amount, but the railroads and the principal, you know owners of the railroads, the individuals, they can ask you some a stand going to them some stock so that um you know these guys now have a have a little little skin in the game. We stand royal. All the interest .

aligned here well. And the railroads had a problem that they need solved, which was that because of the boom bus nature of everything that's going on, their cars, especially oil, and the sort of member that thing that I mentioned earlier, where people are deciding not to buy because they hear it's going to be cheap or soon because they know there's a big gusher like this.

Whole thing is like totally screwing with the railroads, not to mention the fact that with intense competition among the railroads, just like there was intense competition among all of the nor a standard oil oil companies, a lot of the profits are just being arbitraged away. And so they've got unpredictable demand. They've got blooms and bus.

They've got this situation, especially with oil. We're like certain types of oil in certain areas were so insane, cheap that like everybody's going on a business because no one can make any money. The same sort of thing is happening in the railroad industry. And so if there's like a CoOperation opportunity for the railroads and rock fellers offering them, I can cut to solve your problem here and we can sort of smooth out business.

Then IT really comes down to like it's really hard to run a business when Prices are are fluctuating and they are not fixed. So clearly, the answer is to fix the Prices. Oh.

my good. We describe no vertue to this. I think the jury on this whole thing and I will get to this later in the episode and and certainly in part two of like what parts of this were good and what parts of this were bad. It's both. There's lots of both that happened all through this story.

Gap, the three biggest railroads and standard they get together in the south improvement company. And they say, here's what we're gona do. All the railroads.

We're gna set a new fixed Price. There is now a fixed literally a fixed Price for shipping oil on railroads. To everybody out there, all anybody shipping oil, there is one single fixed Price.

And it's really high whatever IT was before, like it's a multiple of that. It's really high except for anybody who's a member with us of the south improvement company, you'll get a fifty percent discount that fixed race. And because he even further, this is just like a is twisting the no fear. Anybody who's a member are a little, a little company here.

one might say a little cartel little car.

Tel, also, they will receive a little dividend, a kickback they call IT. Technically a drawback from any revenue that any other oil producers that are not part of this that ship on the railroads, part of that revenue from the really high Price that they're charging that is going to give some that revenue to the competitors that are part of this little kabul here.

This is the most mind blowing part of the deal. Not only do you get a rebate for shipping with us, so that way the Price is actually wait cheaper, but you also get a rebate even when you're not the shipper and they call this drawback, but like other people, ship stuff with us. And thank you.

Because you are a nice member of our organization, you're gna get some of that money. And so your competitors are just paying you. It's the crazy system ever.

I don't know what the formal definition of the crime of requiteth ing is, but this sounds like a whatever IT is. I think this fits the case well.

There's a couple different ways that this story draws parallels to microsoft, but this reminds me so much of that CPU licensing thing that they did. Do you remember this in the early windows? Is the deal that microsoft cut with? I think he was IBM was, yeah, you guys can use windows and that's great.

And any computers that have a CPU in them that they aren't running windows, you are also going to pay us for those CPU. And that's the deal they signed. And so microsoft basically ended up with, you know, the monopoly, the entire industry because I B M, like or wait a minute, whether were putting windows on these machines were not were paying for IT. And so I think windows IT is and actually I don't know that was windows. He had.

I have been dos, if only gates in the bomber and jeffrey and other, like if theyd had our episodes on stead listen to before they but that stuff and writing, uh, history could have been different.

IT turns out. Yes, this may have been a flash point once the public realized how aggregation this sort of agreement sounded.

Also, there is literal rioting in the streets in the spill in reaction to this. Once where IT gets out like, literally people are like fighting in the streets, they're like banging up and destroying, you know, standard the tanks and property and it's .

truly heads I win tells you lose for standard oil verses their competitors.

Yep, this is the point where public opinion really starts to get concerned of a standard oil.

in particular informed by the competitors. Because the public, public is like great, like working and so much stuff so reliably for so cheap. This is awesome.

Yep, so the railroad seems they they know they maybe gone a little bit too far and they are like, you guys, I don't know we can actually do this and rock feeling flagged, they're ah it's okay. Let's distant hold up for a couple of weeks. I think we're gonna be fine that were going going to go do some stuff and will get back to you. So during these few weeks, when this deal has not yet gone into effect yet, but rumors of IT are spreading throughout the industry, flagler and rocket fella go around to all the other refiners in clean.

Keep in mind, many of them are in very rough shape right now because a the flutters, but b oil Prices are getting driven down so far that like people are trying to produce and make profit on this. But like because of this crazy inflation and deflation thing that happens, like a lot of these companies are slowly on their way to going out of business .

anyway and they're already I brought to heal by standard by the lake or deal where the arty sharing capacity. So now fly collar and rock fly go to them and saying, you know, that great rate that we organized for you, it's over. You've heard about this south improvement company thing. It's happening. So the way we see you basically have two choices, you can stay nominally independent and you can die, or you can just sell your Operation stores, come and enjoy the fold.

get some standard oil shares.

will even give you stuck, and then we can all profit from this amazing deal that we have.

And there's something Larry says, like rock fellow says, own shares of standard oil and your family will never go .

hungry yeah so as I do tar bell, who were going to talk much about next time road and her investigative reporting on standard oil, this is what he claimed that the standard pitch was to out the folks about joining the scheme. Could you see this scheme is bound to work. IT means an absolute control by us of the oil business.

