Antitrust 1: Standard Oil : Planet Money At the turn of the 20th century, Ida Tarbell investigated John D. Rockefeller's Standard Oil. What she discovered changed the economy of the United States.
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Antitrust 1: Standard Oil

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Antitrust 1: Standard Oil

KENNY MALONE, HOST:

We're in this moment right now where it feels like suddenly there is this handful of giant companies that people are worried about - Google, Facebook, Amazon. And reasonable people are starting to ask, have these companies become too big and too powerful? Should the government step in?

Now, these are relatively new companies. But these are not new questions at all. And for the next week on PLANET MONEY, we are going to tell the story of how the battle over these kinds of questions created this world we live in today, where companies can get unimaginably big. This episode is the first in a three-part series. And we're starting at the very beginning, the first time a few companies suddenly seemed to be taking over America.

JULIA SIMON, HOST:

(Laughter) It is really effing cold here.

MALONE: Do you know which door we're supposed to go in - front?

SIMON: The history of breaking up big companies in America arguably starts at an old house in Titusville, Penn., the childhood home of a woman named Ida Tarbell.

MALONE: The house is still standing. It's actually just about 25 minutes from the small town where I grew up.

Hi.

LYNN CRESSMAN: You're Kenny?

MALONE: I'm Kenny, great to meet you.

We meet Lynn Cressman. She's the lead volunteer here. And somehow she knows my nana.

CRESSMAN: I do know your grandma. I know her through my husband.

MALONE: Small towns, man. Anyway, Lynn wants to show us this spot that little Ida Tarbell used to love. She opens up what looks like a closet door.

Oh, my God.

CRESSMAN: (Laughter).

MALONE: It is, in fact, the steepest staircase we have ever seen.

SIMON: The staircase leads up to the house's cupola, like a little tower full of windows. Sunlight is pouring in.

CRESSMAN: And the view is awesome. Look, you can see the hillsides of Titusville.

SIMON: About 150 years ago, Ida Tarbell was a brainy teenager. She used to come up to this tower to read her books, to look through her microscope and look out the window.

MALONE: Like, what would she have seen out here? What would this have looked like?

CRESSMAN: I think she would have seen wagons going down the street, horses pulling wagons loaded with barrels of oil. And certain streets would have been squishing through the mud and the oil mixed together.

MALONE: OK. OK, maybe that sounds gross. But it was, in fact, a great problem to have in the 1800s.

SIMON: Titusville was the birthplace of the American oil industry. It was the first place somebody figured out that you could use a drill to get a ton of oil out of the ground.

MALONE: Western Pennsylvania became, to the oil industry, what Silicon Valley is now for the tech industry. In 1860s it would've seemed like everybody here had an oil well or a small startup oil refinery. People came from all over the country to get a piece of the money just bubbling out of the ground.

SIMON: One of those people was Franklin Tarbell, the father of Ida Tarbell.

MALONE: He and some partners were into producing oil. And he was doing pretty well. He had this nice house with an awesome tower for his daughter, Ida, to hang out in. But one day, Ida came downstairs, and something had changed.

SIMON: Ida would later write, (reading) I remember a night when my father came home with a grim look on his face. He no longer told of the funny things he had seen and heard during the day. He no longer sang to my little sister.

(SOUNDBITE OF "COLD HEART")

MALONE: Hello, and welcome to PLANET MONEY. I'm Kenny Malone.

SIMON: And I'm Julia Simon. It would be 30 years before Ida Tarbell fully figured out what was going on that night. And what she found out would change her life and the way the United States thinks about big business.

MALONE: Today on the show, Ida Tarbell versus the richest man in the world.

(SOUNDBITE OF "COLD HEART")

SIMON: Well, first I'll start by asking you what your name and your position is.

KATHLEEN BRADY: My name is Kathleen Brady. I am a writer and biographer.

SIMON: Kathleen Brady is the Ida Tarbell biographer. She wrote "Ida Tarbell: Portrait Of A Muckraker."

