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Rockefeller: Oh the Joys of Deregulation

Railroads, factories, refineries…In the 19th century it became possible for a few people to control a few critical chokepoints of commerce and exploit them for all they were worth.

To some, these people were “captains of industry” to the worker on the street they were often known as “robber barons.”
Once one of them dominated a key commodity or transport system they could wield monopolistic powers with impunity.

Many people believed that “free” markets would naturally lead to the optimal public good, the regulations that could have stopped the near destruction of competition in the economy didn’t yet exist.

John D. Rockefeller grew up poor in rural America, his father absent most of the time womanizing and plying money-making schemes, his mother overworked at home on the farm.
Because they never knew when people would come calling to collect debts incurred by the father, they always had money in reserve and kept close track of finances.

When Rockefeller got his first job in Cleveland he started keeping a personal ledger poetically named “Ledger A” that he used to keep track of every penny that passed through his hands.
To put this worship of order and precision in perspective, Ledger A became Rockefeller’s personal Rosebud, a sacred artifact he later had locked away in one of his private vaults.

It was with this methodical spirit that Rockefeller continued to accumulate wealth and assets. He saw commerce itself and the accumulation of capital as a sacred mission.

Realizing that drilling for oil itself tended towards booms and busts, Rockefeller had the brains to focus on refineries that could bring in steady profits whether or not there were localized surges or shortages.

He also leveraged his growing economy of scale to get discount rates from the railroads which allowed him to sell his product cheaper than the competition. Soon everyone had to push for these discounts or go out of business. To a few victors who could push the railroad transport prices lowest went the spoils.

This price war over the railways is why today we have interstate commerce laws. Because Rockefeller could use railroads to help him sell more cheaply than the competition wherever he went, no one else stood a chance.

State governments and the feds tried to make regulations to prevent companies like Standard Oil from operating across state borders without having to answer to any set of local laws. Soon,companies had to operate under the laws of a single state.

Standard Oil simply split up into nominally separate companies, one for each state and all were governed from a seemingly innocuous holding company.

As government continued to try to restrict the reach of robber barons, men like Rockefeller kept finding ways to honor the letter of the law while circumventing its spirit.

Rockefeller responded to concern over the growing size of his company by maintaining every appearance of competition.
Companies he bought out would keep their old names and management. No one would even know anything had changed except for a few people at the top of the hierarchy.
He also allowed an insignificant sliver of the industry to remain somewhat independent so he could always make the claim that some competition existed.

Because of these stealthy tactics, few people realized just how big Standard Oil had become until it was too late. Whereas other Robber Barons liked to behave like celebrities, Rockefeller kept quiet operating largely behind the scenes. He didn’t truly become a household name until long after he had taken over.

Perhaps more than anyone, Rockefeller invented the modern corporation with its precisely organized state-sized bureacracies.
Because Rockefeller found himself in charge of so much, much of his effort was spent simply figuring out how to delegate tasks.

He also invented much of the modern corporate culture even becoming one of the first executives to organize much of his social life around holes of golf.

Like many magnates of his time, Rockefeller seemed to feel a certain tie to a homeland and people that today’s borderless tycoons would be hard-pressed to understand.

That Rockefeller retained some kind of moral vision and notion of a higher purpose even as he gained absolute power seems unthinkable after all the horrors of the 20th century and the dominance of disconnected kleptocrats in the 21st century.

It truly is amazing in retrospect that he actually tried to build things and give back to the society that gave him his wealth rather than relentlessly hoarding everything he had by running his operations out of multiple countries.

Indeed in the 21st century, today’s Robber Barons have transcended obsolete nation states.
They play the laws of one zone against the other for their gain much as Rockefeller once did with the laws of different U.S. states.

As unpopular as the notion of some kind of world governing system is, some kind of international commerce system may become necessary to stem the depredations of billionaires who reap all the benefits of playing a game of arbitrage within the current decrepit and outdated international system: If one nation objects to being exploited by them, they simply take their money somewhere else with a government more amenable to their desires.
If particular countries try to enforce regulations, elites can simply split different operations into different countries all under different names just like Rockefeller used to do in the states with bits and pieces of Standard Oil.

In our age of multi-national corporate entities effectively acting outside of the laws of nation states, we would do well to pay attention to the lessons we can learn from men like John D. Rockefeller.

Titan: The Life of John D. Rockefeller Sr.

7 responses to “Rockefeller: Oh the Joys of Deregulation

  1. Nestorius September 8, 2012 at 12:28 pm

    You forgot to mention the most important part: when Rockefeller was initiated as a Mason.

    The goal of corporations is to eliminate the power of governments. Corporations are branches of the Masonic world government. Masons will keep imposing the domination of corporations to eliminate the power of governments, then they will merge corporations until they become a group of departments in one government. Nestle, for example, will become the water department in the government of the New World Order.

    • Giovanni Dannato September 8, 2012 at 6:14 pm

      I dunno about all the conspiracy stuff.

      I usually rely on a sort of Occam’s razor with this kind of thing.
      I never ascribe to conspiracy what is better explained by impersonal mass forces and sheer human incompetence.

      I realize rich people undoubtedly work together.
      I mean we can see Warren Buffett helping out the Bill and Melinda Gates foundation out in the open.

      But the idea of worldwide networks of rich people controlling everything seems improbable.

      While rich and powerful people do form coalitions, they also have massive disagreements and conflicts of interest.

      There have been other periods in history such as in the weak, fragmented Holy Roman Empire when coalitions of guilds became more powerful than states.
      But it seems like it was simply people trying to make more money as usual rather than any explicit conspiracy to take everything over.