There is no chance for anyone outside, but we are going to give everybody a chance to come in. You are to turn over your refinery to my a praisers, and I will give you standard oil company stock or cash as you prefer for the value that we put on your business. I advise you to take the stock IT will be for your own good. Ah so they're literally just saying like they're deciding what value they're going to pay for all these .

refiners and of course, the offer that they put in as twenty five to fifty percent of book value yeah what the refineries even paid to build the factories in the first place. And and rock feller's argument is like, well, we're just gonna ut most of these down anyway and we were actually doing them a favorite by taking this thing that's just gonna a business over the next few years.

Giving him some shares in our company is is like a you know we don't want to be too terrible to these guys. There are our fellow country men and they're also in our industry and just bring a man again some shares and you know i'm going to right the whole thing off anyway. So it's a crap factory.

So over a period of six weeks from federal eighteen seventy two to April eighteen seventy two, standard oil bites twenty two of the twenty six other refinery ies that are Operating in cleveland. And this comes to be known as the cleveland massacre. Um and then once they are the own all the refinance and clean, I we're done you know we don't really even need this uh south improvement company thing anyway. And I guess the public doesn't like IT, so we're not going to .

do IT and apparently not a single barrel was ever shipped using the south improvement company. They never documented anything but structure IT was all set up and agreed upon, but then they didn't actually ever need to do IT because they used to as leveraged to just go and roll everyone up anyway.

And this was the tipping point, so obvious that this was cleveland refiners first. But then immediately after they go to pitch burg, they go to phillippa, they go to west Virginia. They don't even have to set up some employees shell CoOperation like the south improvement company.

They just go to all the other refiners in these cities and they like you'll heard about what happened in clevi. We're coming here next. So you want some shares.

You want some shares. By eighteen seventy seven, standard oil controls ninety percent of the oil business in america. Nine zero percent as parents put IT.

consumers of cursin had no choice but to purchase the product from a standard company. Not that they complained. Standard's policy was to upgrade the product continuously while lowering the cost in order to frighten away potential competitors and increase sales.

I just wants to say, David, like just like tmc. It's like yeah but I think it's something like seventy percent of the leading edge CPU flow through the island and taiwan and you know fifty percent are actually T S M C defect red by T S M C. And like we're all Better for IT as consumers.

And I think it's just fascinating this notion of like to keep lowering Prices, the protest going to keep getting Better. And at the end of the day, IT actually is good for consumers. Oh, and we're going to get huge and super .

profitable ball on the way. Yeah and you know S M L and the you know all the equipment manufacturer that kind of like the rail adds here, right?

Although amazingly, this CoOperation with the railroads really didn't lead to star oil squashing the railroads like they stayed really .

good business for, well, they did for other industries, at least I think they did. I don't know enough to say about the railroads. They certainly stayed dependent.

But you know, rock very and flag lar in this whole crew, like these guys are paranoid as well, alright, like they do realize after theyve just gone concerted, the whole oil industry, they know that the railroads do have strategic leveraged over them. And I member like oil, if they let the other refiners stay in business, they get the bottom and gave him standard oil shares. They worried about the roads silk.

We don't want them have a strategic leverage ver us. How can we go up damp? So I mentioned earlier tech cars.

Yeah, what was the deal here?

So right around this time, standard starts go til all the vig railroads. And like you know, we've saved you all this money on apex. Now you get to run trains directly.

No, no stops, no box cars. This is great for you. But these tank cars, these modern tank cars, steal. And not a lot of pex for you to keep. We just keep sucking up all shipping volume with your, what if we just make these cars for you and we leave them back to you? I'll take on the capex to make the cars and we'll lead sten to you at a really low rate.

So what's the play here?

So kernel, right about this. He says, as the owner of almost all the area and new york central tank cars, standard oil position grew unassailable. At a moments notice, IT could crash either railroad by threatening to withdraw.

It's tk cars. No tk cars. No business. You can keep running this great business for your. But you know you mess with us. We can withdraw tank kers.

wow. And so now they've got ninety percent market share of Caroline, and they've got this relationship with the railroad where they they basically are going to get the most favorite able rates without a railroad going at a business.

And then they take IT one step further again. So by the I dave.

you laughing through this like monocle plan, you're like the nicest. It's so scary because I like how I having implicit trust in you. Like you're so kind and you're so warm and you're so and like, you're like and then they take IT one step further.

Then they stabbed the knife in the back again. And it's so great. Ah, this is such a good story. I love IT not condoning this behavior by any stretch of the imagine is an important .

pillar of american history, a critical .

part of american history. So, okay, did they take IT one more step further? And this is really the cut graph.

So as they're doing all these deals in seattle and and standard oil is becoming, this octopus says would be known, a drug story turn by its critics. Octopus, you think, the golden sex of the empire. Squid sucking on american era the city oil octopuses, bigger than ten empire s.

So there's a new technology that people are thinking about with regard to oil, not gasoline, not yet. That's coming later. But all of the you know, the oil being moved around either by water or on railroad, people are thinking that like there might be a way to move oil much, much, much more efficiently.

So the concept of pipelines already existed, but really short distance pipelines, literally from the derricks, from the wells to the railroad depot. So this would be like, you know, a mile at most. They would pump oil through pipes to the railroad depos or to the united depos or whatever, to then loaded IT up and cars get IT out there.

Some people start thinking like, well, I wonder if we could pop oil a lot farther than just a mile or two. And meanwhile, the reminds of the industry that haven't yet been consolidated by standard, they're looking for any kind of you know hill mary path to get some leverage back in the industry. So they decide that they're gna go in together against standard and the railroads.

They know they can't get any concessions out of the railroads. They're going to trying to develop a pipeline along distance pipeline. So in eighteen and seventy seven, they do this.

