How Rockefeller Made Over 600 Billion Dollars
How Rockefeller Made Over 600 Billion Dollars? In this post, I’m going to tell you a story and this story is about a man, a single man who created more wealth in his life time than, bill gates, warren buffet and Jeff Bezos’s wealth combined! And this man is none other than John D Rockefeller, the oil titan.
For over a century now, the name Rockefeller has been associated with absolute wealth, fame and prestige in equal measure. How does that go again? “In the beginning, there was oil; then came the Rockefellers?… Okay, it is quite possible that, this statement is made up; but the point is that, this family is filthy Rich!
And their primary source of wealth is nun-other other than good old… “black gold” as they like to call it, or oil, whichever one you prefer. Is it any surprise therefore that, Jay-Z, the rapper, co-founded a label named Roc-A-Fella? Perhaps he wanted inspiration from the legendary multi-Billionaire, oil magnet!
While oil may have been the original source of their wealth, the Rockefellers have successfully diversified their investments over the years and have there for maintained their mammoth wealth. Let us find out how they did this… Before we talk about the money, it is best that we talk about the man behind the money.
John D. Rockefeller was born on 8th of July, 1839 to William Rockefeller and Eliza Davison. He had an elder sister, Lucy, and four younger siblings, William Jr., Mary, Frances and Franklin. While it may not seem so, it is important to note that Rockefellers father, William Rockefeller, was a con artist who regularly changed careers and always tried to cheat his sons, every chance he got.
On the other hand, John’s mother was a devout Baptist, thrifty and a homemaker. Have you ever noticed that some of the richest people in the world, while highly ambitious, never plan to be extremely wealthy? I mean just look at Bill Gates, Elon Musk, Warren Buffet and Steve Jobs, just to name a few.
And while John D Rockefeller was an ambitious man, I highly doubt he ever planned on being worth over $600 Billion Dollars! In his youth, he primarily had two dreams. One in regards to wealth and the other to live a very long life. He wanted to live to a hundred, and he also wanted to make $100,000 dollars, an equivalent of a couple of millions in today’s money.
And although he exponentially exceeded his wealth dream, he almost achieved his other dream, to a live to 100. He unfortunately died of arteriosclerosis (the buildup of fats, cholesterol and other substances in your artery walls) he was 97 at the time, two months shy of his 98th birthday.
After high school, Rockefeller took a business course at a local college, Folsom’s Commercial College. There, he studied bookkeeping and this earned him his first job in September 1855, at only 16 years old. He was studious and hardworking, and for this, he eventually earned $58 from a starting salary of $16.
Not only did he earn money from his bookkeeping job, but he was also able to learn how to calculate and manipulate transportation costs. This skill would prove valuable when he eventually entered the oil business. Produce Commission Business and the Civil War. By the time he stopped working as a bookkeeper, Rockefeller had saved up a considerable amount of money, of about $800, which is equivalent to almost $23,000 in today’s money.
I guess he can thank his mother, the thrifty spender, for this handy skill. Soon after, in 1859, he decided to get into the produce commission business together with a partner, Maurice B. Clark. But he needed to contribute $2000 in starting capital, since he didn’t have enough money, he turned to his father and asked him for a $1000 loan, which he agreed but at a 10% interest.
And so he added this, with his own savings and came up with the required amount. Their produce commission business basically entailed supplying agricultural products for profit. To do this, they would find clients who needed food supplies, take their order, and sell to them for profit. Business was good for the first few years, and the partners made quite a bit of profit.
The outbreak of the civil war was good for Rockefeller and Clark’s produce business, as the army needed food supplies for their soldiers. To this end, these gentlemen made quite a bit of profit, some amounting to as much as $17,000 in a year. This was a lot of money back then. “Gain all you can, save all you can, and give all you can.” John Wesley is credited as having said these words and John D Rockefeller lived by them.
And so with the profits he accumulated, he made his contributions to the Union cause. An alternative explanation could be that he was only giving to the Union cause, just to avoid combat, as most Northerners did back then. Entry into the Oil Business. As the civil war was approaching its climax and peace soon approaching, this period which had been so profitable for Rockefeller and Clark was soon coming to an end.
And since they realized that they couldn’t make as much profit as they did during the wartime period, they decided to branch out into other business prospects. Enter; the oil business. In 1863, the partners (now Rockefeller, Samuel Andrews, and two Clark brothers) built an oil refinery, named “The Flats”.
Oil was very profitable at this time, as the Federal Government was subsidizing their prices. It’s the Wild West, an oil rush. And everybody who stuck oil was minting cash. And although this period was coupled with lots of wastage, those who struck oil enjoyed immense profits. Since most people in the oil business were simply pumping raw black oil from the ground, and very few refining oil.
Drilling for oil is a gamble, filled with uncertainty and since Rockefeller doesn’t believe in luck he decided to look for a way to make money from oil without the risk. Most people in the oil business were simply drilling for oil, hoping to hit a well and stick it rich. But Rockefeller didn’t believe in this, and so he and the partners decide to exploit the safer oil refining market instead.
