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Standard Oil

2012-06-16T10:32:10Z

Wheylous: /* Destruction of competition */

'''Standard Oil''' was an American company principally concerned with oil refining to produce kerosene and petroleum byproducts (such as paraffin wax, lubricating oils, and naphtha) from its foundation in 1870 to its breakup by the [[U.S. Supreme Court|Supreme Court]] in the 1911 [[antitrust]] case of ''Standard Oil Co. of New Jersey v. United States''.



== Mainstream Portrayal ==
Standard Oil has been presented in mainstream history as one of the big ways in which capitalism failed in the [[Gilded Age]] and has been presented as proof for the necessity of regulating the free market. It was supposedly a company which used the free market to become too big and used the power to hurt the consumer.
Some of the accusations against Standard Oil are as follows:

=== Destruction of competition ===
Standard Oil was supposed to have used three methods of curtailing competition:

1) Buying up competitors: Standard Oil would buy up its competitors to destroy competition. Many small refiners were allegedly bought up aggressively.

2) Predatory pricing: Standard Oil would cut its prices below those of competitors to destroy their sales and force them to accept buyout proposals.

3) Preferential rail rates: Standard oil would strike deals with railroads to secure lower rail rates for its products over their competitors' products.

=== Monopoly pricing ===
After Standard Oil destroyed its competitors and had monopoly power, it would raise its prices above the market level and extort high rates from consumers

=== Controlling the price of oil ===
Through its size, Standard Oil could control the prices of crude oil.

=== Hidden companies ===
Standard Oil sometimes bought companies and did not publicly announce that they were its holdings.

== Libertarian Response ==
Standard Oil has been much misunderstood, both in its status as capitalist baddie and as a company which used the free market to gain advantage.

A general overview first:

Standard Oil emerged out of a period of cutthroat competition in the 1860s <ref>[[#refHidy1955|Hidy, 9]]</ref>. It was a time when many young entrepreneurs tried their hands at the refining business <ref>ibid, 4</ref>. Supply was unstable and prices fluctuated wildly <ref>ibid, 9</ref>. Surface oil stores were tapped quickly for easy profit and then businessmen moved on <ref>ibid</ref>. Standard Oil introduced order to a hectic market. They were able to stabilize prices and supply in an insecure market.

A response to mainstream accusations:
=== Destruction of competition ===
Standard Oil did indeed outcompete many of its competitors

1) Buying up competitors: The majority of Standard Oil buyouts were not aggressive and benefited both parties. As Hidy notes, "Rockefeller and his associates ... won the confidence of competitors through comprehensive voluntary association." <ref>ibid, 33</ref>. Many of the former executives of the firms which were bought up were offered high-ranking position in the new company and a guarantee of equality in management <ref>ibid, 34</ref> and were integrated into the management due to their experience in refining and their knowledge of local markets.
The Standard Oil trust was not comprised of one company which had bought out all others. Instead, the Trust was very much a cooperation of different companies {{Citation needed}} which sought to improve their competitive advantage and which still maintained competition even in-between the member companies <ref>ibid, 71</ref>.

Furthermore, it is important to note, as Hidy does, that numerous oilmen successfully resisted pressure to be bought and to be out-competed <ref>ibid, 34</ref>

2) [[Predatory Pricing]]: This claim does not stand strongly against either history, sound economic thought, or logic:

- ''History'': There is no evidence for large-scale predatory pricing on the part of Standard Oil {{Citation needed}}. There have been recorded cases of such "price cutting wars," yet most have been initiated by competitors of Standard Oil, not Standard Oil itself {{Citation needed}}.

Furthermore, price cutting has been previously shown to be ineffective (and indeed counter-productive), as seen in the case of Herbert Dow<ref name="Folsom_Dow">Burton W. Folsom. [http://www.mackinac.org/V1997-13 "Herbert Dow, the Monopoly Breaker"], ''Mackinac Center for Public Policy'', May 1, 1997. Referenced 2011-11-19.</ref>. Dow was selling cheap Bromine in Germany, angering the competing ''[[Bromkonvention]]'' which decided to retaliate by flooding the US market with below-cost bromine. Dow simply ordered his agents to buy up the cheap bromine and resell it in Germany below Bromkonvention's prices yet still at a profit (relative to the below-cost price), effectively destroying the attempt at predatory pricing.

Sometimes rebates that Standard Oil offered are pointed to as a way to obtain extra customers, yet 1) this is a fair market practice, and 2) competitors were using rebates as well <ref>ibid, 118</ref>

- ''Sound Economic thought'': The idea of predatory pricing begs the question "what qualifies as predatory pricing?" Price cutting by itself is not a negative thing in the market and is indeed how competition works{{Citation needed}}. When companies employ more efficient methods of production, they may lower their prices, thus gaining an advantage on the market. Furthermore, price cutting is an effective and recognized tactic to enter a new market which may already have an existing market power.

- ''Logic'': Predatory pricing fails on the logical front as a tool which simply cannot work to systematically drive out competitors <ref name="DiLorenzoMyth">{{cite journal | last = DiLorenzo | first = Thomas | authorlink = Thomas DiLorenzo | title = The Myth of Predatory Pricing | journal = Cato Institute Policy Analysis | volume = | issue = 169 | pages = | publisher = [[Cato Institute]] | location = | date = 1992 | url = http://www.cato.org/pub_display.php?pub_id=1029 | accessdate = 2011-11-09}}</ref>. To quote DiLorenzo extensively -

: "In the first place, such practices are very costly for the large firm, which is always assumed to be the predator. If price is set below average cost, the largest firm will incur the largest losses by virtue of having the largest volume of sales. Losing a dollar on each of 1,000 widgets sold per month is more costly than losing a dollar on each of 100 widgets.

: Second, there is great uncertainty about how long a price war would last. The prospect of incurring losses indefinitely in the hope of someday being able to charge monopolistic prices will give any business person pause. A price war is an extremely risky venture. Standard Oil was not the only trust accused of predatory pricing; antitrust folklore has it that virtually all of the late-19th-century trusts were guilty of the practice. However, the industries accused of becoming monopolies during the congressional debates on the 1890 Sherman Antitrust Act all dropped their prices more rapidly than the general price level fell during the 10 years before the Sherman Act. It would certainly have been irrational for those businesses to have engaged in predatory pricing for an entire decade in the dim hope of someday being able to charge prices slightly above the competitive market rate.

: Third, there is nothing stopping the competition (or "prey") from temporarily shutting down and waiting for the price to return to profitable levels. If that strategy is employed, price competition will render the predatory pricing strategy unprofitable--all loss and no compensatory benefit. Alternatively, even if the preyed-upon firms went bankrupt, other firms could purchase their facilities and compete with the alleged predator. Such competition is virtually guaranteed if the predator is charging monopolistic prices and earning above-normal profits.

: Fourth, there is the danger that the price war will spread to surrounding markets and cause the alleged predator to incur losses in those markets as well.

: Fifth, the theory of predatory pricing assumes the prior existence of a "war chest of monopoly profits" that the predator can use to subsidize its practice of pricing below average cost. But how does that war chest come into being if the firm has not yet become a monopoly? That part of the theory is simply a non sequitur." <ref name="DiLorenzoMyth" />

Furthermore, the idea of predatory pricing only considers the supply side of the equation without taking into account the demand side. Assuming that a company manages by some magical means to use predatory pricing to destroy a few competitors and then institute "monopoly prices" (see below), consumers in other parts of the nation who hear of such behavior must really be of a low mental caliber to buy up the cheaper products of Standard Oil when it comes in the future to their market knowing that this would help Standard Oil destroy competition and institute new high prices.

3) Preferential rail rates: Standard Oil did indeed make deals with railroads for cheaper product transport, as did many of its competitors, hardly making it an unfair market practice. In fact, almost all of the refiners in the country enjoyed some of the advantages of favorable railroad rates at one time or another <ref>[[#refHidy1955|Hidy, 202]]</ref>. Irwin, one of Standard's competitors, notes that everyone got rebates. <ref>McGee, http://www-personal.umich.edu/~twod/oil-ns/articles/research-oil/research-oil/john_mcgee_predatory_pricing_standard_oil1958.pdf, page 147</ref>Railroads were quietly seeking the business of Standard Oil's competitors <ref>ibid, 198</ref>. Hidy note that "In fact, bargaining with railroads was a delicate task and the results were not always satisfactory. ... Once bulk stations had been built on a particular line, Standard Oil marketers could not easily transfer their business to another line and their bargaining capacity was curtailed. ... Standard Oil enjoyed advantages in rates, but the favors were neither so easily come by nor so certain as critics implied." <ref>ibid, 119</ref> Furthermore, if Standard Oil could secure for the railroads a stable inflow of traffic, then this is a legitimate market practice by any standard, as production is streamlined and stabilized. It is also important, as Hidy note, that "Rebates to Standard Oil on crude oil shipments had been virtually eliminated without recourse to legislative enactment." <ref>ibid, 89</ref>

The argument breaks down even more considering that Standard Oil increasingly transported oil through pipelines and not on rails <ref>ibid, 215</ref>.

=== Monopoly pricing ===
The argument that Standard Oil extorted high prices from the public is simply unsupported by evidence. Indeed, the opposite appears to be true: Refined oil prices "fell from over 30 cents per gallon in 1869, to 10 cents in 1874, to 8 cents in 1885, and to 5.9 cents in 1897." <ref>{{cite news | last = Galles | first = Gary | title = 100 Years of Myths about Standard Oil | newspaper = | publisher = [[Ludwig von Mises Institute]] | date = 2011-05-13 | url = http://mises.org/daily/5274 | accessdate = 2011-11-09}}</ref> Being a large market power, but a market power nonetheless, Standard Oil could not create monopoly prices for fear of competitors springing up to win over dissatisfied customers.

The argument of monopoly pricing further fails when considering substitute goods - alternative goods that customers may buy to achieve the same ends with different means. For example,

: "Coal continued to be a cheaper generator of heat and energy than petroleum. Vegetable and animal oils were used as illuminants and lubricants by the very large segments of the world's population living in relatively unindustrialized countries. ... Tallow and stearine candles constituted strong rivals to those made form paraffin was in some markets. In Europe, especially, artificial gas and later electricity gained on kerosene as a source of light ..." <ref>[[#refHidy1955|Hidy, 129]]</ref>

Thus, monopoly prices in kerosene and other products made by Standard Oil would have simply been replaced with substitute goods which Standard Oil did not control.

=== Controlling the price of oil ===
Standard Oil did not control the oil extraction business <ref>ibid, 88</ref>. At the end of its years as a trust it attempted to enter the market but was never a large force on the extraction market. Indeed, it bought its raw material from thousands of producers of crude oil <ref>ibid, 208</ref>. The prices of crude oil were determined on the stock exchange <ref>ibid, 89</ref> and Standard Oil did not speculate on the exchanges <ref>ibid, 88</ref>

=== Hidden companies ===
As Hidy notes, "How hidden the companies actualy were is not known, but the implication of critics was that Standard Oil was putting something over on the public. Standard Oil men certainly disliked the use of the practice by competitors." <ref>ibid, 118</ref>

== The unsung benefits of Standard Oil ==

=== Environmental friendliness/Curtailing of waste ===
Standard Oil came at a time when many of its competitors extracted only one product from oil and moved on without creating byproducts. Standard Oil instead squeezed the most it could out of oil and created numerous products from the products left after the creation of kerosene such as paraffin wax and lubricating oils, which allowed it to decrease its kerosene prices <ref>ibid, 193</ref>. Acid sludge was sold to fertilizer companies instead of being dumped into the Atlantic Ocean and coke byproducts were either used internally or sold to outside companies <ref>ibid, 192-193</ref>.