They bean together and they form the tide water pipeline company. This sounds like a scandal right off the bed like the name tide water pipeline company. Why name of that? I'm the stated seventy seven, but I have no idea. And first, the goal is that they're gona type oil from tis vill directly the bottom or on the sea front. They then shortened to a Williams support pensylvania, which is still a hundred and ten s this would be like an amazing proof concept that this would work.

Isn't that word like the little little .

series is that is yeah I don't know why Williams support was where they wanted. Do pipe the stuff too, but they do end up piping IT. So standard though fights them to the nail on this, a bunch of the exact want to go higher thugs to go like smash the pipeline and do all this stuff.

Rockefellers, like he rains in his expert, exact on this and says, no, we're going to fight IT with every, like, you know, political leverage that we have, which they do. But they don't succeed. In eighteen seventy nine, the pipeline turns on and IT works.

And I think a bunch of people in standard holic probably like pissed john. I don't understand why he let this happened and they know how this terrible od rock family is. Like, I don't. I have a plan now I remember this is just one route that this new pipeline has opened up, Peter, from title field to Williams point breakfast, like I got all the railroads in my pocket.

They go around to the railroads and they tell the railroads, they instruct the railroads to cut shipping rates so far down on this line that literally like they're basically paying anybody who's willing to ship by railroad on this line to ships. So it's actually the pipeline, even though they invested all this money in building IT. And it's so much more efficient, so much cheaper than running a real car because at standard to pressure, the railroads have now lowered crisis so far. In response, it's not economic to use the violin so they start them out.

This is like the BIOS versus dippers dot com thing or basis is like I can sell diapers at a loss forever. I understand that .

is totally what happens. So the tide water pipeline company is like up against all they're about to go bankrupt, can compete. And by march of eighteen eighty, they sell a minority stake in the pipeline.

The standard oil standard assumes control of the pipeline, takes all the technology, immediately turns around and goes and builds out four more major pipelines, from tis filled to cleveland, to manhattan, to fill adelphi, to buffalo. So they build these, you know? Now pipelines are huge. Do you know what land they build the pipelines on? This is the most cold blooded thing in the whole freak episode.

Okay.

so who would have landrieu in straight lines? The two cities, standard oil goes to the railroads in the lic. My friends, we've got this really exciting new thing that we're working on. We're friends. We help you, you help us.

How about we use your land? How about we build our pipelines right along next year old roads? And then it'll be a reminder sitting to right there, reminder to you that we don't need you that we've built on your land.

You're looking at your competition every single time you gLance out of a train car.

So if you ever you want to transcend ure us some Prices, oh, just remember we've got no alternative right there. wow. Oh my god.

So by the way, do you know the deal with sprint random business trip effect? I may have said this on another required episode.

I think we've talked about this before. Yeah, that telephone .

lines were laid along rail lines. Yeah, the southern paci c railroad.

S, P, R. Oh yeah. That's right. That's right.

And exactly for this reason, like, hey, we need someone who's already eminent domain, the bunch of land that we can go directly in a straight line from one city to another.

Well, yeah crazy now I don't know for sure, but I didn't see anywhere that the railroads got any like equity stake in this pipeline. Um well, right. So I fully .

take back my comment earlier that IT seems like the railroads made IT out okay.

I think they actually did. I mean, this was kind of rocket fella style and standard oil style is like we're going to let you live gonna benevent dictators. We're going to let you continue. You're just gonna remember that, you know, our knife is pressed against your back at all at all times. okay.

So after this it's that, I mean, this is the story of how standard doyle became standard dial like rock filler standard, like they have won on a scale that nobody has ever won before since their competitors are literate, new upstart technologies are copied, all of the suppliers, you know how reduced? Total lackey. We didn't talk about the customers.

Uh, this is great. So most carosse a soul that retail in amErica and grocery stores. So rather, in the sort of early eighteen eighties, standard decides to run the same playbook that they've run with the railroads.

Who with the girls who stars in america, they go to them and they say, hey, uh you know it's expensive for you to um set up and give self space in everything to all of these cans that are all you know non standardized of standard oil care cine in your stores. From now on, all standard currency needs to be sold in standard canisters that we set the terms on and we fix the Price and we tell you where you're going to put IT in your stores. So some stores you just sort of bristle at this, they're standard, sends out a letter in mississippi.

There's a particular problem with this. They send out a letter to all the groceries in mississippi. They say, if you do not buy our oil, we will start a grocery store chain to compete with you and sell goods at cost and put you all out of business all you can just .

feel the american public and washington getting stir up about like, okay, monopoly are pretty bad. We really need some legislation about this .

yeah as turn out its by this point time, rockefellers creation could only be discussing superlatives. IT was the biggest and richest, the most feared and most admired business organization in the world. Wo wo in eighteen eighty three, official standard oil headquarters moved to manhattan to new york city, and rockfeller himself, twenty six broadway to twenty six broadway. Uh, do you know which is the building that they have constructed for the standard oil headquarters to right on wall street? Do you know what is right outside of twenty six broadway today?

No.

the ball, the charging ball, and you know, the ball was only put there in like nineteen eighty nine. I think.

oh no, I would have assumed to eight. I was put .

there after the thousand nine hundred eighty seven stock market crash.

啊， interesting.

So rock feller and you, his brother and all of their lutts know they moved to new york also around this time. They just like buy up middle. So iraq failure moves to write off fifth avenue.

In the fifties there was a fifty fourth street. Maybe I actually don't ever written down. I designed like fifty, thirty to fifty four street, red of fifth avenue.