MALONE: Because Ida Tarbell grew up and became a muckraker, an investigative journalist - but also a biographer. She was a huge deal. She was kind of the Doris Kearns Goodwin of her day. She'd written this great biography of Napoleon, followed it up with an even more popular biography of Abraham Lincoln.

And one day, around the year 1900, Tarbell, some colleagues and her magazine editor were all sitting around trying to brainstorm her next big project. And her editor, Sam McClure, is like, look; I feel like there is one defining issue of this moment.

BRADY: They decided to take up the trust, the question of the trust, which they regarded as the question of the age.

MALONE: The question of trusts - how about this question first, though? What is a trust?

SIMON: After the Civil War, the U.S. was going through something kind of similar to what we're going through today. There had been these huge breakthroughs in technology. And they were allowing private companies to grow bigger than they'd ever been before.

MALONE: So one breakthrough was the telegraph, for example. Now you could have offices all across the country and still boss your employees around.

SIMON: The railroad networks - now your widget factory didn't have to just serve Pennsylvania. It could ship anywhere in the country.

MALONE: And so the U.S. economy started to consolidate. One regional company buys another and then another. And soon the country was left with just a handful of massive companies, what were known as trusts.

SIMON: Trusts - trusts were technically a bunch of smaller companies legally stitched together. And in the end, many industries were controlled by one trust. There was a meat trust, a whiskey trust, a rope and cordage trust. There was a barbed-wire fence trust.

MALONE: And this consolidation had happened unsettlingly fast. Americans were starting to wonder, have these companies become too big and too powerful? So that is why Ida Tarbell and her editor, Sam McClure, were sitting around trying to figure out which trust she should investigate.

BRADY: Ida wanted to do sugar because it touched the family dinner table. And McClure thought that was too trivial.

SIMON: They thought about doing meat, but the big titan of meat had just died. They wanted someone to profile.

BRADY: And Ida was saying, well, it's gotta be something like what happened in the oil industry. And she was talking about that.

SIMON: Her own recollections.

BRADY: Her own recollection of the oil industry.

MALONE: The oil industry - and McClure is like, yes, perfect - oil. You will write about the biggest, baddest trust of them all.

SIMON: Standard Oil. Kenny Malone, we are here at the old Standard Oil building. It's still right near Wall Street in New York, 26 Broadway.

MALONE: And I feel like I can just imagine Ida Tarbell standing exactly where we are, looking up at this fortress of wealth in America. This building is, like, 30 stories tall. It's all this brooding concrete.

SIMON: It's very brooding.

MALONE: And there is this rumor that when Standard Oil was here, they had special doorknobs put on. And you had to know specifically how to turn these trick doorknobs in order to get into certain rooms. It was all very big and secretive.

SIMON: Since Ida Tarbell was a biographer, she was going to focus on the man who ran this place - possibly the wealthiest man ever, one of the most feared businessmen in the world, the head of the Standard Oil Company, John D. Rockefeller.

(SOUNDBITE OF ARCHIVED RECORDING)

UNIDENTIFIED PERSON #1: I don't know. He is not in.

UNIDENTIFIED PERSON #2: No?

UNIDENTIFIED PERSON #3: No.

MALONE: We were able to find exactly one recording of Rockefeller. It is a video. It is super-old. It is weirdly unedited.

(SOUNDBITE OF ARCHIVED RECORDING)

JOHN D. ROCKEFELLER: Tell me when.

MALONE: Tell me when, he says.

(SOUNDBITE OF ARCHIVED RECORDING)

ROCKEFELLER: Dear Mr. Holliday...

SIMON: Rockefeller's on camera wearing a three-piece suit and those super-round glasses that you can really only pull off if you're a billionaire.

MALONE: And it seems this video is a thanks, but I'm not coming to the Standard Oil anniversary party.

(SOUNDBITE OF ARCHIVED RECORDING)

ROCKEFELLER: I exceedingly regret that it will be impossible for me to attend.

SIMON: So Rockefeller, he was this mysterious titan of industry. And Ida Tarbell was going to figure out who this man really was. How did he become one of the richest men in the world? And how did he build his oil empire?