=== Quality of products/Self-regulation ===
Standard Oil worked to bring both a higher and more uniform standard of products to the market.<ref>ibid, 210-211</ref> Indeed, it also built better infrastructure than competitors: when constructing its pipelines, it sunk the pipe beneath the earth at least eighteen inches deep, except over solid rock, while some competitors only sank their line when int crossed tilled land. This resulted in whipsawing of the pipes of competitors when cold weather came <ref>ibid, 81</ref>.

Standard Oil also provides an example of market regulations at work. Standard Oil engaged outside experts to investigate complaints and to recommend methods for improvement whenever necessary <ref>ibid, 140</ref>. When there were leaks in its barrels it immediately sealed them and sought out the cause (resulting in environmentally-friendly policies due to a desire to not lose profit). Furthermore, when there were allegations that the company was using inaccurate and fraudulent measurements on its tanks, Standard Oil invited all of the oil exchanges to send delegates to check their measurements. No errors were found, and honesty of Standard Oil's field storage units were never again seriously questioned <ref>ibid, 84</ref>.

=== Building of pipelines===
Standard Oil followed a policy geared to win the good-will of landowners along their right of way and was generous in the prices it paid to private individuals and in adjustments for damages <ref>ibid, 81</ref>.

=== Increased standard of living===
Through its superior quality goods and uniform standards, Standard Oil helped to increase the standard of living in millions of homes using kerosene. Furthermore, in efforts to create new markets, Standard Oil distributed heat stoves, lamps, and other utensils to consumers for little or no profit<ref>ibid, 116</ref>.

== Government influence on Standard Oil ==
Standard Oil's methods were fair, free-market methods, as covered above. However, it is important to note in what ways Standard Oil was in fact made larger than it would have been due to active government intervention in the free market (unlike the mainstream view that the Gilded Age was largely laissez-faire):

=== Patents===
Government granting of patent monopolies shielded Standard Oil from competition. Hidy note that Standard Oil "relied heavily on patent rights to attain an advantage over competitors in cost and quality of products. ... Patents for the mechanical fabrication of cans were practically monopolized by Standard Oil companies." <ref>ibid, 93</ref> Furthermore, "the Standard Oil combination received and fully utilized patents granted by the federal government. That patent monopoly constituted the foundation for the large earnings of several Standard Oil units for more than fifteen years." <ref>ibid, 168</ref> In this manner, government in fact ''granted'' Standard Oil monopolies in small regions (look up "[[Intellectual Property]]" for an explanation on why patent monopolies are not free-market tools but instead government intervention in the free market which curtails competition).

=== Tariffs===
[[Tariff]]s are another government intervention in the free market which contributed the the size of Standard Oil. There was a consistent tariff on kerosense in the US. In 1865 the kerosene tariff was increased to 40 cents per gallon <ref>ibid, 6</ref>. In 1984, kerosene was placed on the free list, yet with a catch: if another country had a tariff on the goods of the US, then the kerosene tariff on that country was 40 percent. As D.T. Armentano explains, tariffs restrict foreign competition, which is a vital section of the free market (after all, foreign competition is simply business which is outside of the arbitrarily-drawn line of a given country) <ref>Armentano, D.T. ''Monopoly''. Freedom Daily. 1992</ref><ref>{{Citation
| title = 100,000,000 Barrels Surplus Oil Stored | newspaper = [[The New York Times]] | year = 1909 | date = 1909-08-05 | url = http://query.nytimes.com/mem/archive-free/pdf?res=F2071EFA385F12738DDDAC0894D0405B898CF1D3 | archiveurl = | archivedate = | accessdate = 2011-11-09}}</ref>. The hindering of possibly more efficient foreign competitors shielded Standard Oil from pressure to lower its prices even further. Indeed, abroad Standard Oil was forced to lower its prices to compete with Russian oil <ref>[[#refHidy1955|Hidy, 139]]</ref>, yet the protective tariffs prevented the same from occurring in the US. This is another example of government intervention during the [[Gilded Age]] distorting market forces and creating inefficient, less competitive scenarios.

== Other important points of note ==

=== Competition ===
While Standard Oil owned 88% of refining business at its height (by no means a monopoly), its market share had already decreased to 64% by 1911 (before the anti-trust case) <ref>{{cite book | last = DiLorenzo | first = Thomas | author-link = Thomas DiLorenzo | title = [[How Capitalism Saved America]] | publisher = Random House | date = 2005 | location = [[New York City|New York]], [[New York|NY]] | pages = | url = http://mises.org/daily/2317#3}}</ref>. Indeed, many competitors were present and ready to pick up any time that Standard Oil did not meet expectations <ref>[[#refHidy1955|Hidy, 88, 120]]</ref>. Furthermore, whenever Standard Oil hesitated in taking an action into a new field, competitors sprang up in the new area, as was the case with discovery of the inferior grade Lima oil which would require new processing techniques <ref>ibid, 156</ref>. This suggests that competition was hardly stifled and that Standard Oil retained the top spot thanks to its efficiency and quality (and its size was likely increased by the government ''help'', including patents and tariffs, mentioned above).

=== Trust cohesion ===
It is important to remember that Standard Oil was not a single monolithic company which was run strictly top-down. Indeed, minority interest in different companies had to be considered and Hidy note that "instances are not lacking of objections to recommendations by committees and outright refusal to cooperate on the part of companies, even when 100 percent of their stock was held by the Trust."<ref>ibid, 64</ref> This adds further evidence that Standard Oil survived because of its bending to satisfy many different desires and was always at a risk of member managers breaking off to form new refineries.

==See also==
* ''[[Antitrust: The Case for Repeal]]''

==Links==
* {{md|5274|100 Years of Myths about Standard Oil|Gary Galles|May 2011}}
* {{md|2694#4|A Politically Incorrect Guide to Antitrust Policy: Some Classic Cases|D.T. Armentano|September 2007}}

* {{wplink}}

== References ==
* <cite id=refHidy1955>{{Citation
| last = Hidy
| first = Ralph
| last2 = Hidy
| first2 = Muriel
| author-link =
| year = 1955
| title = Pioneering in Big Business, 1882-1911, (History of Standard Oil Company New Jersey)
| publisher = Harper and Brothers
| place = [[New York City|New York]], [[New York|NY]]
| isbn =
}}</cite>

==Notes==
{{reflist|2}}

[[Category:Organizations]]

Meat packing

2012-04-23T23:59:30Z

Wheylous: /* Unhappy packers */

'''Meat packing''' is the industry involved in slaughtering, processing, packaging, and distributing livestock. A review of the history of meatpacking is of interest because the mainstream account of meatpacking sanitation at the turn of the century (or, rather, the lack thereof) appears to refute the theory of free market regulation. A less-discussed claim of monopolistic practices by the "Big Four" meat packers is also relevant.

==Mainstream account of History==

The mainstream record of history regarding meatpacking holds that the meatpacking industry was unregulated before the passage of the [[Federal Meat Inspection Act]], which resulted in unsanitary conditions placing the public at risk of disease. Upton Sinclair's The Jungle increased awareness of the terrible conditions in the meatpacking industry and the awakened public urged a revolted [[Theodore Roosevelt]] to pass meat inspection legislation. The large meatpackers were against the legislation and did not support the actions of Congress. Indeed, the Neill-Reynolds report confirmed the digusting picture of the meatpacking facilities and sealed the nail in the coffin, reaffirming the need for regulation and the inability of the free market to regulate itself.{{Fact}}

==An in-depth reconsideration==

There are a number of factual mistakes that the mainstream record makes.

===Unregulated industry===

The meatpacking industry was not unregulated. At the time Sinclair's book came out, it had been inspected for more than a decade. Congressman E. D. Crumpacker of Indiana noted in testimony before the House Agriculture Committee in June 1906 that not even one of those officials "ever registered any complaint or [gave] any public information with respect to the manner of the slaughtering or preparation of meat or food products."

What is the history of federal meat inspection, then?

In 1891, the Meat Inspection Act of 1891 was passed under allegations of contaminated meat. There is no evidence, however, that tainted meat was actually a realistic reason for the adoption of the meat regulation. Gary Libecap concludes that "the record does not indicate that the incidence of diseased cattle or their consumption was very great, and there is no evidence of a major health issue at that time over beef consumption." <ref name="Pasour">Ernest C. Pasour Jr. [http://www.independent.org/publications/article.asp?id=190 "We Can Do Better than Government Inspection of Meat "] ''The Freeman'', May 1, 1998,</ref>

Why, then, was the regulation passed?

Pasour explains

: "There is a great deal of evidence that the political impetus for the 1891 legislation was the consequence of rapidly changing economic conditions. Market dominance by Chicago meat-packers-primarily Swift, Armour, Morris, and Hammond-quickly followed the introduction of refrigeration around 1880. Refrigeration allowed for centralized, large-scale, and lower-cost slaughterhouses because of production, distribution, and transportation advantages. The four large Chicago firms accounted for about 90 percent of the cattle slaughtered in Chicago within a decade after the introduction of refrigeration.

: The Chicago packers fundamentally changed demand and supply conditions in the meatpacking industry. Small, local slaughterhouses throughout the country were rapidly displaced because they could not compete with the lower-cost Chicago packers. Local slaughter firms, in response, charged that Chicago packers used diseased cattle and that their dressed beef was unsafe. The disease issue, as bogus as it apparently was, threatened both domestic demand and export markets for U.S. meat. Cattle raisers, especially those in the midwest, backed federal meat inspection to promote demand.

: Cattle producers were also concerned about falling prices. Prices fell because the supply of cattle grew rapidly. But producers attributed the fall to their declining market power versus the Chicago packers—a charge that seemed credible because of the packers’ size and concentration. Ostensibly to deal with the largely spurious allegations of unsafe meat and collusion by the Chicago packers, cattlemen, and local packers called for federal meat inspection and antitrust legislation." <ref name="Pasour" />

===Unsanitary conditions===

It must be kept in mind that Upton Sinclair's novel was that - a fiction novel. Though fiction may bring truth to the public, it does not necessarily do so, and this is confirmed by an analysis of the fewer than 12 pages in his book where the meatpacking process itself is discussed.<ref name="Reed_Meat">Lawrence W. Reed [http://www.thefreemanonline.org/columns/ideas-and-consequences-of-meat-and-myth/ "Ideas and Consequences: Of Meat and Myth"], ''The Freeman'', November 1994, Volume: 44, Issue: 11. Referenced 2011-12-01.</ref> An in-depth look at history will reveal that the allegations made do not hold up. A 1906 report<ref name="Committee_Beveridge">Committee on Agriculture. [http://books.google.com/books?id=xGU-AAAAYAAJ&printsec=frontcover&dq=Hearings+Before+the+Committee+on+Agriculture...on+the+So-called+%22Beveridge+Amendment%22+to+the+Agricultural+Appropriation+Bill,&source=bl&ots=3j6Qi_MOvS&sig=5n7JIhK1-PVpyaDe8GEb7-froBI&hl=en&ei=LNCTTIXbGYL2tgOlrqDACg&sa=X&oi=book_result&ct=result&resnum=2&ved=0CBYQ6AEwAQ#v=onepage&q&f=false "Hearings before the Committee on Agriculture ... on the so-called "Beveridge amendment" to the agricultural appropriation bill (H.R. 18537) as passed by the Senate, May 25, 1906: to which are added various documents bearing upon the "Beveridge amendment." 59th Congress, 1st session"], ''United States Congress'' (a ''Google Books'' page, no preview), G.P.O., 1906. Referenced 2011-12-01.</ref> by the Bureau of Animal Industry refuted Sinclair’s severest allegations, characterizing them as “intentionally misleading and false,” “willful and deliberate misrepresentations of fact,” and “utter absurdity.”<ref name="michaelsuede_Packers">michaelsuede. [http://www.libertariannews.org/2010/09/17/meat-packers-rape-you-and-you-love-it/ "Meat Packers Rape You – And You Love It"], ''Libertarian News'', September 17, 2010. Referenced 2011-12-01.</ref>

Indeed, the report revealed that in some cases the very accounts proposed by Sinclair himself do not stand up to scrutiny:

: There would be meat stored in great piles in rooms; and the water from leaky roofs would drip over it, and thousands of rats would race about on it. It was too dark in these storage places to see well, but a man could run his hand over these piles of meat and sweep off handfuls of the dried dung of rats.

