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How Rockefeller Built His Trillion Dollar Oil Empire

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Jun 08, 2018

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How Rockefeller Built His Trillion Dollar Oil Empire
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  • When you look at the wealthiest men alive today, topping the charts are tech billionaires
  • like Jeff Bezos and Bill Gates.
  • But actually, the wealthiest businessman to have ever lived died almost a century ago.
  • In today’s video we’ll be looking at a business empire so vast that even after a
  • hundred years of technological progress, no man has managed to overtake its founder.
  • This is the history of Standard Oil.
  • This video was brought to you by Dollar Shave Club.
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  • The origins of history’s greatest oil monopoly are actually pretty humble.
  • It all starts in 1839 with the birth of John Rockefeller in upstate New York.
  • He was the eldest son of a travelling merchant, who identified himself as a “botanic physician”,
  • but in reality was selling the 19th century equivalent of homeopathic medicine.
  • He would spend weeks away from home and in fact would have several children with another
  • woman, who he decided to bring back home to his wife so they could all live together.
  • In this very confusing household, John would grow up learning how to hustle people for
  • the best deal possible and how to get the most out of every penny he got.
  • His family would rarely stay in one place for long, and John would live this nomadic
  • lifestyle ever since he was three years old.
  • To help his mother, John would earn any money he could by raising turkeys or doing work
  • for neighbors.
  • His intelligence was put to good use when the family moved to Cleveland, Ohio in 1854,
  • where he got the chance to attend a proper school.
  • But less than a year later, John dropped out in order to work as a bookkeeper at a local
  • produce broker.
  • He would earn $0.50 per day, which obviously wasn’t much at the time so he would help
  • other companies on the side.
  • But after two years of working there his bosses refused to give him a meaningful raise, so
  • he decided to one-up them by starting his own produce brokerage.
  • Thanks to his good reputation he got a loan of $4,000 which at the time was a huge sum.
  • John started trading hay, grain and various meats, and in his first year he recorded sales
  • of half a million dollars, of which he only got a small fraction as commissions, but still
  • it was a huge success.
  • Every bank in Cleveland was begging John to borrow money and he was barely 18 years old.
  • But then, in 1859 something happened that would change his life forever.
  • Just a hundred miles east of Cleveland, the first American oil well had been discovered.
  • This marked the beginning of the Pennsylvania oil rush and within a year 4,500 barrels of
  • oil would be produced.
  • Now, back then oil wasn’t quite as valuable as it today; gasoline cars hadn’t been invented
  • yet, but oil could still be processed into kerosene, which people would then use in lamps.
  • John realized, however, that the biggest profits to be had weren’t in drilling for oil, but
  • in refining it.
  • He witnessed many people going bust before striking oil, so he knew that that business
  • was too risky for him.
  • Instead, he’d let others go through the hassle of finding the oil and he would just
  • buy it off of them.
  • John had to wait until 1863 for the government to build a rail line connecting the Pennsylvania
  • oil fields to Cleveland.
  • But when that line was built, John was ready for it with a long line of partners and banks
  • ready to back him up.
  • He also assembled a team of seasoned chemists and engineers, who not only optimized the
  • refining process but also discovered various uses for the byproducts of refining petroleum.
  • You see, the early refineries in Cleveland could only operate at about 60% efficiency,
  • but John not increased that percentage, he also started selling all the byproducts, like
  • paraffin wax, tar and naphtha.
  • Within two years the Rockefeller refinery was worth over seventy thousand dollars and
  • was among the largest in Cleveland.
  • But John wasn’t done: in 1865 there were 26 competing refineries but within 5 years
  • John had acquired all but 4 of them.
  • By this point his business was getting too big to handle as a partnership, so in 1870
  • he incorporated as Standard Oil of Ohio.
  • To convince the few remaining competitors in Cleveland, John would simply invite them
  • over and show them his books, revealing that he could operate at a loss far longer than
  • they could stay solvent.
  • In exchange for a good buyout price, John would offer his competitors positions in his
  • own company, thus placing the brightest minds in the industry under his control.
  • Of course, not everyone would give up immediately, and over time John eroded the price of oil
  • and kerosene, sometimes by as much as 80%, in order to strangle competitors.
  • Unsurprisingly, his strategy worked: by 1880 he had acquired refineries across the Northeastern
  • US and was refining over 90% of the entire country’s oil production.
  • At this point John was so powerful that he would invite the owners of the big rail companies
  • and personally negotiate rebates for using their trains.
  • But this practice of negotiating backroom deals really got the business world riled
  • up.
  • At the time (and still kind of today) most industrial goods were transported by rail,
  • and many big industrialists got worried that John’s abuse of transportation rebates could
  • result in similar monopolization in their industries.
  • Over the next decade businessmen, politicians and the media would attack Standard Oil with
  • increasing ferocity.
  • Legislators in Ohio began drafting antitrust regulations to bring down Rockefeller, but
  • he was one step ahead.
  • In 1882 he reincorporated in New Jersey, this time creating the Standard Oil Trust, which
  • in turn held stakes in over 40 local companies.
  • Then, to showcase his success John built an impressive headquarters for his company on
  • Broadway.
  • This moment was the highpoint of Rockefeller’s Standard Oil: he owned 20,000 oil wells, 4,000
  • miles of pipeline, and employed over a 100,000 people.
  • But, his grip on the oil industry was loosening, both domestically and abroad.
  • Massive oil deposits had been discovered in Russia and in Asia, and were being developed
  • by the Rothschild family, which spared no effort in getting that oil to America.
  • Worse yet, in 1890 the federal government passed the Sherman Antitrust Act, which finally
  • gave politicians the teeth to go after the Standard Oil Trust itself.
  • Of course, the complex legal structure behind all the companies was very difficult to investigate,
  • which is why it the government couldn’t actually break up Standard Oil until 1911.
  • By that point, however, John Rockefeller had already cashed in and was no longer actively
  • managing the company.
  • In the final 20 years of his company’s existence, it had paid out over half a billion dollars
  • in dividends.
  • By some estimates the true worth of Standard Oil at its peak was $1 trillion, so the breakup
  • didn’t really come as a surprise to most people.
  • In 1911 the Supreme Court found Standard Oil guilty of anticompetitive practices and broke
  • the company up into 34 separate entities.
  • Of course, John Rockefeller kept his stake in those companies until his death and in
  • fact it turns out that the breakup was the most profitable event in his life.
  • You see, over time many of those companies merged back with one another.
  • Today, most of the Standard remnants are part of either ExxonMobil, Chevron or BP, which
  • have since become incredibly large companies in their own right.
  • John Rockefeller’s ownership of these successor companies made him the richest businessman
  • to have ever lived, with an estimated net worth of $400 billion.
  • Even today, no one has beaten Rockefeller in the leaderboard; not even Jeff Bezos himself
  • seems likely to achieve that.
  • But there’s one thing that Jeff Bezos does have that John Rockefeller never did despite
  • all his money and that is access to Dollar Shave Club.
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  • Visit dollarshaveclub.com/businesscasual to become a member of a club so prestigious that
  • not even John Rockefeller could get in.
  • In any case, thank you for watching and huge thanks to all my patrons on Patreon.
  • If you wanna support me on there you can get early access to future videos or HD versions
  • of the soundtracks I use in Business Casual.
  • Anyhow, we’ll see each other again in two weeks, and until then, stay smart.