What made Rockefeller and co. successful was his obsession with efficiency and cutting down on production cost and wastage. Kerosene was very profitable and highly used in this time period, since the light bulb had not yet been invented, People would use kerosene to light up their homes and for cooking.
Frugality and efficiency made Rockefeller successful. While other oil refineries were pouring out up to 40% of oil as waste products. Rockefeller sold these waste products independently. They included petroleum jelly, tar for building roads and paraffin wax. Thus, he was able to get more revenue and make more profits than his competitors.
He cut costs further by making his own barrels and having internal plumbers. Two years after getting into the business, John D. Rockefeller took a step that would see him become the man we know him to be today: he bought out the Clark brothers for $72,500. But he and the chemist, “Andrews” remained partners.
This proved good for them because, there was an unending need for oil at the time. So what did he do? He borrowed heavily and invested wisely; and as we all know, the success of any business depends on how much capital is invested. As you will soon find out… The later years of the 1860s saw the creation of a whole other new partnership, this time consisting of Williams, Rockefeller, the chemist “Samuel Andrews” and another new addition, Henry Flagler.
Rockefeller still practiced his shrewdness; reinvesting profits, taking loans to increase production and minimizing waste as much as possible. This partnership birthed Standard Oil; an oil refining company formed in 1870. As always, Rockefeller applied his skills and experience, and soon, the company was shipping quite a bit of oil and kerosene around the country. Here, his knowledge of transportation costs from when he was a bookkeeper came in handy.
As we all know the cost of transporting anything can be quite expensive, especially via roads, so in order to reduce the outrageously high cost of transporting oil. Oil companies would use rail roads, the only problem was that almost all oil companies were doing the same thing which created fierce completion between oil companies for the control of the rail roads and Rockefellers and co.’s company was no exception.
So in order to control and tame the anarchy and high cost of transportation created by this fierce rivalry, the rail road companies decided to come together and form the south improvement company. In the deal, refineries that transported oil in bulk would get up to 50% discount on their transportation cost.
This deal was very favorable to Standard Oil but it also came at a disadvantage to smaller oil refineries, as they had to pay more for transportation. As a result they could not fairly compete with Standard Oil, which resulted in a lot of protest. It was later on discovered that Rockefeller and Co, had a hand in the rail road deal.
And this was just one of the many cunning ways through which Rockefeller and Co, were trying to cut down on cost and sabotage their competitors. What is that old saying again?… business… is… like what?… War?… Yeah! I think so… Toward of competition and increase efficiency, Standard Oil made a habit of buy and absorbing smaller refineries that could not competitively compete with them, and before you know it, they had no notable competitors in the region.
Even their biggest competitor Pratt and Rogers, saw it futile to compete against them and so in 1874 they made a secret agreement with Rockefeller to acquire them and eventually become business partners. The 1870’s and 1880’s saw the expansion of Standard Oil Company, by absorbing any notable competitors and increasing efficiency or shutting them down, however this came at a price.
The media did not like what the company was doing, and they became heavily critical of their unorthodox methods of doing business, so much so that they clashed in an 1877 rally. With time, the company controlled up to 90% of the United States oil needs. By 1880, Standard Oil enjoyed a monopoly of the industry.
They owned several corporations in different states, as the laws of the time could not allow all their interests under Standard Oil. Still, the media and public, in general, were on their case, especially because of how they enjoyed a monopoly of the market and did their business. Standard Oil Trust was formed in 1882, a move aimed at bringing all the corporations owned by the company under one entity.
However, with time, the market share of the company dropped from 90% to 80%, as international competition meant that they could not enjoy the monopoly forever. In 1911, through a court ruling, Standard Oil Trust was broken down into 34 new companies; at a time during which they controlled 70% of the market share.
While the idea was to reduce the company’s monopoly, the break up made Rockefeller even richer; and in 1913, his wealth peaked at over $900 million dollars. This is an equivalent of over $600 billion dollars in today’s money, six times the net worth of the current richest man. Some of the most notable companies that came from the breakup of Standard Oil include, Exxon Mobil, Amoco, Pennzoil, Conoco and Chevron among others.
Today, most of the family’s wealth comes from the stocks owned in these companies that were as a result of breaking down Standard Oil Trust in 1911. A lot can still be said about John D Rockefeller, he grew up poor and in poverty. But he died as the richest man in history.
As a deeply religious man, and a devout Baptist, Rockefeller believed that it was his God given gift, to make money and still more money, and to use it for the good of his fellow man.
Rockefeller was a winner, and a man who enjoyed competing and crushing his competitors. He was a hard worker, cunning and a shrewd businessman. He was also a generous giver, giving nearly have of his fortune to charity, churches, medical foundations, universities and many worthy causes.
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Credit: Practical Wisdom