The report correctly notes that if the water (from condensation) was dripping on the meat, then there could have been no "dried dung of rats," as it would have been moistened.<ref name="Committee_Beveridge" />

It is important to note some of the other popular allegations:

: as for the other men, who worked in tank rooms full of steam, and in some of which there were open vats near the level of the floor, their peculiar trouble was that they fell into the vats; and when they were fished out, there was never enough of them left to be worth exhibiting, – sometimes they would be overlooked for days, till all but the bones of them had gone out to the world as Durham's Pure Leaf Lard!

The report notes that after careful consideration there had been discovered only one man falling into a vat. The body was promptly recovered and buried.

It is interesting that some two million visitors came to tour the stockyards and packinghouses of Chicago every year, yet it took a novel by an anti-capitalist ideologue to unveil the real conditions to the American public.<ref name="Reed_Meat" />

===Neill-Reynolds report===

Gabriel Kolko, himself a socialist writing on the collusion of big business and government in periods of supposed laissez-faire, assails Neill and Reynolds as “two inexperienced Washington bureaucrats who freely admitted they knew nothing” of the meatpacking process. Indeed, Neill was an economist with no technical knowledge of the packing industry and Reynolds was a civil service lawyer. Neither had been exposed to the mass slaughtering of a packinghouse and were sensitive middle-class individuals.<ref name="Kolko_Inspection">Gabriel Kolko. [http://books.google.com/books?id=jTyfQk1zMTYC&printsec=frontcover&dq=triumph+of+conservatism&hl=en&ei=ISTHTvSBAsTf0QHxqMko&sa=X&oi=book_result&ct=result&resnum=1&ved=0CDUQ6AEwAA#v=onepage&q=meat&f=false "The triumph of conservatism: a re-interpretation of American history, 1900-1916"] (''Google Books'' preview, [http://us.history.wisc.edu/hist102/readings/kolko_meatinspection.pdf pdf] of the chapter), Meat Inspection: Theory and Reality, 1963. Referenced 2011-12-01.</ref> Their own subsequent testimony revealed that they had gone to Chicago with the intention of finding fault with industry practices so as to get a new inspection law passed.<ref name="Reed_Meat" />

===Unhappy packers===

The mainstream account goes on to allege that, of course, big meatpackers were like typical capitalists greatly displeased with the meat legislation. However, as is often done in libertarian critiques, and as supported by socialistic historian Gabriel Kolko, government meat regulation may be more appropriately viewed through the lens of big business turning government to its side.

The big packers were actually enthusiastically in favor of the regulation.<ref name="Reed_Meat" /><ref name="michaelsuede_Packers" /><ref name="Kolko_Inspection" /> At a government meeting with the large packers, the packers responded to the regulatory proposition with loud applause and praised as a "a wise law" which must be enforced universally and uniformly.<ref name="Kolko_Inspection" />

The packers had lobbied for regulation of the industry for decades.<ref name="michaelsuede_Packers" />. The book by Sinclair gave them an opportunity to get their bill passed through the Congress at last. There were a few reasons for the meatpackers to want government regulation:

1) Government inspection increases operating costs - Though this seems counter-productive, imposing a large fixed cost on competitors is advantageous to big businesses, because it establishes market barriers that prevent new players from entering the market, thus helping the large trusts gain a larger market share (perhaps this was in retaliation against antitrust claims made by smaller, local meatpackers against the trust, which were proven false as well).<ref name="Reed_Meat" /><ref name="michaelsuede_Packers" />. The imposition of a fixed cost is significant because entry into the market had in fact been relatively easy without many barriers.<ref name="Kolko_Inspection" />

2) Stamp of approval to overcome European embargo of meat - The sensationalized allegations in ''The Jungle'' resulted in a drop of meat exports to Europe by half due to European government seizing on the opportunity to pass protectionist bans on American meat under the guise of "diseased meat." <ref name="Pasour" /> The large packers were troubled by this, as they did not want to lose the foreign markets. To circumvent this measure and combat claims of the European governments, the meatpackers wanted a government stamp of approval that would signal safe meat and hence tear down European barriers to meat importation from America.

Congressional hearings during the administration of Theodore Roosevelt revealed that "the big Chicago packers wanted more meat inspection both to bring the small packers under control and to aid them in their position in the export trade." <ref>http://www.mises.ca/posts/articles/big-business-and-the-rise-of-american-statism/</ref>

Sinclair ultimately opposed the meatpacking legislation, having seen it for what it was - a boon for the big packers which hampered competition and the market.

===On Sinclair===

Sinclair was a socialist who sought to spread his political message through his novel. Of course, this hardly renders factual allegations moot, as any man with a sane brain may record facts. However, after the above rebukes of the meatpacking myth, his novel must be resigned to simply being a fiction novel and an exaggeration of conditions to spread a message. Sinclair reveals that the novel was designed "to drive home to the dullest reader" the point that the destruction of the Rudkus family was "the inevitable and demonstrable consequence of an economic system". "I believe in the Socialist movement" vowed Sinclair, and "if I did not, I should never have written The Jungle".<ref name="Wade_Classroom">Louise Carroll Wade. [https://journals.ku.edu/index.php/amerstud/article/viewFile/2885/2844 "The Problem with Classroom Use of Upton Sinclair's The Jungle"] (pdf, [https://journals.ku.edu/index.php/amerstud/article/view/2885 summary]), American Studies, Vol. 32, No. 2: Fall 1991. Referenced 2011-01-12.</ref>

The case for the veracity of Sinclair diminishes when it surfaces that Sinclair only visited the meatpacking plants thrice - one an "ordinary" guided tour, the second with a correspondent for the British medical journal, the Lancet, and on "the third and last trip, I was in the wake of a lawyer who had been brought up in the Packingtown district". Sinclair says "I really paid very little attention to the meat question while I was in Chicago".<ref name="Wade_Classroom" />

Furthermore, even socialists themselves rejected Sinclair's work as no more than fiction. Ralph Chaplin, a socialist who grew up in the vicinity of the yards and packinghouses and was living there when the novel appeared said of The Jungle, "I thought it a very inaccurate picture of the stockyards district which I knew so well."<ref name="Wade_Classroom" /> Gabriel Kolko, another socialist, dismisses Sinclair and his claims as propagandist.<ref name="Reed_Meat" /><ref name="Kolko_Inspection" />

==References==
{{Reflist}}

==Links==
* [http://mises.org/media/4495 Theodore Roosevelt: Master Reformer] (audio; part from 46:00 onward) by Murray N. Rothbard, from ''The American Economy and the End of Laissez-Faire: 1870 to World War II''

[[Category: History of the United States]]

Meat packing

2011-11-30T04:12:47Z

Wheylous: /* References */

Meat packing

2011-11-30T04:12:26Z

Wheylous: /* Unsanitary conditions */

Meat packing

2011-11-30T04:10:27Z

Wheylous: /* Unhappy packers */

Meat packing

2011-11-30T04:09:30Z

Wheylous: Created page with "'''Meat packing''' is the industry involved in slaughtering, processing, packaging, and distributing livestock. A review of the history of meatpacking is of interest because the ..."

Standard Oil

2011-11-09T15:02:21Z

Wheylous:

'''Standard Oil''' was an American company principally concerned with oil refining to produce kerosene and petroleum byproducts (such as paraffin wax, lubricating oils, and naphtha) from its foundation in 1870 to its breakup by the Supreme Court in the 1911 antitrust case of ''Standard Oil Co. of New Jersey v. United States''.

== History ==
History pending. Meanwhile, consult Wikipedia. Alternatively, for a much more thorough look at its history, read ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)'' by Ralph Hidy and Muriel Hidy.

== Mainstream Portrayal ==
Standard Oil has been presented in mainstream history as one of the big ways in which capitalism failed in the Gilded Age and has been presented as proof for the necessity of regulating the free market. It was supposedly a company which used the free market to become too big and used the power to hurt the consumer.
Some of the accusations against Standard Oil are as follows:

=== Destruction of competition ===
Standard Oil was supposed to have used three methods of curtailing competition:

1) Buying up competitors: Standard Oil would buy up its competitors to destroy competition. Many small refiners were allegedly bought up aggressively.

2) Predatory pricing: Standard Oil would cut its prices below those of competitors to destroy their sales and force them to accept buyout proposals.

3) Preferential rail rates: Standard oil would strike deals with railroads to secure lower rail rates for its products over their competitors' products.

=== Monopoly pricing ===
After Standard Oil destroyed its competitors and had monopoly power, it would raise its prices above the market level and extort high rates from consumers

=== Controlling the price of oil ===
Through its size, Standard Oil could control the prices of crude oil.

=== Hidden companies ===
Standard Oil sometimes bought companies and did not publicly announce that they were its holdings.

== Libertarian Response ==
Standard Oil has been much misunderstood, both in its status as capitalist baddie and as a company which used the free market to gain advantage.

A general overview first:

Standard Oil emerged out of a period of cutthroat competition in the 1860s <ref>[[#refHidy1955|Hidy, 9]]</ref>. It was a time when many young entrepreneurs tried their hands at the refining business <ref>ibid, 4</ref>. Supply was unstable and prices fluctuated wildly <ref>ibid, 9</ref>. Surface oil stores were tapped quickly for easy profit and then businessmen moved on <ref>ibid</ref>. Standard Oil introduced order to a hectic market. They were able to stabilize prices and supply in an insecure market.

A response to mainstream accusations:
=== Destruction of competition ===
Standard Oil did indeed outcompete many of its competitors

1) Buying up competitors: The majority of Standard Oil buyouts were not aggressive and benefited both parties. As Hidy note, "Rockefeller and his associates ... won the confidence of competitors through comprehensive voluntary association." <ref>ibid, 33</ref>. Many of the former executives of the firms which were bought up were offered high-ranking position in the new company and a guarantee of equality in management <ref>ibid, 34</ref> and were integrated into the management due to their experience in refining and their knowledge of local markets.
The Standard Oil trust was not comprised of one company which had bought out all others. Instead, the Trust was very much a cooperation of different companies {{Citation needed}} which sought to improve their competitive advantage and which still maintained competition even in-between the member companies <ref>ibid, 71</ref>.