MALONE: And so she started her investigation. She's like, you know what? I need documents. Luckily, Standard Oil had been involved in all these court cases. It was a big company. So Tarbell figured there'd be plenty of records from those. Plus, she'd heard there was, like, a book or pamphlet that contained a bunch of records from some of these court cases.

BRADY: And Ida thought, piece of cake because there are all these court records. There are all these court records. And she thought she was just going to grind it out. Well, that's not what happened.

SIMON: No. When Ida Tarbell went searching for all these court records and pamphlets, they were gone.

BRADY: The records had disappeared in a lot of cases.

SIMON: Suspiciously disappeared?

BRADY: Suspiciously disappeared - pamphlets, entire runs of pamphlets had been bought up. And she learned that Standard Oil had bought up all the copies of this.

SIMON: Oh, man, had they burned them or, like, just kept them?

BRADY: Well, I don't know what they did with them. But they - I would assume they did. They didn't want them in circulation. So she thought, well, I'll talk to my neighbors in Titusville.

MALONE: So she started contacting people back in her hometown who might have known about the cases.

BRADY: Half of them were afraid to talk to her because they thought Rockefeller would hurt them. Some people thought she was the tool of Rockefeller, and they didn't want to talk to her.

MALONE: Even her own father back in Titusville was leery of this project. He was very old at this point. But when Ida told him what she was up to...

BRADY: Her father said, don't do it; they will ruin the magazine. And...

SIMON: And he was serious.

BRADY: He was very serious. He was very serious. He saw what happened, and he saw their power.

MALONE: Nevertheless, Ida Tarbell kept going. And slowly, she started to piece together a portrait of John D. Rockefeller.

SIMON: Rockefeller was born in 1839 in upstate New York. His father was a con man. He was literally a snake oil salesman.

MALONE: John was very different from his dad. He was a devout Baptist and very serious about saving money. He grew up and built a good business shipping produce. But when the oil boom kicked off, he wanted in on the action. He got into the oil refining business in Cleveland, Ohio.

SIMON: And Ida Tarbell gave him credit. He was great at the oil business. Instead of renting barrels to transport his oil like everybody else was doing, he figured he could save money by making his own barrels.

MALONE: He also placed his refineries in genius locations - near the water but also the train tracks. And that way, if the railroads tried to charge him too much for shipping, he had a second option. But people were telling Tarbell there was something more to his success, something darker.

SIMON: And one day she got a breakthrough. She goes down to the New York Public Library. The librarian is like, Ida, remember those pamphlets that you thought had all suspiciously disappeared? Guess what I just found?

BRADY: She gets this pamphlet.

SIMON: What'd she find in it?

BRADY: Well, she found that it presented the federal investigation into the South Improvement oil company.

MALONE: The South Improvement Company. In the movie version of this, Ida Tarbell would flash back to her childhood home in her little tower and that day her father was so upset.

SIMON: The South Improvement Company was less of a company and more of a secretive scheme from the 1870s, from back when Ida Tarbell was still in Titusville.

MALONE: And it was a shady scheme. Essentially, a small group of railroads got together with a handful of oil refiners, including Rockefeller. And they said, you know what? Let's all agree. Everybody inside this deal will get good shipping rates for their oil. Everybody outside the deal will get bad shipping rates.

SIMON: When Ida Tarbell was 15, word of this deal got out. And the oil people in Titusville who were not on the inside of this deal, they were furious.

BRADY: And the oil men revolted and erupted and had meetings by flaming torches. And Rockefeller was not...

SIMON: They really had flaming torches?

BRADY: Well, yes because there was no electricity.

SIMON: Ultimately, because of all the bad press, the deal didn't happen. But it freaked everybody out, including Ida Tarbell's father. That night he came home and was so upset, it was because he knew from now on, the oil business would be a world with big players making secret deals that Franklin Tarbell would not be a part of.

MALONE: And as Ida Tarbell continued her research, she learned that this scheme may have failed, but it was like a playbook for how Rockefeller ended up conquering the oil industry.