      Also, I can’t help but wonder why corporations wouldn’t be content just to have governments do all that hard work of maintaining infrastructure and training worker drones for them.
      How do corporations profit from taking on that kind of burden?

      • Nestorius September 8, 2012 at 6:54 pm

        “I dunno about all the conspiracy stuff.”

        Maybe you should start reading what the Masons say in their books. It is self evident.

  2. Nestorius September 8, 2012 at 7:01 pm

    “I never ascribe to conspiracy what is better explained by impersonal mass forces and sheer human incompetence.”

    Analysis for the sake of analysis is useless. It either we know that such and such is true or we don’t.

  3. MnMark September 11, 2012 at 7:29 pm

    I realize that it’s generally accepted as fact that “robber barons” are a problem and that the solution is “regulation”. Let me play devil’s advocate.

    One fact about Rockefeller that you did not mention was that because of his relentless drive to reduce prices in order to win more market share, he drove the cost of kerosene down by something like 90%. Because of Rockefeller, the average man could now afford to have light in the evening that he couldn’t afford when he had to buy expensive whale oil.

    Further, a business can never force people to buy their products, unlike a government. Certainly, they can and will raise their prices just as high as possible in order to make as much profit as they can. But you always have the choice whether to buy the product at that price. And don’t tell me that you have no choice, that you have to buy the product…you never HAVE to buy a product. You can do without or you can find alternatives. If Rockefeller, having achieved a virtual monopoly on kerosene, had raised the price too high, people would have found alternatives or done without. Consequently, Rockefeller had to be careful not to raise the price too high or he would make less money that he could otherwise. There is a “sweet spot” in pricing where the seller maximizes the amount of revenue.

    In addition, in practice, no monopoly lasts for very long. Technological change occurs. Heirs to the business make stupid business mistakes. Because the tycoon cannot point a gun at people’s heads and force them to buy his product (like government does), he must stay responsive to the changes in the market.

    Contrast that with the likely results of your prescription for this non-problem of monopoly: larger and larger governments. A government that encompasses the entire world, with worldwide dictatorial power to control every necessary aspect of commerce. This requires omniscient central planners and regulators, which doesn’t exist. Instead what you get are Russian-style kleptomaniacs and crooks. What makes you think that the kind of people who rise to power in international goverment are some kind of noble souls who will not use their power to exploit for their own profit? They certainly will – and the difference is, they can and will use the force of government to maintain their monopoly!

    In addition these government types are never responsive to changes in technology and the marketplace like a private business must be. The Soviet Union is example #1.

    Here is the fundamental truth, as I see it: the smart and powerful will ALWAYS rise to fantastic levels of wealth and power. It is unavoidable because our advanced technologies allow the leveraging of human creative capability to fantastic levels. The only question is how to structure a society to best respond to this unavoidable rising of the cream of the crop: do you encourage and reward the entrepreneur, who must always get the customer to voluntarily buy their product, and who will surely disappear in a generation or two anyway, or do you encourage and reward kleptocrats and egomaniacs who do a “Kim Jong Il” or a Putin and use corruption and force to maintain power even if they do not satisfy the customer? I think the answer is obvious.

    • Giovanni Dannato September 11, 2012 at 8:28 pm

      Wow. What a great counter-argument.

      Now this is the level of discourse I’d hope to see a lot more of on this site.

      Thanks, man.

    • Giovanni Dannato September 13, 2012 at 4:56 pm

      You argue pretty convincingly that a runaway government can be more tyrannical than a corporate monopolist.

      But what then should be the role of the government? Should there be no government or should it still exist but play a lesser role?

      I suppose my problem with this is that corporate interests that become sufficiently powerful end up functioning as governments. That’s why I used the example of the Hansa merchants earlier and indeed, we see something like this happening right now.

      At first, the Hanseatic league was a net good because they guaranteed the quality of goods all across the Baltic region and kept prices low. But their extensive unchecked power naturally decayed into inefficient bureaucracies and corruption just like you’d see in any government ministry,
      Also, they could and did force people and entire nations to buy their products.
      Whenever rulers in Baltic states tried to ban Hansa products or impose duties, their ports would end up under siege by Hansa military fleets.
      Yes, the Hansa had their own military, just like a state.
      And their monopolistic power was not short lived. They were a force for a couple of centuries.

      Only because there’s a government with a monopoly on force do we not see businesses getting people to buy their products through threats or outright warfare with their competitors(i.e. the narco trade),
      Look at the mafia for instance: depending on the situation, turning down “offers” of “protection” could have nasty results.

      Do the best and smartest people always rise to the top in top-down agricultural societies?
      If we look at a historical procession ranging from Kings, to Prime Ministers, to leading bankers we see this isn’t necessarily the case.
      The people who rise to the top are often the best publicizers and self-promoters with the strongest animal charisma. They aren’t necessarily good for anything else.
      And modern technology hasn’t necessarily been an antidote to this trend. Look how facebook has enabled shallow crowd pleasers more than ever.

      A problem with a social darwinian outlook:
      The system might not select for what you think it does
      A meritocracy is only as good as what it rewards.

      If whale oil is Rockefeller’s only limit then the sweet spot at which he could sell the maximum number of units is still considerably higher than it would be if he had real competitors in the kerosene business.
      Mr. Rockefeller would love to sell his kerosene at the maximum price ordinary people are regularly willing to pay.
      But if he has competition, he has to keep up not with the ordinary man’s pocketbook but with his competitors.

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