Furthermore, it is important to note, as Hidy do, that numerous oilmen successfully resisted pressure to be bought and to be out-competed <ref>ibid, 34</ref>

2) Predatory Pricing: This claim does not stand strongly against either history, sound economic thought, or logic:

- ''History'': There is no evidence for large-scale predatory pricing on the part of Standard Oil {{Citation needed}}. There have been recorded cases of such "price cutting wars," yet most have been initiated by competitors of Standard Oil, not Standard Oil itself {{Citation needed}}.

Furthermore, price cutting has been previously shown to be ineffective (and indeed counter-productive), as seen in the case of Herbert Dow {{Citation needed}}. Dow was selling cheap Bromine in Germany, angering the competing Bromkonvention which decided to retaliate by flooding the US market with below-cost bromine. Dow simply ordered his agents to buy up the cheap bromine and resell it in Germany below Bromkonvention's prices yet still at a profit (relative to the below-cost price), effectively destroying the attempt at predatory pricing.

Sometimes rebates that Standard Oil offered are pointed to as a way to obtain extra customers, yet 1) this is a fair market practice, and 2) competitors were using rebates as well <ref>ibid, 118</ref>

- ''Sound Economic thought'': The idea of predatory pricing begs the question "what qualifies as predatory pricing?" Price cutting by itself is not a negative thing in the market and is indeed how competition works{{Citation needed}}. When companies employ more efficient methods of production, they may lower their prices, thus gaining an advantage on the market. Furthermore, price cutting is an effective and recognized tactic to enter a new market which may already have an existing market power.

- ''Logic'': Predatory pricing fails on the logical front as a tool which simply cannot work to systematically drive out competitors <ref name="DiLorenzoMyth">DiLorenzo, Thomas. "The Myth of Predatory Pricing." Cato Institute Policy Analysis No. 169, 1992. http://www.scribd.com/fullscreen/31267845</ref>. To quote DiLorenzo extensively -

: "In the first place, such practices are very costly for the large firm, which is always assumed to be the predator. If price is set below average cost, the largest firm will incur the largest losses by virtue of having the largest volume of sales. Losing a dollar on each of 1,000 widgets sold per month is more costly than losing a dollar on each of 100 widgets.

: Second, there is great uncertainty about how long a price war would last. The prospect of incurring losses indefinitely in the hope of someday being able to charge monopolistic prices will give any business person pause. A price war is anextremely risky venture. Standard Oil was not the only trust accused of predatory pricing; antitrust folklore has it that virtually all of the late-19th-century trusts were guilty of the practice. However, as I have shown elsewhere, the industries accused of becoming monopolies during the congressional debates on the 1890 Sherman Antitrust Act all dropped their pricesmore rapidly than the general price level fell during the 10 years before the Sherman Act. It would certainly havebeen irrational for those businesses to have engaged in predatory pricing for an entire decade in the dim hope of someday being able to charge prices slightly above the competitive market rate.

: Third, there is nothing stopping the competition (or "prey") from temporarily shutting down and waiting for the priceto return to profitable levels. If that strategy is employed, price competition will render the predatory pricing strategyunprofitable--all loss and no compensatory benefit. Alternatively, even if the preyed-upon firms went bankrupt, otherfirms could purchase their facilities and compete with the alleged predator. Such competition is virtually guaranteed if the predator is charging monopolistic prices and earning above-normal profits.

: Fourth, there is the danger that the price war will spread to surrounding markets and cause the alleged predator to incurlosses in those markets as well.

: Fifth, the theory of predatory pricing assumes the prior existence of a "war chest of monopoly profits" that the predatorcan use to subsidize its practice of pricing below average cost. But how does that war chest come into being if the firmhas not yet become a monopoly? That part of the theory is simply a non sequitur." <ref name="DiLorenzoMyth" />

Furthermore, the idea of predatory pricing only considers the supply side of the equation without taking into account the demand side. Assuming that a company manages by some magical means to use predatory pricing to destroy a few competitors and then institute "monopoly prices" (see below), consumers in other parts of the nation who hear of such behavior must really be of a low mental caliber to buy up the cheaper products of Standard Oil when it comes in the future to their market knowing that this would help Standard Oil destroy competition and institute new high prices.

3) Preferential rail rates: Standard Oil did indeed make deals with railroads for cheaper product transport, as did many of its competitors, hardly making it an unfair market practice. In fact, almost all of the refiners in the country enjoyed some of the advantages of favorable railroad rates at one time or another <ref>[[#refHidy1955|Hidy, 202]]</ref>. Railroads were quietly seeking the business of Standard Oil's competitors <ref>ibid, 198</ref>. Hidy note that "In fact, bargaining with railroads was a delicate task and the results were not always satisfactory. ... Once bulk stations had been built on a particular line, Standard Oil marketers could not easily transfer their business to another line and their bargaining capacity was curtailed. ... Standard Oil enjoyed advantages in rates, but the favors were neither so easily come by nor so certain as critics implied." <ref>ibid, 119</ref> Furthermore, if Standard Oil could secure for the railroads a stable inflow of traffic, then this is a legitimate market practice by any standard, as production is streamlined and stabilized. It is also important, as Hidy note, that "Rebates to Standard Oil on crude oil shipments had been virtually eliminated without recourse to legislative enactment." <ref>ibid, 89</ref>

The argument breaks down even more considering that Standard Oil increasingly transported oil through pipelines and not on rails <ref>ibid, 215</ref>.

=== Monopoly pricing ===
The argument that Standard Oil extorted high prices from the public is simply unsupported by evidence. Indeed, the opposite appears to be true: Refined oil prices "fell from over 30 cents per gallon in 1869, to 10 cents in 1874, to 8 cents in 1885, and to 5.9 cents in 1897." <ref>Galles, Gary ''100 Years of Myths about Standard Oil''. Mises Daily. 2011. http://mises.org/daily/5274</ref> Being a large market power, but a market power nonetheless, Standard Oil could not create monopoly prices for fear of competitors springing up to win over dissatisfied customers.

The argument of monopoly pricing further fails when considering substitute goods - alternative goods that customers may buy to achieve the same ends with different means. For example,

: "Coal continued to be a cheaper generator of heat and energy than petroleum. Vegetable and animal oils were used as illuminants and lubricants by the very large segments of the world's population living in relatively unindustrialized countries. ... Tallow and stearine candles constituted strong rivals to those made form paraffin was in some markets. In Europe, especially, artificial gas and later electricity gained on kerosene as a source of light ..." <ref>[[#refHidy1955|Hidy, 129]]</ref>

Thus, monopoly prices in kerosene and other products made by Standard Oil would have simply been replaced with substitute goods which Standard Oil did not control.

=== Controlling the price of oil ===
Standard Oil did not control the oil extraction business <ref>ibid, 88</ref>. At the end of its years as a trust it attempted to enter the market but was never a large force on the extraction market. Indeed, it bought its raw material from thousands of producers of crude oil <ref>ibid, 208</ref>. The prices of crude oil were determined on the stock exchange <ref>ibid, 89</ref> and Standard Oil did not speculate on the exchanges <ref>ibid, 88</ref>

=== Hidden companies ===
As Hidy notes, "How hidden the companies actualy were is not known, but the implication of critics was that Standard Oil was putting something over on the public. Standard Oil men certainly disliked the use of the practice by competitors." <ref>ibid, 118</ref>

== The unsung benefits of Standard Oil ==

=== Environmental friendliness/Curtailing of waste ===
Standard Oil came at a time when many of its competitors extracted only one product from oil and moved on without creating byproducts. Standard Oil instead squeezed the most it could out of oil and created numerous products from the products left after the creation of kerosene such as paraffin wax and lubricating oils, which allowed it to decrease its kerosene prices <ref>ibid, 193</ref>. Acid sludge was sold to fertilizer companies instead of the Atlantic Ocean and coke byproducts were either used internally or sold to outside companies <ref>ibid, 192-193</ref>.

=== Quality of products/Self-regulation ===
Standard Oil worked to bring both a higher and more uniform standard of products to the market.<ref>ibid, 210-211</ref> Indeed, it also built better infrastructure than competitors: when constructing its pipelines, it sunk the pipe beneath the earth at least eighteen inches deep, except over solid rock, while some competitors only sank their line when int crossed tilled land. This resulted in whipsawing of the pipes of competitors when cold weather came <ref>ibid, 81</ref>.

Standard Oil also provides an example of market regulations at work. Standard Oil engaged outside experts to investigate complaints and to recommend methods for improvement whenever necessary <ref>ibid, 140</ref>. When there were leaks in its barrels it immediately sealed them and sought out the cause (resulting in environmentally-friendly policies due to a desire to not lose profit). Furthermore, when there were allegations that the company was using inaccurate and fraudulent measurements on its tanks, Standard Oil invited all of the oil exchanges to send delegates to check their measurements. No errors were found, and honesty of Standard Oil's field storage units were never again seriously questioned <ref>ibid, 84</ref>.

=== Building of pipelines===
Standard Oil followed a policy geared to win the good-will of landowners along their right of way and was generous in the prices it paid to private individuals and in adjustments for damages <ref>ibid, 81</ref>.

=== Increased standard of living===
Through its superior quality goods and uniform standards, Standard Oil helped to increase the standard of living in millions of homes using kerosene. Furthermore, in efforts to create new markets, Standard Oil distributed heat stoves, lamps, and other utensils at little or no profit to consumers <ref>ibid, 116</ref>.

== Government influence on Standard Oil ==
Standard Oil's methods were fair, free-market methods, as covered above. However, it is important to note in what ways Standard Oil was in fact made larger than it would have been due to active government intervention in the free market (unlike the mainstream view that the Gilded Age was largely laissez-faire):

=== Patents===
Government granting of patent monopolies shielded Standard Oil from competition. Hidy note that Standard Oil "relied heavily on patent rights to attain an advantage over competitors in cost and quality of products. ... Patents for the mechanical fabrication of cans were practically monopolized by Standard Oil companies." <ref>ibid, 93</ref> Furthermore, "the Standard Oil combination received and fully utilized patents granted by the federal government. That patent monopoly constituted the foundation for the large earnings of several Standard Oil units for more than fifteen years." <ref>ibid, 168</ref> In this manner, government in fact ''granted'' Standard Oil monopolies in small regions (look up "Intellectual Property" for an explanation on why patent monopolies are not free-market tools but instead government intervention in the free market which curtails competition).

=== Tariffs===
Tariffs are another government intervention in the free market which contributed the the size of Standard Oil. There was a consistent tariff on kerosense in the US. In 1865 the kerosene tariff was increased to 40 cents per gallon <ref>ibid, 6</ref>. In 1984, kerosene was placed on the free list, yet with a catch: if another country had a tariff on the goods of the US, then the kerosene tariff on that country was 40 percent. As D.T. Armentano explains, tariffs restrict foreign competition, which is a vital section of the free market (after all, foreign competition is simply business which is outside of the arbitrarily-drawn line of a given country) <ref>Armentano, D.T. ''Monopoly''. Freedom Daily. 1992</ref><ref>''100,000,000 Barrels Surplus Oil Stored...''. New York Times. August 5, 1909. http://query.nytimes.com/mem/archive-free/pdf?res=F2071EFA385F12738DDDAC0894D0405B898CF1D3</ref>. In this way, by preventing possibly more efficient foreign competitors, Standard Oil was shielded from competition and hence from pressure to lower its prices even further. Indeed, abroad Standard Oil was forced to lower its prices to compete with Russian oil <ref>[[#refHidy1955|Hidy, 139]]</ref>, yet the protective tariffs prevented the same from occurring in the US. This is another example of government intervention during the Gilded Age distorting market forces and creating inefficient, less competitive scenarios.