SIMON: Rockefeller's company got big enough that he was able to go to the railroads and start making demands. He'd be like, look, I ship a lot of oil. If you want my business, I want a discount. But let's make this look not shady. Make it look like I get the same rates as everybody else, then give me some money back later.

MALONE: And maybe more egregiously, he would also be like, yeah, you know what else? I'm also not so crazy about you carrying my competitors' oil. But I'm going to let you do it. Just every time you do that, you also need to pay me money. These were bombshell details. They meant that Standard Oil had a secret, maybe unfair advantage over its competition. And Rockefeller used that advantage.

SIMON: In 1872, Rockefeller had about 30 rivals, these other refineries in Cleveland. He basically said to them, you can either join me, get in on this amazing Standard Oil stock, or you have to compete with me. And if you don't sell to me, I'm going to lower my prices more than you can. And I will crush you.

MALONE: Of his nearly 30 rival refineries, Rockefeller was able to buy up 22 of them, six of those in one 48-hour period. They called this the Cleveland massacre. And he kept using this move all across the country - New Jersey, in Kansas, in Oklahoma and California. When all the dust settled, Standard Oil controlled around 90 percent of oil refining in America - 90 percent.

SIMON: Those sketchy deals with the railroads helped build his empire. But Rockefeller realized things could be even better. What if he owned the means of transport himself? So he started buying up pipeline companies. He owned so much of the oil industry, he could just set the price of oil where he wanted it. And he did. He fixed prices.

MALONE: Ida Tarbell's stories about the shenanigans of Rockefeller and Standard Oil, they were coming out week after week in McClure's magazine. And the magazine's circulation was getting bigger and bigger and bigger. Ida Tarbell was making the 1902 version of the "Serial" podcast.

SIMON: And everybody's reading this around America.

BRADY: Everybody's reading it. Everybody's reading this around America. It was an enormous success. Originally, she was supposed to write three stories. Then it was expanded to six. Then it became 12.

MALONE: They eventually made a two-volume book out of these articles. Everybody was reading these stories, including President Theodore Roosevelt. In 1906, the Department of Justice filed a federal antitrust lawsuit against the Standard Oil Company.

SIMON: After the break, the death of Standard Oil.

(SOUNDBITE OF MUSIC)

SIMON: There's a modern biography of John D. Rockefeller called "Titan." It's written by Ron Chernow, and he writes about this dramatic moment at the U.S. Supreme Court.

MALONE: He writes, (reading) at 4 p.m. on May 15, 1911, Chief Justice Edward White told a sleepy courtroom, quote, "I have also to announce the opinion of the court in No. 398, the United States against the Standard Oil Company." At once, the room quivered with expectation as senators and congressmen streamed in to hear the verdict.

Ooooh (ph).

SIMON: And as White started to read the decision, there was this kind of unusual moment.

MALONE: Justice White said, hold up. Hold up. Before we can figure out what to do with this Standard Oil Company, we all need to get on the same page about something.

SIMON: There had been a law on the books from about 20 years before called the Sherman Antitrust Act. It was theoretically a way for the government to step in when these new giant trusts were misbehaving. But there were some big problems. It was vague and confusing. And it was mostly not working.

MALONE: And Justice White zeroes in on this one phrase that seemed to be tripping everybody up. The Sherman Act said trusts that were, quote, "in restraint of trade" were illegal. But everybody was like, what? What does that mean? What does restraint of trade mean?

SIMON: And Justice White was like, well, we're seeing it now. Some of the things that Ida Tarbell had uncovered were clearly a restraint of trade.

MALONE: Making secret deals with the railroads that forced your competitors out of business - bad for trade. Using that leverage to buy up all your rivals - clearly bad for competition. Fixing prices - yeah, that one's - that one's pretty obviously bad. The court said certainly, these are examples of restraints of trade.

SIMON: And the court used this case to draw an important line. It said, look, this guy, John D. Rockefeller, he is really good at his job. That's part of the reason why his company grew - because he's so good at business.

MALONE: But at some point, Standard Oil just became a bully. It used its sheer size to gain unfair advantages that had nothing to do with being a better oil company. And so it grew simply because it was already big, simply because it could restrain trade.