He buys a house we have in there, really right? There be been up between the park and and between rock file center. You know, though there is no rock fellow center, they build freak rocket center.

which he had nothing to do with. That was my son. But yeah.

I talk about this more next time I don't realized IT was columbia university these campus there. And when jr. Decided to get in and start building developing building rock file center, they lease IT from columbia and they .

ultimately buy IT. fascinating.

yeah.

Well, part two. And we will have a lot to say about universities and rockefellers in new york. And we haven't touched a lot on the personal side of rack feler other than saying he was deeply religious and believe he should make a lot of money and then do interesting things.

With that, there is a lot of like very good things he does with that, that I think we'll say for part two and a lot of idiosyncratic things around like being afraid of death and wanting to live a long time in his health obsessions. I think a lot of that especially starts to show up in his old age. But David, bring us home here to eighteen ninety.

yes. So I mean, this is like a fun. We're going, you know, recount now what will ultimately become the beginning of the downfall of standard oil.

But like, I don't know, like. It's weird being at this moment in this story because theyve literally won like I don't think we've ever had this before. The only thing that can bring them down .

is government or a paradigm shift i'm referring to like electricity and lights in houses, but they very quickly were saved by the fact that conveniently, rather, on the same time, any third that we had for oil before once you have the car. Rockfeller got so much richer in his retirement from his shares of standard oyl, which became, you know, the things that powered us moving around the country in cars and he ever got from carosse, so was like a paradise shift, could have disrupted and did disrupt the core curacy business. But like the thing that happened at the same time was so much bigger than anything they ever kind of imagined.

I think that standard was also making some investments into electricity and electrical utilities. I don't know how deep they got into the business.

but I obtained as monopoly. Even if you don't trust us, them are always at risk of being disrupted by a paradise shift.

Totally fair point, not in this case though not in this case。 So you know it's footy. I always assumed, you know what I knew of the standard royal story before doing all the research was that I was the nineteen ninety sherman and I trust to act that brought down standard oil .

IT wasn't for another twenty one years indeed.

IT was yes. IT was the sherman I trust act, but he was not for twenty one years. Ah so the woodhouse with the wild story of the sherman iti trust built so ohio senator john sherman, brother of general William, to compare the sherman, great hero of the civil war.

Yeah unbelievable. You know how we joke about how they're like must been ten people in silicon valley and like the one thousand nine seventy in one thousand and eighties, right? There must have been like ten people in amErica this point in time.

So senator john sherman, in nineteen and eighty nine, as like the sort of public sentiment is starting to shift against this huge october, only proposes an anti called, anti trust bill in the U. S. In the federal senate.

IT turns out that just a few years earlier, when sherman was running for office in ohio, guess who went of his biggest campaign, orter was a rock feller. Yes, that would be correct. So this is like like HMM, you're biting the hand that feeds you here. yeah. So the act that does pass, but sherman makes the political gamble that, like the political power and state that he's gna get from doing this, is going be worth more than the money that he's gona get from rock feller and standard going forward. The act ends up passing in july of eighteen ninety, outlying all trusts and business combinations in the united states, amErica that where this is the key modifier coin quote in restraint of trade but they don't define what in restraint of trade needs its up to some .

judge to set president and everybody thanks .

oh well there's no legal president for what that means. So that's never really gonna a become an issue. And in fact, rock feler and standard oil viewed this as a win.

They were like, go great. The public is now gonna feel like U. S.

Government has taken action. They have heard them. They're gonna retail standards party than not actually gonna retail. Anything that we do, we're going to keep doing exactly what we've been doing. And in fact, when sherman runs for reelection in ohio the very next year in nineteen ninety one, do you know who once again, one of his biest donors was.

is IT rock feller again?

IT?

Is jane rock fellar Cindy?

How funny is that? The act that ends up bringing them down, he is the biggest there. One of the biggest donors after the act passes to the senator that inro's ced IT hua.

fascinating.

So in nineteen ninety six, rocket failure, like, well, guess it's been a good run gonna hang IT up. retire. I'm going to focus on my philanthropy and i'm going to leave one of my little tenants, john archbold, and my son, john rockefeller unior, who's about to graduate from Brown united, i'm going to leave them in charge. I'm going to go retire to my state and i'm onna focus on doing good works.

But key mistake, he didn't fully leave.

No, no.

he did not. He's like, wow, just entitle all the on stick around as president, right, or as chairman. And of course, that's not how the public would view IT. They're like, know your named .

stall on the door oh, he's gonna get drag back to the witness stand in the years .

to cub so no no sunset right after him .

yeah what a story I wanted talk .

a little bit about. Like that we do is a narrative sections. When we do IPO, I want to talk about like the public sentiment versus rockefellers defense.

So like the public sentiment here, and we say public is less at this point in history, the actual public, and more about their competitors who are sort of making a bigger lot of this, because all the public noses there is this really big company. They provide things, care sine mostly that I used in my life. And IT gets to me consistent way at a stable Price like IT is good for consumers.

Like if you think about the consumer welfare standard of anti trust, this really isn't bad for consumers. I could get there if stand royals, the only company, and they sort of real that power to raise Prices and stuff like that. But at this point, it's really like their competitors hate their guts and especially anybody who sort of been coerce to CoOperate with them.

The rail rose, the pipelines like anyone in their orbit, the retailers like IT sucks for them to. And so you've got the beginnings of like really stir up public sentiment against this company. That's like by some views, you know, the most evil capitalist structure of all time, americans, ever since we got here from england.