== Other important points of note ==

=== Competition ===
While Standard Oil owned 88% of refining business at its height (by no means a monopoly), its market share had already decreased to 64% by 1911 (before the anti-trust case) <ref>DiLorenzo, Thomas. ''The Truth About the "Robber Barons"''. Mises Daily. 2006. http://mises.org/daily/2317#3</ref>. Indeed, many competitors were present and ready to pick up any time that Standard Oil did not meet expectations <ref>[[#refHidy1955|Hidy, 88, 120]]</ref>. Furthermore, whenever Standard Oil hesitated in taking an action into a new field, competitors sprang up in the new area, as was the case with discovery of the inferior grade Lima oil which would require new processing techniques <ref>ibid, 156</ref>. This suggests that competition was hardly stifled and that Standard Oil retained the top spot thanks to its efficiency and quality (and its size was likely increased by the government ''help'', including patents and tariffs, mentioned above).

=== Trust cohesion ===
It is important to remember that Standard Oil was not a single monolithic company which was run strictly top-down. Indeed, minority interest in different companies had to be considered and Hidy note that "instances are not lacking of objections to recommendations by committees and outright refusal to cooperate on the part of companies, even when 100 percent of their stock was held by the Trust."<ref>ibid, 64</ref> This adds further evidence that Standard Oil survived because of its bending to satisfy many different desires and was always at a risk of member managers breaking off to form new refineries.

==Links==
* [http://mises.org/daily/5274 100 Years of Myths about Standard Oil], by Gary Galles, May 2011
* [http://mises.org/daily/2694#4 A Politically Incorrect Guide to Antitrust Policy], by D.T. Armentano, September 2007
* [http://mises.org/books/antitrust.pdf Antitrust: The Case for Repeal] (pdf) by Dominick T. Armentano, 1999
* {{wplink}}

== References ==
* <cite id=refHidy1955>{{Citation
| last = Hidy
| first = Ralph
| last2 = Hidy
| first2 = Muriel
| author-link =
| year = 1955
| title = Pioneering in Big Business, 1882-1911, (History of Standard Oil Company New Jersey)
| publisher = Harper and Brothers
| place = [[New York City|New York]], [[New York|NY]]
| isbn =
}}</cite>

==Notes==
{{reflist}}

[[Category:Organizations]]

Standard Oil

2011-11-09T15:00:54Z

Wheylous: /* Tariffs */

'''Standard Oil''' was an American company principally concerned with oil refining to produce kerosene and petroleum byproducts (such as paraffin wax, lubricating oils, and naphtha) from its foundation in 1870 to its breakup by the Supreme Court in the 1911 antitrust case of ''Standard Oil Co. of New Jersey v. United States''.

== History ==
History pending. Meanwhile, consult Wikipedia. Alternatively, for a much more thorough look at its history, read ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)'' by Ralph Hidy and Muriel Hidy.

== Mainstream Portrayal ==
Standard Oil has been presented in mainstream history as one of the big ways in which capitalism failed in the Gilded Age and has been presented as proof for the necessity of regulating the free market. It was supposedly a company which used the free market to become too big and used the power to hurt the consumer.
Some of the accusations against Standard Oil are as follows:

=== Destruction of competition ===
Standard Oil was supposed to have used three methods of curtailing competition:

1) Buying up competitors: Standard Oil would buy up its competitors to destroy competition. Many small refiners were allegedly bought up aggressively.

2) Predatory pricing: Standard Oil would cut its prices below those of competitors to destroy their sales and force them to accept buyout proposals.

3) Preferential rail rates: Standard oil would strike deals with railroads to secure lower rail rates for its products over their competitors' products.

=== Monopoly pricing ===
After Standard Oil destroyed its competitors and had monopoly power, it would raise its prices above the market level and extort high rates from consumers

=== Controlling the price of oil ===
Through its size, Standard Oil could control the prices of crude oil.

=== Hidden companies ===
Standard Oil sometimes bought companies and did not publicly announce that they were its holdings.

== Libertarian Response ==
Standard Oil has been much misunderstood, both in its status as capitalist baddie and as a company which used the free market to gain advantage.

A general overview first:

Standard Oil emerged out of a period of cutthroat competition in the 1860s <ref>[[#refHidy1955|Hidy, 9]]</ref>. It was a time when many young entrepreneurs tried their hands at the refining business <ref>ibid, 4</ref>. Supply was unstable and prices fluctuated wildly <ref>ibid, 9</ref>. Surface oil stores were tapped quickly for easy profit and then businessmen moved on <ref>ibid</ref>. Standard Oil introduced order to a hectic market. They were able to stabilize prices and supply in an insecure market.

A response to mainstream accusations:
=== Destruction of competition ===
Standard Oil did indeed outcompete many of its competitors

1) Buying up competitors: The majority of Standard Oil buyouts were not aggressive and benefited both parties. As Hidy note, "Rockefeller and his associates ... won the confidence of competitors through comprehensive voluntary association." <ref>ibid, 33</ref>. Many of the former executives of the firms which were bought up were offered high-ranking position in the new company and a guarantee of equality in management <ref>ibid, 34</ref> and were integrated into the management due to their experience in refining and their knowledge of local markets.
The Standard Oil trust was not comprised of one company which had bought out all others. Instead, the Trust was very much a cooperation of different companies {{Citation needed}} which sought to improve their competitive advantage and which still maintained competition even in-between the member companies <ref>ibid, 71</ref>.

Furthermore, it is important to note, as Hidy do, that numerous oilmen successfully resisted pressure to be bought and to be out-competed <ref>ibid, 34</ref>

2) Predatory Pricing: This claim does not stand strongly against either history, sound economic thought, or logic:

- ''History'': There is no evidence for large-scale predatory pricing on the part of Standard Oil {{Citation needed}}. There have been recorded cases of such "price cutting wars," yet most have been initiated by competitors of Standard Oil, not Standard Oil itself {{Citation needed}}.

Furthermore, price cutting has been previously shown to be ineffective (and indeed counter-productive), as seen in the case of Herbert Dow {{Citation needed}}. Dow was selling cheap Bromine in Germany, angering the competing Bromkonvention which decided to retaliate by flooding the US market with below-cost bromine. Dow simply ordered his agents to buy up the cheap bromine and resell it in Germany below Bromkonvention's prices yet still at a profit (relative to the below-cost price), effectively destroying the attempt at predatory pricing.

Sometimes rebates that Standard Oil offered are pointed to as a way to obtain extra customers, yet 1) this is a fair market practice, and 2) competitors were using rebates as well <ref>ibid, 118</ref>

- ''Sound Economic thought'': The idea of predatory pricing begs the question "what qualifies as predatory pricing?" Price cutting by itself is not a negative thing in the market and is indeed how competition works{{Citation needed}}. When companies employ more efficient methods of production, they may lower their prices, thus gaining an advantage on the market. Furthermore, price cutting is an effective and recognized tactic to enter a new market which may already have an existing market power.

- ''Logic'': Predatory pricing fails on the logical front as a tool which simply cannot work to systematically drive out competitors <ref name="DiLorenzoMyth">DiLorenzo, Thomas. "The Myth of Predatory Pricing." Cato Institute Policy Analysis No. 169, 1992. http://www.scribd.com/fullscreen/31267845</ref>. To quote DiLorenzo extensively -

: "In the first place, such practices are very costly for the large firm, which is always assumed to be the predator. If price is set below average cost, the largest firm will incur the largest losses by virtue of having the largest volume of sales. Losing a dollar on each of 1,000 widgets sold per month is more costly than losing a dollar on each of 100 widgets.

: Second, there is great uncertainty about how long a price war would last. The prospect of incurring losses indefinitely in the hope of someday being able to charge monopolistic prices will give any business person pause. A price war is anextremely risky venture. Standard Oil was not the only trust accused of predatory pricing; antitrust folklore has it that virtually all of the late-19th-century trusts were guilty of the practice. However, as I have shown elsewhere, the industries accused of becoming monopolies during the congressional debates on the 1890 Sherman Antitrust Act all dropped their pricesmore rapidly than the general price level fell during the 10 years before the Sherman Act. It would certainly havebeen irrational for those businesses to have engaged in predatory pricing for an entire decade in the dim hope of someday being able to charge prices slightly above the competitive market rate.

: Third, there is nothing stopping the competition (or "prey") from temporarily shutting down and waiting for the priceto return to profitable levels. If that strategy is employed, price competition will render the predatory pricing strategyunprofitable--all loss and no compensatory benefit. Alternatively, even if the preyed-upon firms went bankrupt, otherfirms could purchase their facilities and compete with the alleged predator. Such competition is virtually guaranteed if the predator is charging monopolistic prices and earning above-normal profits.

: Fourth, there is the danger that the price war will spread to surrounding markets and cause the alleged predator to incurlosses in those markets as well.

: Fifth, the theory of predatory pricing assumes the prior existence of a "war chest of monopoly profits" that the predatorcan use to subsidize its practice of pricing below average cost. But how does that war chest come into being if the firmhas not yet become a monopoly? That part of the theory is simply a non sequitur." <ref name="DiLorenzoMyth" />

Furthermore, the idea of predatory pricing only considers the supply side of the equation without taking into account the demand side. Assuming that a company manages by some magical means to use predatory pricing to destroy a few competitors and then institute "monopoly prices" (see below), consumers in other parts of the nation who hear of such behavior must really be of a low mental caliber to buy up the cheaper products of Standard Oil when it comes in the future to their market knowing that this would help Standard Oil destroy competition and institute new high prices.

3) Preferential rail rates: Standard Oil did indeed make deals with railroads for cheaper product transport, as did many of its competitors, hardly making it an unfair market practice. In fact, almost all of the refiners in the country enjoyed some of the advantages of favorable railroad rates at one time or another <ref>[[#refHidy1955|Hidy, 202]]</ref>. Railroads were quietly seeking the business of Standard Oil's competitors <ref>ibid, 198</ref>. Hidy note that "In fact, bargaining with railroads was a delicate task and the results were not always satisfactory. ... Once bulk stations had been built on a particular line, Standard Oil marketers could not easily transfer their business to another line and their bargaining capacity was curtailed. ... Standard Oil enjoyed advantages in rates, but the favors were neither so easily come by nor so certain as critics implied." <ref>ibid, 119</ref> Furthermore, if Standard Oil could secure for the railroads a stable inflow of traffic, then this is a legitimate market practice by any standard, as production is streamlined and stabilized. It is also important, as Hidy note, that "Rebates to Standard Oil on crude oil shipments had been virtually eliminated without recourse to legislative enactment." <ref>ibid, 89</ref>

The argument breaks down even more considering that Standard Oil increasingly transported oil through pipelines and not on rails <ref>ibid, 215</ref>.