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45th video of the Behind the Business Series.

While tech billionaires like Bill Gates and Jeff Bezos might be the richest men in the world today, the title of richest capitalist to have ever lived goes to a man, who died almost a century ago: John Rockefeller.

In the late 19th century John Rockefeller used his quick wits and leadership skills to build an impressive oil refinery in Cleveland. In the early days of the oil industry technology was inefficient and bankruptcies were everywhere, but John optimized the refining process successfully. Over time, he bought out competitors until he had total control over the oil industry in Cleveland through his company: Standard Oil of Ohio.

In the decades afterwards Rockefeller purchased refineries across America and even negotiated backroom deals with the big railroad tycoons. At its peak Standard Oil was worth up to $1,000,000,000,000 (one trillion dollars) in today's money, with Rockefeller controlling over 90% of the oil industry in America.

Of course, eventually new oil deposits were uncovered in Asia and Russia, challenging Rockefeller's monopoly. Back at home concerned businessmen funded waves of media opposition to Standard Oil, which was eventually broken up in 1911. The numerous companies created during this split would eventually merge back together, bringing huge profits to Rockefeller in his final years.

Upon his death, Rockefeller's net worth was an estimated $400 billion in today's dollars, making him the wealthiest businessman to have ever lived by a wide margin.

Under the kind patronage of Nagabhushanam Peddi, Dan Supernault, Samuel Patterson, James Gallagher, Brett Gmoser & Roman Badalyan.

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