And, you know, my family immigrated at some point, so I certainly come from england. But ever since the original angle, people came over from europe and settle america. There's been this incredible hatred of monopoly in particular, because our country was founded on equality and people having the right to be free. And the free market, like the government, was a monkey in england. And that's what we were running from well.

And still to this day, there's like huge scepticism amongst americans of centralized government power.

right? So even there's is interesting, like very american stripe that runs through people. That is, I can't quite put my finger on why, but I don't like big stuff and I don't like concentration of power.

And I didn't like IT when I was concentrated in a government, and I don't like IT now when it's concentrated in the rich people. And that shows up all the way through to today. I mean, that's the the defining characteristic of the national conversation now.

And of course, rockefellers defense to all this is saying looks social. Darwin ism is bad without state oil rolling everyone up. You just have all these people producing non statement products that consumers can.

They're going to kill this industry that could make everything great because consumers won't trust IT all these businesses or got a business because the Prices are so low because every time there's a gusher, you know, the Prices drop so much, these people are gonna got a business anyway. And standard oyle is the antidote to social Darwin ism, which is bad, which is killing the golden goose here. And so the way he sort of makes this argument is IT was a CoOperative success.

IT was for the general good. IT was our moral imperative. IT was downright Christian for me to do that and provide this service.

And certainly any of the competitors or suppliers or partners or the I Q, ended up taking standard oil stock, got fabulous ly wealthy by doing so. Like how could you argue that that was bad for them?

He really seems to have deeply believe that this like invisible hand, the adam Smith concept of, you know, that the invisible hand that sort of guides the free market, that IT kind of just takes too long. And there's a lot of bad stuff that happens along the way, like academically. Sure, that makes sense that the free market will work itself out.

But when you actually look at the businesses today and the people running those businesses today, there is going to be a bunch of hardships and dirt along the way. You might have whole industries that die out because they never sort of reach their full potential. It's not communist and it's not social. Is this interesting, like uniquely american viewpoint on actually social Darwinism and free market capitalism is a bad thing and everybody just eating each other, other's launching and eliminating all the profit in every industry and potentially to our own detriment is bad.

Turn out even talks about this like in some ways, what rock fellow was trying to do and what standard became shared. Just as much intellectual grounding as with, like, Marks and communism as I did with, and I was Smith capital m. IT. Was this view that like, hey here, individual competition is not actually like the most ideal status and like some form of collectivism, in this case, collectivism in the form of a company. Standard oil was the best path.

yeah. And the place where I kind of falls down is where he sort of says, look, if we just not fight to the death, someone's gonna win. And ultimately that one is gonna be me because i'm the best at this and like, he's probably right, but this notion of, like, so therefore everyone should allow me to save them at truly like a very, even the local Christian way, like i'm GTA go and save, you know, and bring them into my business church is very much how he sort of thought about comment of the light and embrace the standard .

to oil little I love you.

And just dripping with irony in the way i'm join these parallels here. IT kind of falls down where.

like him.

accelerating the death of all of these businesses and saying yeh was inevitable. At least they're getting some upside. Now the benevolent ance argument does seem to fall down there a little bit.

Perhaps maybe the most bleak example to me is a the grocers, right, like that letter sent out, totally writing grocers saying, like, if you don't do what we want, we are onna, metaphorically burn down your houses. Like, it's unreal.

right? There are places where, like, IT made sense for him to exert his power to reorganize the industry for the veteran of all the producers involved and all the consumers. But those places are far more limited than the number of places where they actually reached to exert their power.

Yep, side by on the on the logo because yes, so good. I'll see we can link to IT in the shower notes. You'll recognize IT when .

you see IT.

It's this red, White and blue gogo a was a of ohio. California was never on the ohio or new jersey. I think IT was ohio that became him. Oh.

I could be wrong on think .

you're right. But yes, this red way and blue oval with in the middle of the oval this like gration column looking torch, like olympic torch, looking inDiana ah inDiana oh interesting. Like olympics torch looking column with a fire burning on top of IT.

And interestingly, I think the standard oil of inDiana company adopt to a different logo. But then when they turned into amico, they adopt something that looks a lot more like the original standard oil logo.

interesting. The other thread I want to talk about here and narratives is rocket failure and standard oil as a organization. But rock pillar is a person is really like the prototype of so much of american culture today, like he was simultaneously viewed as this, like, you know, sinister villain, and as this great hero, you know, people hate to him, but people wanted to be him.

Is that a rap lic?

I feel like I must be. Well, I, J, Z, A name. You know, his label, rocket fellow records, like you is a reason for that.

But like everything that like I feel like the public feels about basis, sucker berg, muscular c everybody, all these billionaire today, like this was the protect. This was the first time that americans felt this way. There's this great quote.

And in tighten, this is the general public was of two minds and viewed the new entrepreneurs of which rock failure was so the foremost as alternatively sinister and heroic. By nineteen eighty eight, rocket fella began to pop up in falling man magazine features about rich americans. But he was also singled out as a notorious trust king in Joseph posters, world and other papers. The press kept up an editorial jump at against standard oil, demanding vigorous state and federal antitrust action. At the same time that he's in like the equivalent of vanity fair as like the new edit.

And I think he started embracing that later for a while. His policy was don't talk to the and then sort of later started opening up to this idea like this. Maybe it's trick. Good idea if for me to have a positive image out there, like silence is not doing me any favors.

yeah.

Are you power? Who .

power OK? So what? What are power categories here?