=== Monopoly pricing ===
The argument that Standard Oil extorted high prices from the public is simply unsupported by evidence. Indeed, the opposite appears to be true: Refined oil prices "fell from over 30 cents per gallon in 1869, to 10 cents in 1874, to 8 cents in 1885, and to 5.9 cents in 1897." <ref>Galles, Gary ''100 Years of Myths about Standard Oil''. Mises Daily. 2011. http://mises.org/daily/5274</ref> Being a large market power, but a market power nonetheless, Standard Oil could not create monopoly prices for fear of competitors springing up to win over dissatisfied customers.

The argument of monopoly pricing further fails when considering substitute goods - alternative goods that customers may buy to achieve the same ends with different means. For example,

: "Coal continued to be a cheaper generator of heat and energy than petroleum. Vegetable and animal oils were used as illuminants and lubricants by the very large segments of the world's population living in relatively unindustrialized countries. ... Tallow and stearine candles constituted strong rivals to those made form paraffin was in some markets. In Europe, especially, artificial gas and later electricity gained on kerosene as a source of light ..." <ref>[[#refHidy1955|Hidy, 129]]</ref>

Thus, monopoly prices in kerosene and other products made by Standard Oil would have simply been replaced with substitute goods which Standard Oil did not control.

=== Controlling the price of oil ===
Standard Oil did not control the oil extraction business <ref>ibid, 88</ref>. At the end of its years as a trust it attempted to enter the market but was never a large force on the extraction market. Indeed, it bought its raw material from thousands of producers of crude oil <ref>ibid, 208</ref>. The prices of crude oil were determined on the stock exchange <ref>ibid, 89</ref> and Standard Oil did not speculate on the exchanges <ref>ibid, 88</ref>

=== Hidden companies ===
As Hidy notes, "How hidden the companies actualy were is not known, but the implication of critics was that Standard Oil was putting something over on the public. Standard Oil men certainly disliked the use of the practice by competitors." <ref>ibid, 118</ref>

== The unsung benefits of Standard Oil ==

=== Environmental friendliness/Curtailing of waste ===
Standard Oil came at a time when many of its competitors extracted only one product from oil and moved on without creating byproducts. Standard Oil instead squeezed the most it could out of oil and created numerous products from the products left after the creation of kerosene such as paraffin wax and lubricating oils, which allowed it to decrease its kerosene prices <ref>ibid, 193</ref>. Acid sludge was sold to fertilizer companies instead of the Atlantic Ocean and coke byproducts were either used internally or sold to outside companies <ref>ibid, 192-193</ref>.

=== Quality of products/Self-regulation ===
Standard Oil worked to bring both a higher and more uniform standard of products to the market.<ref>ibid, 210-211</ref> Indeed, it also built better infrastructure than competitors: when constructing its pipelines, it sunk the pipe beneath the earth at least eighteen inches deep, except over solid rock, while some competitors only sank their line when int crossed tilled land. This resulted in whipsawing of the pipes of competitors when cold weather came <ref>ibid, 81</ref>.

Standard Oil also provides an example of market regulations at work. Standard Oil engaged outside experts to investigate complaints and to recommend methods for improvement whenever necessary <ref>ibid, 140</ref>. When there were leaks in its barrels it immediately sealed them and sought out the cause (resulting in environmentally-friendly policies due to a desire to not lose profit). Furthermore, when there were allegations that the company was using inaccurate and fraudulent measurements on its tanks, Standard Oil invited all of the oil exchanges to send delegates to check their measurements. No errors were found, and honesty of Standard Oil's field storage units were never again seriously questioned <ref>ibid, 84</ref>.

=== Building of pipelines===
Standard Oil followed a policy geared to win the good-will of landowners along their right of way and was generous in the prices it paid to private individuals and in adjustments for damages <ref>ibid, 81</ref>.

=== Increased standard of living===
Through its superior quality goods and uniform standards, Standard Oil helped to increase the standard of living in millions of homes using kerosene. Furthermore, in efforts to create new markets, Standard Oil distributed heat stoves, lamps, and other utensils at little or no profit to consumers <ref>ibid, 116</ref>.

== Government influence on Standard Oil ==
Standard Oil's methods were fair, free-market methods, as covered above. However, it is important to note in what ways Standard Oil was in fact made larger than it would have been due to active government intervention in the free market (unlike the mainstream view that the Gilded Age was largely laissez-faire):

=== Patents===
Government granting of patent monopolies shielded Standard Oil from competition. Hidy note that Standard Oil "relied heavily on patent rights to attain an advantage over competitors in cost and quality of products. ... Patents for the mechanical fabrication of cans were practically monopolized by Standard Oil companies." <ref>ibid, 93</ref> Furthermore, "the Standard Oil combination received and fully utilized patents granted by the federal government. That patent monopoly constituted the foundation for the large earnings of several Standard Oil units for more than fifteen years." <ref>ibid, 168</ref> In this manner, government in fact ''granted'' Standard Oil monopolies in small regions (look up "Intellectual Property" for an explanation on why patent monopolies are not free-market tools but instead government intervention in the free market which curtails competition).

=== Tariffs===
Tariffs are another government intervention in the free market which contributed the the size of Standard Oil. There was a consistent tariff on kerosense in the US. In 1865 the kerosene tariff was increased to 40 cents per gallon <ref>ibid, 6</ref>. In 1984, kerosene was placed on the free list, yet with a catch: if another country had a tariff on the goods of the US, then the kerosene tariff on that country was 40 percent. As D.T. Armentano explains, tariffs restrict foreign competition, which is a vital section of the free market (after all, foreign competition is simply business which is outside of the arbitrarily-drawn line of a given country) <ref>Armentano, D.T. ''Monopoly''. Freedom Daily. 1992</ref><ref>''100,000,000 Barrels Surplus Oil Stored...''. New York Times. August 5, 1909. http://query.nytimes.com/mem/archive-free/pdf?res=F2071EFA385F12738DDDAC0894D0405B898CF1D3</ref>. In this way, by preventing possibly more efficient foreign competitors, Standard Oil was shielded from competition and hence from pressure to lower its prices even further. Indeed, abroad Standard Oil was forced to lower its prices to compete with Russian oil <ref>[[#refHidy1955|Hidy, 139]]</ref>, yet the protective tariffs prevented the same from occurring in the US. This is another example of government intervention during the Gilded Age distorting market forces and creating inefficient, less competitive scenarios.

== Other important points of note ==

=== Competition ===
While Standard Oil owned 88% of refining business at its height (by no means a monopoly), its market share had already decreased to 64% by 1911 (before the anti-trust case) <ref>DiLorenzo, Thomas. ''The Truth About the "Robber Barons"''. Mises Daily. 2006. http://mises.org/daily/2317#3</ref>. Indeed, many competitors were present and ready to pick up any time that Standard Oil did not meet expectations <ref>[[#refHidy1955|Hidy, 88, 120]]</ref>. Furthermore, whenever Standard Oil hesitated in taking an action into a new field, competitors sprang up in the new area, as was the case with discovery of the inferior grade Lima oil which would require new processing techniques <ref>ibid, 156</ref>. This suggests that competition was hardly stifled and that Standard Oil retained the top spot thanks to its efficiency and quality (and its size was likely increased by the government ''help'', including patents and tariffs, mentioned above).

=== Trust cohesion ===
It is important to remember that Standard Oil was not a single monolithic company which was run strictly top-down. Indeed, minority interest in different companies had to be considered and Hidy note that "instances are not lacking of objections to recommendations by committees and outright refusal to cooperate on the part of companies, even when 100 percent of their stock was held by the Trust."<ref>ibid, 64</ref> This adds further evidence that Standard Oil survived because of its bending to satisfy many different desires and was always at a risk of member managers breaking off to form new refineries.

== References ==
* <cite id=refHidy1955>{{Citation
| last = Hidy
| first = Ralph
| last2 = Hidy
| first2 = Muriel
| author-link =
| year = 1955
| title = Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)
| publisher = Harper and Brothers
| place = [[New York City|New York]], [[New York|NY]]
| isbn =
}}</cite>

==Notes==
{{reflist}}

==Links==
* [http://mises.org/daily/5274 100 Years of Myths about Standard Oil], by Gary Galles, May 2011
* [http://mises.org/daily/2694#4 A Politically Incorrect Guide to Antitrust Policy], by D.T. Armentano, September 2007
* [http://mises.org/books/antitrust.pdf Antitrust: The Case for Repeal] (pdf) by Dominick T. Armentano, 1999
* {{wplink}}

[[Category:Organizations]]

Standard Oil

2011-11-09T14:52:37Z

Wheylous: /* Links */

'''Standard Oil''' was an American company principally concerned with oil refining to produce kerosene and petroleum byproducts (such as paraffin wax, lubricating oils, and naphtha) from its foundation in 1870 to its breakup by the Supreme Court in the 1911 antitrust case of ''Standard Oil Co. of New Jersey v. United States''.

== History ==
History pending. Meanwhile, consult Wikipedia. Alternatively, for a much more thorough look at its history, read ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)'' by Ralph Hidy and Muriel Hidy.

== Mainstream Portrayal ==
Standard Oil has been presented in mainstream history as one of the big ways in which capitalism failed in the Gilded Age and has been presented as proof for the necessity of regulating the free market. It was supposedly a company which used the free market to become too big and used the power to hurt the consumer.
Some of the accusations against Standard Oil are as follows:

=== Destruction of competition ===
Standard Oil was supposed to have used three methods of curtailing competition:

1) Buying up competitors: Standard Oil would buy up its competitors to destroy competition. Many small refiners were allegedly bought up aggressively.

2) Predatory pricing: Standard Oil would cut its prices below those of competitors to destroy their sales and force them to accept buyout proposals.

3) Preferential rail rates: Standard oil would strike deals with railroads to secure lower rail rates for its products over their competitors' products.

=== Monopoly pricing ===
After Standard Oil destroyed its competitors and had monopoly power, it would raise its prices above the market level and extort high rates from consumers

=== Controlling the price of oil ===
Through its size, Standard Oil could control the prices of crude oil.

=== Hidden companies ===
Standard Oil sometimes bought companies and did not publicly announce that they were its holdings.

== Libertarian Response ==
Standard Oil has been much misunderstood, both in its status as capitalist baddie and as a company which used the free market to gain advantage.

A general overview first:

Standard Oil emerged out of a period of cutthroat competition in the 1860s <ref>[[#refHidy1955|Hidy, 9]]</ref>. It was a time when many young entrepreneurs tried their hands at the refining business <ref>ibid, 4</ref>. Supply was unstable and prices fluctuated wildly <ref>ibid, 9</ref>. Surface oil stores were tapped quickly for easy profit and then businessmen moved on <ref>ibid</ref>. Standard Oil introduced order to a hectic market. They were able to stabilize prices and supply in an insecure market.

A response to mainstream accusations:
=== Destruction of competition ===
Standard Oil did indeed outcompete many of its competitors

1) Buying up competitors: The majority of Standard Oil buyouts were not aggressive and benefited both parties. As Hidy note, "Rockefeller and his associates ... won the confidence of competitors through comprehensive voluntary association." <ref>ibid, 33</ref>. Many of the former executives of the firms which were bought up were offered high-ranking position in the new company and a guarantee of equality in management <ref>ibid, 34</ref> and were integrated into the management due to their experience in refining and their knowledge of local markets.
The Standard Oil trust was not comprised of one company which had bought out all others. Instead, the Trust was very much a cooperation of different companies {{Citation needed}} which sought to improve their competitive advantage and which still maintained competition even in-between the member companies <ref>ibid, 71</ref>.