SIMON: The court took drastic action. It said to Standard Oil, you are in violation of the Sherman Antitrust Act. And we are going to break up this company into a bunch of smaller companies.

MALONE: It was a huge deal. But it was also not perfect because even after the decision, Rockefeller was like hey, how about the officials from all of these new companies still meet every morning at 10:30 at Standard Oil headquarters? Again, Ida Tarbell biographer, Kathleen Brady.

BRADY: Ida correctly saw that now, instead of one company, there were 33 supposedly separate companies actually coordinating with each other. And - and in addition to everything else, along came the automobile. And the demand for oil increased.

MALONE: It was actually 34 companies. And Rockefeller still got stock in those companies. And that was even better business for him. All those new mini Standard Oils, they were still oil companies. And oil was good business. They became some of the biggest companies in the world - Exxon, Mobil, ConocoPhillips, Chevron.

SIMON: Rockefeller just became richer than ever.

BRADY: So Ida really didn't feel she had achieved her goal at all, I'm sorry to say. I mean, her goal was to tell a story, and that she did. But she did not feel that Rockefeller was punished in any way for breaking the law.

SIMON: But - but this case against Standard Oil and that moment when the Supreme Court said, let's clarify the Sherman Antitrust Act, this would be important for the rest of antitrust history. This clarification would guide the court for decades and decades. It helped the government to go after misbehaving corporations.

MALONE: And, you know, I look back at this case as this moment when - when the country was really discovering that there is a strange tension in free markets. A free market is great because it promotes competition. Companies have to battle it out. They have to make things cheaper or better. And that is great for consumers. But businesses do not necessarily like competition.

I'm over here selling my thing. It's going great. Then somebody comes along and sells it for less or sells a better version. I don't want that. So I'll just buy up all my rivals before they put me out of business. And before you know it, I have eliminated all competition. So the free market is good because it leads to competition. But the free market also can lead to a lack of competition.

SIMON: One of the main points of antitrust law is to solve this problem, to use government intervention to make free market competition work. The Standard Oil case showed that the federal government was willing to do this, to step into the market in a huge way to try to make the market work.

(SOUNDBITE OF DEVON MYCAH GOOCHER'S "WHAT I NEED")

MALONE: Next time on PLANET MONEY, 70 years after the Standard Oil decision, how one man transformed antitrust in America again. How he changed the very definition of competition and paved the way for some of the biggest, most powerful companies we have ever seen.

(SOUNDBITE OF DEVON MYCAH GOOCHER'S "WHAT I NEED")

MALONE: If you have thoughts about the show, you can get in touch with us. We are planetmoney@npr.org We're also on Twitter and Instagram, @planetmoney. Bryant Urstadt edits our show. Alex Goldmark is PLANET MONEY's supervising producer. This episode was produced by Sally Helm.

SIMON: Special thanks to Maury Stuckey (ph), Richard John (ph), George Priest (ph), Bill Kevasik (ph), Abby Lesko (ph), Gavin Loes (ph) and Juliette Hilburn (ph).

MALONE: And a very, very special thanks to Sue Beates at the Drake Well Museum.

All right, Sue, where are we?

SIMON: Oh, man.

MALONE: Wait, is this it?

SIMON: This is it?

SUE BEATES: This is the hole.

SIMON: This is the hole.

MALONE: What?

BEATES: This is the national historic landmark.

SIMON: Whoa.

BEATES: That hole.

MALONE: (Laughter).

BEATES: And I don't know...

SIMON: What a hole.

BEATES: I don't know if our hole is the only national historic landmark or not. But it's certainly the best hole.

SIMON: The hole Sue's showing us is the first place somebody figured out that you could use a drill to get a ton of oil out of the ground. It happened in 1859. And the hole's still actually producing a tiny bit of oil.

MALONE: Is this the oil on the edge of it? Can I taste it?

BEATES: How about if we get you a fresh sample to taste?

MALONE: Too late.

SIMON: (Laughter).

MALONE: I'm Kenny Malone.

SIMON: And I'm Julia Simon. Thanks for listening.

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