So as hamilton helmer would put forth in his wonderful book, seven powers, counter positioning, scale economies, switching cross network economies, process power, branding and cornered resource. And what I would put forth here is I think that I haven't rigorously looked at each one. I think standard oil at various points in its first twenty twenty five years of existence, exerted every single one of these, but the dominating one, the one that enabled them to do everything that they did with scale economies.

No argument from me on scale. Economies being the most important thing. I mean, literally that was all the machinations with the competitors with getting the volume in the lake or deal 啊 with doing the deals with the ras IT was all about economies of scale。 So for sure, what's you thought on counter positioning?

I think in being a peer play refinery that was located in a different location than the like, is there a reason that no one else should have done an offset refinery because they had too much vest interest in, in the onsite refiner?

And not sure i'm not sure that there was there was any reason why they couldn't. But I think all the folks who are in the producing world, like the drilling and the crude world, they were just so he was just such a gold rush mentality that like, he was not perfect. Zed, yeah, they were just chasen the quick profits and like they were distracted, they weren't thinking long term, I don't think there was any reason why they couldn't have set up refining businesses in other locations.

The counter positioning feels little thing.

Yeah, all the others like switching costs for sure ah with the all the railway deals, the tent cars, all that network economies yeah I mean they build the retail distribution with the standard can and actually is .

that all scale economies though, is there any network effect here? Where is Better for one customer that other customers exist? Does anybody ever sort of have a relationship between customers?

That's good question. Maybe not.

I mean, network economies were certainly less common in a pretext phone era.

Yeah, maybe now maybe that's more of a stretch.

Process powers, certainly, especially over time as I got more, more complicated branding, I mean, they name themselves standard. And then they .

became that yeah and then yeah mean, they had lots of cornered resources.

Eventually they cornered the resources on all the crude in the eastern united states because eventually actually owned on the lAndrails, right? It's actually produce the yeah.

they did eventually get into exploration and production. I think when I was no IT was much later. I want to say I was in the eighteen, eighty, eighty nineties, maybe when big oil deposit started being discovered elsewhere in america. Yeah and then they they got in into that in in bigger ways.

fascinating goals move in a playbook. Let's do IT. So I have one player theme that we didn't touch enough the rest of the episode, I have some of a long quote. And this is in particular around the period where there's a lot of fluctuation in Prices, there's a race to the bottom, lots of people going on a business. And this is sort of rock feller talking about how they're going to weather the storm and, you know, swallow everyone also up.

What made an expert tious shut down of outmoded rivals vital to rocky ler was that he borrowed heavily to build gigantic plants so that he could drastically slash his unit cost. Even his first partner, more Clark, remembered that the volume of trade was always what he regarded as paramount importance. Early on, rock feller realized that the capital intensive refining business in this business, sheer size, mattered greatly because IT translated into economies of scale. Once describing the foundation principal of standard oil, he said he was the theory of the originators, the larger the volume, the larger the opportunities for the economies, and consequently, the Better the opportunities for giving the public a cheaper product without the dreadful competition of the late sixties ruining the business. During his career, rockfeller cut the unit cost of refined oil almost in half, and he never deviated from the gospel of .

industrial efficiency.

They're so much tight appear. But one of them is this is kind of the first venture capital business like we talked a lot on the T S M C episode about these massive fix costs. I mean, they're investing a hundred million dollars in fabs over the next three years and then it's all of volume game like how much can you get the plants at full capacity as fast as possible because the unit costs can be super small because your your variable cost are super low. But it's all about that giant tic capable investment of the fix.

I the T, C, pay off.

I love two hours later.

You know, the other thing that a that I was just like in the whole time is your reading that quote was a in Jackson, mark and jesson. Strength leads to strength, right? This is the original strength leads to strength business totally.

And this is him justifying rolling up all these other producers where is basically like, look, the best thing for consumers is run as much consumer demand through one capital structure as possible. So we can just absorb all the fixed costs and then make the variable causes as low as possible.

Ah IT be fun to think about. We're on such a kick here with these like types of businesses. Is there ever a kind of business or industry that way like not scale economies pursue but this broader maxim of strength ads to strength, is that ever not the case?

Uh, it's always the case, I think, but it's like in varying strokes, especially where industries is where there is not fixed costs or whether is low fix costs. I think about a restaurant business, assuming that you don't know the building and you you releasing everything and you even least the equipment, then you're like, jez, what is really the you know the capex you are just like at the warm of can you produce a Better product and get a little bit more margin than you are, you know.

the person down the street, maybe this is kind similar also applied to the restaurant business, like anytime where if you're competing on like the highest end of quality, like gun thinking, like a fine dining restaurant, that's a kid where strength may need to strength in terms of its brand. But if IT worked out like raise a bunch capital, expand, go have a edom a bunch more restaurant .

to that is scarcity. Then yes, value destructive.

Yeah okay, that's a case where strength winning the strength in the same way. But so many venture capital businesses and businesses that scale as largest we're talking about in the last few episodes we've been talking about, like the largest businesses the world has ever known. He has amazing how this dynamic .

applies totally well for grading on this one listeners. We are going na combine value creation, value capture and grading. We already talked a lot about the component of this value creation section, where how does the value created for the world compared the value destruction? I think we talked a lot about that in epo de, but we haven't spent a lot of time on like how does the value that steer doyle created compare to the value that they captured for themselves, which I think is sort of the interesting want to look at here.

And like a terrible example is wikipedia, where there is no company that create any more value in the world, but captures so little of IT, where as you look at a google and they create a lot of value, but they are enormously profitable based on IT. And so some interesting numbers with stand oil. So we know that they, you know, were responsible for this sort of like Carrying boom in the united states and the world.