Furthermore, it is important to note, as Hidy do, that numerous oilmen successfully resisted pressure to be bought and to be out-competed <ref>ibid, 34</ref>

2) Predatory Pricing: This claim does not stand strongly against either history, sound economic thought, or logic:

- ''History'': There is no evidence for large-scale predatory pricing on the part of Standard Oil {{Citation needed}}. There have been recorded cases of such "price cutting wars," yet most have been initiated by competitors of Standard Oil, not Standard Oil itself {{Citation needed}}.

Furthermore, price cutting has been previously shown to be ineffective (and indeed counter-productive), as seen in the case of Herbert Dow {{Citation needed}}. Dow was selling cheap Bromine in Germany, angering the competing Bromkonvention which decided to retaliate by flooding the US market with below-cost bromine. Dow simply ordered his agents to buy up the cheap bromine and resell it in Germany below Bromkonvention's prices yet still at a profit (relative to the below-cost price), effectively destroying the attempt at predatory pricing.

Sometimes rebates that Standard Oil offered are pointed to as a way to obtain extra customers, yet 1) this is a fair market practice, and 2) competitors were using rebates as well <ref>ibid, 118</ref>

- ''Sound Economic thought'': The idea of predatory pricing begs the question "what qualifies as predatory pricing?" Price cutting by itself is not a negative thing in the market and is indeed how competition works{{Citation needed}}. When companies employ more efficient methods of production, they may lower their prices, thus gaining an advantage on the market. Furthermore, price cutting is an effective and recognized tactic to enter a new market which may already have an existing market power.

- ''Logic'': Predatory pricing fails on the logical front as a tool which simply cannot work to systematically drive out competitors <ref name="DiLorenzoMyth">DiLorenzo, Thomas. "The Myth of Predatory Pricing." Cato Institute Policy Analysis No. 169, 1992. http://www.scribd.com/fullscreen/31267845</ref>. To quote DiLorenzo extensively -

: "In the first place, such practices are very costly for the large firm, which is always assumed to be the predator. If price is set below average cost, the largest firm will incur the largest losses by virtue of having the largest volume of sales. Losing a dollar on each of 1,000 widgets sold per month is more costly than losing a dollar on each of 100 widgets.

: Second, there is great uncertainty about how long a price war would last. The prospect of incurring losses indefinitely in the hope of someday being able to charge monopolistic prices will give any business person pause. A price war is anextremely risky venture. Standard Oil was not the only trust accused of predatory pricing; antitrust folklore has it that virtually all of the late-19th-century trusts were guilty of the practice. However, as I have shown elsewhere, the industries accused of becoming monopolies during the congressional debates on the 1890 Sherman Antitrust Act all dropped their pricesmore rapidly than the general price level fell during the 10 years before the Sherman Act. It would certainly havebeen irrational for those businesses to have engaged in predatory pricing for an entire decade in the dim hope of someday being able to charge prices slightly above the competitive market rate.

: Third, there is nothing stopping the competition (or "prey") from temporarily shutting down and waiting for the priceto return to profitable levels. If that strategy is employed, price competition will render the predatory pricing strategyunprofitable--all loss and no compensatory benefit. Alternatively, even if the preyed-upon firms went bankrupt, otherfirms could purchase their facilities and compete with the alleged predator. Such competition is virtually guaranteed if the predator is charging monopolistic prices and earning above-normal profits.

: Fourth, there is the danger that the price war will spread to surrounding markets and cause the alleged predator to incurlosses in those markets as well.

: Fifth, the theory of predatory pricing assumes the prior existence of a "war chest of monopoly profits" that the predatorcan use to subsidize its practice of pricing below average cost. But how does that war chest come into being if the firmhas not yet become a monopoly? That part of the theory is simply a non sequitur." <ref name="DiLorenzoMyth" />

Furthermore, the idea of predatory pricing only considers the supply side of the equation without taking into account the demand side. Assuming that a company manages by some magical means to use predatory pricing to destroy a few competitors and then institute "monopoly prices" (see below), consumers in other parts of the nation who hear of such behavior must really be of a low mental caliber to buy up the cheaper products of Standard Oil when it comes in the future to their market knowing that this would help Standard Oil destroy competition and institute new high prices.

3) Preferential rail rates: Standard Oil did indeed make deals with railroads for cheaper product transport, as did many of its competitors, hardly making it an unfair market practice. In fact, almost all of the refiners in the country enjoyed some of the advantages of favorable railroad rates at one time or another <ref>[[#refHidy1955|Hidy, 202]]</ref>. Railroads were quietly seeking the business of Standard Oil's competitors <ref>ibid, 198</ref>. Hidy note that "In fact, bargaining with railroads was a delicate task and the results were not always satisfactory. ... Once bulk stations had been built on a particular line, Standard Oil marketers could not easily transfer their business to another line and their bargaining capacity was curtailed. ... Standard Oil enjoyed advantages in rates, but the favors were neither so easily come by nor so certain as critics implied." <ref>ibid, 119</ref> Furthermore, if Standard Oil could secure for the railroads a stable inflow of traffic, then this is a legitimate market practice by any standard, as production is streamlined and stabilized. It is also important, as Hidy note, that "Rebates to Standard Oil on crude oil shipments had been virtually eliminated without recourse to legislative enactment." <ref>ibid, 89</ref>

The argument breaks down even more considering that Standard Oil increasingly transported oil through pipelines and not on rails <ref>ibid, 215</ref>.

=== Monopoly pricing ===
The argument that Standard Oil extorted high prices from the public is simply unsupported by evidence. Indeed, the opposite appears to be true: Refined oil prices "fell from over 30 cents per gallon in 1869, to 10 cents in 1874, to 8 cents in 1885, and to 5.9 cents in 1897." <ref>Galles, Gary ''100 Years of Myths about Standard Oil''. Mises Daily. 2011. http://mises.org/daily/5274</ref> Being a large market power, but a market power nonetheless, Standard Oil could not create monopoly prices for fear of competitors springing up to win over dissatisfied customers.

The argument of monopoly pricing further fails when considering substitute goods - alternative goods that customers may buy to achieve the same ends with different means. For example,

: "Coal continued to be a cheaper generator of heat and energy than petroleum. Vegetable and animal oils were used as illuminants and lubricants by the very large segments of the world's population living in relatively unindustrialized countries. ... Tallow and stearine candles constituted strong rivals to those made form paraffin was in some markets. In Europe, especially, artificial gas and later electricity gained on kerosene as a source of light ..." <ref>[[#refHidy1955|Hidy, 129]]</ref>

Thus, monopoly prices in kerosene and other products made by Standard Oil would have simply been replaced with substitute goods which Standard Oil did not control.

=== Controlling the price of oil ===
Standard Oil did not control the oil extraction business <ref>ibid, 88</ref>. At the end of its years as a trust it attempted to enter the market but was never a large force on the extraction market. Indeed, it bought its raw material from thousands of producers of crude oil <ref>ibid, 208</ref>. The prices of crude oil were determined on the stock exchange <ref>ibid, 89</ref> and Standard Oil did not speculate on the exchanges <ref>ibid, 88</ref>

=== Hidden companies ===
As Hidy notes, "How hidden the companies actualy were is not known, but the implication of critics was that Standard Oil was putting something over on the public. Standard Oil men certainly disliked the use of the practice by competitors." <ref>ibid, 118</ref>

== The unsung benefits of Standard Oil ==

=== Environmental friendliness/Curtailing of waste ===
Standard Oil came at a time when many of its competitors extracted only one product from oil and moved on without creating byproducts. Standard Oil instead squeezed the most it could out of oil and created numerous products from the products left after the creation of kerosene such as paraffin wax and lubricating oils, which allowed it to decrease its kerosene prices <ref>ibid, 193</ref>. Acid sludge was sold to fertilizer companies instead of the Atlantic Ocean and coke byproducts were either used internally or sold to outside companies <ref>ibid, 192-193</ref>.

=== Quality of products/Self-regulation ===
Standard Oil worked to bring both a higher and more uniform standard of products to the market.<ref>ibid, 210-211</ref> Indeed, it also built better infrastructure than competitors: when constructing its pipelines, it sunk the pipe beneath the earth at least eighteen inches deep, except over solid rock, while some competitors only sank their line when int crossed tilled land. This resulted in whipsawing of the pipes of competitors when cold weather came <ref>ibid, 81</ref>.

Standard Oil also provides an example of market regulations at work. Standard Oil engaged outside experts to investigate complaints and to recommend methods for improvement whenever necessary <ref>ibid, 140</ref>. When there were leaks in its barrels it immediately sealed them and sought out the cause (resulting in environmentally-friendly policies due to a desire to not lose profit). Furthermore, when there were allegations that the company was using inaccurate and fraudulent measurements on its tanks, Standard Oil invited all of the oil exchanges to send delegates to check their measurements. No errors were found, and honesty of Standard Oil's field storage units were never again seriously questioned <ref>ibid, 84</ref>.

=== Building of pipelines===
Standard Oil followed a policy geared to win the good-will of landowners along their right of way and was generous in the prices it paid to private individuals and in adjustments for damages <ref>ibid, 81</ref>.

=== Increased standard of living===
Through its superior quality goods and uniform standards, Standard Oil helped to increase the standard of living in millions of homes using kerosene. Furthermore, in efforts to create new markets, Standard Oil distributed heat stoves, lamps, and other utensils at little or no profit to consumers <ref>ibid, 116</ref>.

== Government influence on Standard Oil ==
Standard Oil's methods were fair, free-market methods, as covered above. However, it is important to note in what ways Standard Oil was in fact made larger than it would have been due to active government intervention in the free market (unlike the mainstream view that the Gilded Age was largely laissez-faire):

=== Patents===
Government granting of patent monopolies shielded Standard Oil from competition. Hidy note that Standard Oil "relied heavily on patent rights to attain an advantage over competitors in cost and quality of products. ... Patents for the mechanical fabrication of cans were practically monopolized by Standard Oil companies." <ref>ibid, 93</ref> Furthermore, "the Standard Oil combination received and fully utilized patents granted by the federal government. That patent monopoly constituted the foundation for the large earnings of several Standard Oil units for more than fifteen years." <ref>ibid, 168</ref> In this manner, government in fact ''granted'' Standard Oil monopolies in small regions (look up "Intellectual Property" for an explanation on why patent monopolies are not free-market tools but instead government intervention in the free market which curtails competition).

=== Tariffs===
Tariffs are another government intervention in the free market which contributed the the size of Standard Oil. There was a consistent tariff on kerosense in the US. In 1865 the kerosene tariff was increased to 40 cents per gallon <ref>ibid, 6</ref>. In 1984, kerosene was placed on the free list, yet with a catch: if another country had a tariff on the goods of the US, then the kerosene tariff on that country was 40 percent. As D.T. Armentano explains, tariffs restrict foreign competition, which is a vital section of the free market (after all, foreign competition is simply business which is outside of the arbitrarily-drawn line of a given country) <ref>Armentano, D.T. ''Monopoly''. Freedom Daily. 1992</ref>. In this way, by preventing possibly more efficient foreign competitors, Standard Oil was shielded from competition and hence from pressure to lower its prices even further. Indeed, abroad Standard Oil was forced to lower its prices to compete with Russian oil <ref>[[#refHidy1955|Hidy, 139]]</ref>, yet the protective tariffs prevented the same from occurring in the US. This is another example of government intervention during the Gilded Age distorting market forces and creating inefficient, less competitive scenarios.