And I think lets save the gas car conversation for the next epsom. And I absolutely want to have a conversation around climate, and I think we should save that for the next episode. But in this one, let's just look at the shape of the business by this period of time.

So standard oil in the middle eighteen eighties employed one hundred thousand people, which that's probably the first time a company ever employed one thousand people. Governments probably did. But corporations .

be hard to imagine, especially in the world where there are only thirty million people in the united states.

totally, they had dividends of between fifty and two hundred percent to all shareholders per year, which, of course, were private shareholding. Ders IT was mostly rock feller and partners.

I just want to add that's bowling out of control .

like it's a very, very profitable business.

Oh my got the amount of capital invested in the business literally anywhere from half to two times that being dividends out to shareholders every single year while you continue investing capital and growing.

but all so hard.

They want to find you yeah uh .

and then the last thing I want to throw out is this period between one hundred and ninety where were ending this episode to one thousand hundred, they grew t tremendously. So that annual earnings where we're leaving the story off of somewhere between ten and twenty million dollars, which inflation adjust, that is like a thirty x.

So it's really like three to five hundred million in terms of the amount of earnings profit that they were generating per year in today's dollars by one thousand hundred, the six exed that so over a decade, they actually crude tremendously. So it's sort of depends whether we're thinking about the business in this ten to twenty million dollar era or in the like sixty plus million dollar era by the turn of the century. But I think that gives you a good shape of like this is a business that was spitting off cash, David, the way that you were just describing for us that employed one hundred thousand people, that kept amErica and europe's lights on.

And because it's been so long since this happened, we don't have like S. C. C. Filings telling us he is literally the amount of value they were able to capture versus create. But I think the way I would sort of look at this one and talk about this is you can tell from the business practices that we've harped on this entire episode that every time they created value, they looked around to capture every single scrap of IT that they possibly could rather than let consumer surplus exist or their competitors participate in the upside that they were creating or partners well.

And I think even um the numbers that we have, uh, scant uh, data such as IT is again, wish we had pitch back back in the day. But the numbers that we have, I think they are also misleading. They do seem a little small here like many, many you guys are talking about how this is a business on the scale that no other business in amErica has ever been before.

But inflation adjust that. You know even in by one thousand nine hundred, one hundred, you're talking about a few billion dollars of cash flow that's dwarfed by companies today. But I don't think these numbers tell the whole story because so much of the capital in this business was a being recycled and b not accounted for because of the crazy decentralized trust structure.

We'll talk about this much more the next episode. But when IT ultimately gets broken up, you know you said at the top of the show, the children companies that come out of standard oil x on mobile shaver on the bulk of B P british petroleum. Now like m go, like all of these companies, you know, IT wasn't until the rise of the fang err in the last ten to fifteen years before that x on mobile was by far the largest market cap company in the world. And that was just the one of the children that came out of this company. The value that was tied up here was immense.

That's a much Better way to look at IT. You're right. I also think inflation adJusting these things is probably the wrong way to look at IT. I was thinking about this more in the context of rock fellers personal wealth, which will dissect in depth the accident stalin here. But sure, you can inflation adjust wealth and you can inflation adjust profits.

But really what you should be doing is looking at them as a percentage of the GDP at that time, right? And so like, let's look at one hundred. So standard oil in one thousand nine hundred produced sixty million dollars in earnings.

And rather than inflation, adjust that. Let's look at the relative to the total GDP, which was twenty four billion dollars. Okay, so sixty million dollars divided by twenty four billion dollars.

So point two five percent of the entire country's GDP is standard oil's profits. And I exposed GDP really would be based on revenue. So you know assuming they had, I don't know, thirty three percent Operating margins and kind of in on a but that feels reasonable.

Well, I don't know how they're defining profits here. I don't think this is gap acting, gap accounting. Does anyone exist at this point time that might be the dividend, the in your dividend oh.

the earnings being the yeah no, the dividend because the data source we called this from had dividends differently. Let's assume that standard oy's revenue represented something like one percent of america's GDP. Probably a little bit shy, but something like that, that I think is the right way to frame the amount of money that was flowing through this one company at the time.

Yeah wow, that is a significant scale.

yeah.

So I think that the question is that know that we wanted to ask, concreting is like standard oil becoming a monopoly in this way versus if the industry were to have played out with unfeared individual competition.

which of course is a counterfactual that we have no idea. But how can we get a sense of what the shape of that could have looked like?

You know, it's just this really like this makes me think about china. I was going on in china right now. You know, I think the chinese political economic philosophy is really aligned with the standard oil of you in the world, right? Which is that like unfeared competition is fine in the early days of an industry, but then you got to come in and you get a like consolidate IT.

You can consolidate IT through the governments. And in the case of china, in this case, IT was the rockefellers hand. But that's what you need to enter a phase of maturity in an industry.

And as we were just saying in a rock fellers argument, like all of this was good for consumers. This was great for consumers. This was great for america. It's like in .

the most recent amazon letter to shareholders, when jeff BIOS calculates the amount of consumer surplus, he's like if you look how much amazon shareholders have profited on, our existing amazon employees have profited and amazon customers it's by far the customers who have won.

Yes, uh, so good basis student of history.

But yeah, rock filler is making the same point here. I think it's really interesting.

Yeah again, counterfactual, impossible to know. But there is definitely a world where the carousin industry doesn't develop in anywhere near the same scale or impact or size.

I'm to throw this out there and say I think the world would end up a no different of a place at the, I want have been totally net even. And the only difference would be that the the rockefeller foundation wouldn't be as large. I think giver take a few years, I think the whole thing would have played out pretty similarly. We won't ended up in the same sort of major players in the oil world that we have today.

yep. And maybe all of the the standard oil children, the x on mobile, the several ancestor developed anyway .

that could have been independent cleveland and refiner growing their own and not being a part of senate oil. And then having to get fun out.

that's really good. That, I mean, rock a failure was a genius in so many levels. He brought the like morois chain level of thought and disciplines to the business, but eventually other people would have done that too.

Yeah, I mean, IT might have been a little more annoying. Or like you had to get those two types of carosse in sitting next to each other on the shelf and need to go make sure to buy the compatible one for whatever apparatus lamp p he had at home. And that would have been a slight bomber.

I don't know. I think rock feller made a lot of arguments that served his purpose. And as fun as IT is to sort of imagine and sort of theory craft why he was right and how that would have played out. I think net, net, we would have consumed about the same amount of oil between that and now consumers would have spend about the same money, money on oil between then and now. And we would have about the same number .

of players we have today. So let's see if I can translate write IT sounds like you are arguing for like a grade of like a sea.

like a passing grade. Oh, IT depends what we're grading like to in in terms of creating a bunch of value in capturing as much as he possibly could a plus right.

right, right in terms of the grade of the development of this industry in america, uh, as I did versus a non standard oil path.

Yeah, I guess that is what i'm arguing. What do you think i'm .

not feeling strongly any different? I think that's a really good argument. You know, it's fundy.

I feel like if Peter til were here as a guest with us, he would be viamede arguing the opposite that you know it's the zero to ones. It's the lake. Yes, anybody could have done this. yes. You know other people might have, but like rockfeller IT, and in the absence of somebody doing IT, that IT might not have happened.

And without all this standardization in the oil industry, then we wouldn't have had all the unbelievable lifestyle upgrades that we've all had over the last hundred and fifty years because of the advent of unified oil ecosystem.

Yeah, like you like your electric cars. And tesla is in the lake well, you know, no kersey in back in the day. No gasoline there after. You know we don't advance to the level of technology and development .

that were right now. Oh like if the car was much more inconvenient to drive or that wait another thirty years to develop, I mean, then like there's a zelia knock on effects of, uh, amErica doesn't innovate all sorts of other ways and people don't have a lot of other products that we all take for granted in .

our lives now yeah right. So I think my answer A I don't have a strong point of view. I think i'm going to go and not higher than you to be just because I really do see both sides here once I being the argument that like this all what to happen the same way anyway in the other side being yeah but really like you need rockfeller like rock fellow doesn't happen mostly though the other is time to go with the bees. I just really love to in the .

story that I can tell, that I can tell, carve .

outs covets. What's there two for me.

both are related, the first more related than the second. The first one is, uh, the movie there will be blood with Daniel day Lewis, if you are Jones ing for some good old fashion. Extremely violent early oil days.

I think it's like, I mean, I wasn't there, so have no idea. Unbelievable articulation of what I would be like to go in prospect and oil field. And the risks involved in that and the personalities involved that the deception and the way that rogue entrepreneurs were organizing labor and capital to make these things happen.

I saw the movie maybe six months ago, but I I thought about so many times, especially in regards to like tis fill in some of those in. In researching this. And my second is only ten gently related because that is actually about a gold rush, not the oil rush, but the T, V shows deadwood with Timothy orphant.

I've heard that that's very good.

It's excEllent. I am one of three seasons in right now. I just finish the first season.

It's so good. The characters are so compelling. The actors great. I actually got tip to IT when I was doing the research for the entry and horwich episode. Mark, I think, mentioned that IT was his favorite T, V. Show and so I think I should check that out of his american recent severe T V show .

and sure enough awesome IT used to be um the holden cast fire show no really .

which is also great.

Yeah he talked i've never seen IT which I mean given what we do here, I need to .

water you do so go watch deadwood is awesome.

nice and and a there will be blood I ve never seen i'm like, so living under .

a right oh, you need to see that in games .

of new york yeah, which I also never seen huh? My carpet is completely unrelated. I'm sure I could think of some the state royal activist technical reached so far.

They probably could think of some connection, but i'm not going to is the secret base youtube channel, which is part of S B. Nation, the sports uh. News website. It's so good and in particular i've like this this gentle their work for a long time.

These guys are so that is do like a reference history of like sports moments and teams in particularly they just today seven part series on the atlanta kans probably like five or six hours is in total and it's so good. It's so funny. And just like so the whole like premise of the history is video.

A lot of great graphics on the channel. They take a visual representation of the win loss differential for the team. Well, like you know if the the horizontal x sex is is a five hundred record and then going down below is losing and then going up above is a winning overall record.

And basically the whole history of the atlanta fcs, they're ing as they got IT because it's all you know, losses down into the red almost exactly mirrors the falcons logo, if you like, tilted up on its side so that the exact is become vertical IT really looks like the fans logo brutal. It's so funny, but yet very, very well done. Highly recommend.

Sorry to any fcs fans out there oh.

but it's like a love letter to a later in the folk ins like it's so fun. I don't think I made this my CBA, but they did one on the mariners a year or two ago that was equally, equally good. Will link to that one two.

All right. Well, listeners, thank you for joining us on part one of this epic journey. We are excited to take you on part two here. We are very interested in your feedback and between episodes, and I think we're going to leave ourselves enough time to make sure we have this out in the while before recording the next one. So join us in the slack to come talk about IT, acquire dt F M, slash slack, email us at a quiet F M A, gmail that com, or tweet us at a quiet FM on twitter. And this is i'll see next time.

next time. Easy you with you with that, you who got the.