== Other important points of note ==

=== Competition ===
While Standard Oil owned 88% of refining business at its height (by no means a monopoly), its market share had already decreased to 64% by 1911 (before the anti-trust case) <ref>DiLorenzo, Thomas. ''The Truth About the "Robber Barons"''. Mises Daily. 2006. http://mises.org/daily/2317#3</ref>. Indeed, many competitors were present and ready to pick up any time that Standard Oil did not meet expectations <ref>[[#refHidy1955|Hidy, 88, 120]]</ref>. Furthermore, whenever Standard Oil hesitated in taking an action into a new field, competitors sprang up in the new area, as was the case with discovery of the inferior grade Lima oil which would require new processing techniques <ref>ibid, 156</ref>. This suggests that competition was hardly stifled and that Standard Oil retained the top spot thanks to its efficiency and quality (and its size was likely increased by the government ''help'', including patents and tariffs, mentioned above).

=== Trust cohesion ===
It is important to remember that Standard Oil was not a single monolithic company which was run strictly top-down. Indeed, minority interest in different companies had to be considered and Hidy note that "instances are not lacking of objections to recommendations by committees and outright refusal to cooperate on the part of companies, even when 100 percent of their stock was held by the Trust."<ref>ibid, 64</ref> This adds further evidence that Standard Oil survived because of its bending to satisfy many different desires and was always at a risk of member managers breaking off to form new refineries.

== References ==
* <cite id=refHidy1955>{{Citation
| last = Hidy
| first = Ralph
| last2 = Hidy
| first2 = Muriel
| author-link =
| year = 1955
| title = Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)
| publisher = Harper and Brothers
| place = [[New York City|New York]], [[New York|NY]]
| isbn =
}}</cite>

==Notes==
{{reflist}}

==Links==
* [http://mises.org/daily/5274 100 Years of Myths about Standard Oil], by Gary Galles, May 2011
* [http://mises.org/daily/2694#4 A Politically Incorrect Guide to Antitrust Policy], by D.T. Armentano, September 2007
* [http://mises.org/books/antitrust.pdf Antitrust: The Case for Repeal] (pdf) by Dominick T. Armentano, 1999
* {{wplink}}

[[Category:Organizations]]

Standard Oil

2011-11-08T23:31:01Z

Wheylous: /* Tariffs */

'''Standard Oil''' was an American company principally concerned with oil refining to produce kerosene and petroleum byproducts (such as paraffin wax, lubricating oils, and naphtha) from its foundation in 1870 to its breakup by the Supreme Court in the 1911 antitrust case of ''Standard Oil Co. of New Jersey v. United States''.

== History ==
History pending. Meanwhile, consult Wikipedia. Alternatively, for a much more thorough look at its history, read ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)'' by Ralph Hidy and Muriel Hidy.

== Mainstream Portrayal ==
Standard Oil has been presented in mainstream history as one of the big ways in which capitalism failed in the Gilded Age and has been presented as proof for the necessity of regulating the free market. It was supposedly a company which used the free market to become too big and used the power to hurt the consumer.
Some of the accusations against Standard Oil are as follows:

=== Destruction of competition ===
Standard Oil was supposed to have used three methods of curtailing competition:

1) Buying up competitors: Standard Oil would buy up its competitors to destroy competition. Many small refiners were allegedly bought up aggressively.

2) Predatory pricing: Standard Oil would cut its prices below those of competitors to destroy their sales and force them to accept buyout proposals.

3) Preferential rail rates: Standard oil would strike deals with railroads to secure lower rail rates for its products over their competitors' products.

=== Monopoly pricing ===
After Standard Oil destroyed its competitors and had monopoly power, it would raise its prices above the market level and extort high rates from consumers

=== Controlling the price of oil ===
Through its size, Standard Oil could control the prices of crude oil.

=== Hidden companies ===
Standard Oil sometimes bought companies and did not publicly announce that they were its holdings.

== Libertarian Response ==
Standard Oil has been much misunderstood, both in its status as capitalist baddie and as a company which used the free market to gain advantage.

A general overview first:

Standard Oil emerged out of a period of cutthroat competition in the 1860s <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 9</ref>. It was a time when many young entrepreneurs tried their hands at the refining business <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 4</ref>. Supply was unstable and prices fluctuated wildly <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 9</ref>. Surface oil stores were tapped quickly for easy profit and then businessmen moved on <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 9</ref>. Standard Oil introduced order to a hectic market. They were able to stabilize prices and supply in an insecure market.

A response to mainstream accusations:
=== Destruction of competition ===
Standard Oil did indeed outcompete many of its competitors

1) Buying up competitors: The majority of Standard Oil buyouts were not aggressive and benefited both parties. As Hidy note, "Tockefeller and his associates ... won the confidence of competitors through comprehensive voluntary association." <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 33</ref>. Many of the former executives of the firms which were bought up were offered high-ranking position in the new company and a guarantee of equality in management <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 34</ref> and were integrated into the management due to their experience in refining and their knowledge of local markets.
The Standard Oil trust was not comprised of one company which had bought out all others. Instead, the Trust was very much a cooperation of different companies {{Citation needed}} which sought to improve their competitive advantage and which still maintained competition even in-between the member companies <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 71</ref>.

Furthermore, it is important to note, as Hidy do, that numerous oilmen successfully resisted pressure to be bought and to be out-competed <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 34</ref>

2) Predatory Pricing: This claim does not stand strongly against either history, sound economic thought, or logic:

- ''History'': There is no evidence for large-scale predatory pricing on the part of Standard Oil {{Citation needed}}. There have been recorded cases of such "price cutting wars," yet most have been initiated by competitors of Standard Oil, not Standard Oil itself {{Citation needed}}.

Furthermore, price cutting has been previously shown to be ineffective (and indeed counter-productive), as seen in the case of Herbert Dow {{Citation needed}}. Dow was selling cheap Bromine in Germany, angering the competing Bromkonvention which decided to retaliate by flooding the US market with below-cost bromine. Dow simply ordered his agents to buy up the cheap bromine and resell it in Germany below Bromkonvention's prices yet still at a profit (relative to the below-cost price), effectively destroying the attempt at predatory pricing.

Sometimes rebates that Standard Oil offered are pointed to as a way to obtain extra customers, yet 1) this is a fair market practice, and 2) competitors were using rebates as well <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 118</ref>

- ''Sound Economic thought'': The idea of predatory pricing begs the question "what qualifies as predatory pricing?" Price cutting by itself is not a negative thing in the market and is indeed how competition works{{Citation needed}}. When companies employ more efficient methods of production, they may lower their prices, thus gaining an advantage on the market. Furthermore, price cutting is an effective and recognized tactic to enter a new market which may already have an existing market power.

- ''Logic'': Predatory pricing fails on the logical front as a tool which simply cannot work to systematically drive out competitors <ref name="DiLorenzoMyth">DiLorenzo, Thomas. "The Myth of Predatory Pricing." Cato Institute Policy Analysis No. 169, 1992. http://www.scribd.com/fullscreen/31267845</ref>. To quote DiLorenzo extensively -

: "In the first place, such practices are very costly for the large firm, which is always assumed to be the predator. If price is set below average cost, the largest firm will incur the largest losses by virtue of having the largest volume of sales. Losing a dollar on each of 1,000 widgets sold per month is more costly than losing a dollar on each of 100 widgets.

: Second, there is great uncertainty about how long a price war would last. The prospect of incurring losses indefinitely in the hope of someday being able to charge monopolistic prices will give any business person pause. A price war is anextremely risky venture. Standard Oil was not the only trust accused of predatory pricing; antitrust folklore has it that virtually all of the late-19th-century trusts were guilty of the practice. However, as I have shown elsewhere, the industries accused of becoming monopolies during the congressional debates on the 1890 Sherman Antitrust Act all dropped their pricesmore rapidly than the general price level fell during the 10 years before the Sherman Act. It would certainly havebeen irrational for those businesses to have engaged in predatory pricing for an entire decade in the dim hope of someday being able to charge prices slightly above the competitive market rate.

: Third, there is nothing stopping the competition (or "prey") from temporarily shutting down and waiting for the priceto return to profitable levels. If that strategy is employed, price competition will render the predatory pricing strategyunprofitable--all loss and no compensatory benefit. Alternatively, even if the preyed-upon firms went bankrupt, otherfirms could purchase their facilities and compete with the alleged predator. Such competition is virtually guaranteed if the predator is charging monopolistic prices and earning above-normal profits.

: Fourth, there is the danger that the price war will spread to surrounding markets and cause the alleged predator to incurlosses in those markets as well.

: Fifth, the theory of predatory pricing assumes the prior existence of a "war chest of monopoly profits" that the predatorcan use to subsidize its practice of pricing below average cost. But how does that war chest come into being if the firmhas not yet become a monopoly? That part of the theory is simply a non sequitur." <ref name="DiLorenzoMyth" />

Furthermore, the idea of predatory pricing only considers the supply side of the equation without taking into account the demand side. Assuming that a company manages by some magical means to use predatory pricing to destroy a few competitors and then institute "monopoly prices" (see below), consumers in other parts of the nation who hear of such behavior must really be of a low mental caliber to buy up the cheaper products of Standard Oil when it comes in the future to their market knowing that this would help Standard Oil destroy competition and institute new high prices.

3) Preferential rail rates: Standard Oil did indeed make deals with railroads for cheaper product transport, as did many of its competitors, hardly making it an unfair market practice. In fact, almost all of the refiners in the country enjoyed some of the advantages of favorable railroad rates at one time or another <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 202</ref>. Railroads were quietly seeking the business of Standard Oil's competitors <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 198</ref>. Hidy note that "In fact, bargaining with railroads was a delicate task and the results were not always satisfactory. ... Once bulk stations had been built on a particular line, Standard Oil marketers could not easily transfer their business to another line and their bargaining capacity was curtailed. ... Standard Oil enjoyed advantages in rates, but the favors were neither so easily come by nor so certain as critics implied." <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 119</ref> Furthermore, if Standard Oil could secure for the railroads a stable inflow of traffic, then this is a legitimate market practice by any standard, as production is streamlined and stabilized. It is also important, as Hidy note, that "Rebates to Standard Oil on crude oil shipments had been virtually eliminated without recourse to legislative enactment." <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 89</ref>

The argument breaks down even more considering that Standard Oil increasingly transported oil through pipelines and not on rails <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 215</ref>.

=== Monopoly pricing ===
The argument that Standard Oil extorted high prices from the public is simply unsupported by evidence. Indeed, the opposite appears to be true: Refined oil prices "fell from over 30 cents per gallon in 1869, to 10 cents in 1874, to 8 cents in 1885, and to 5.9 cents in 1897." <ref>Galles, Gary ''100 Years of Myths about Standard Oil''. Mises Daily. 2011. http://mises.org/daily/5274</ref> Being a large market power, but a market power nonetheless, Standard Oil could not create monopoly prices for fear of competitors springing up to win over dissatisfied customers.

The argument of monopoly pricing further fails when considering substitute goods - alternative goods that customers may buy to achieve the same ends with different means. For example,

: "Coal continued to be a cheaper generator of heat and energy than petroleum. Vegetable and animal oils were used as illuminants and lubricants by the very large segments of the world's population living in relatively unindustrialized countries. ... Tallow and stearine candles constituted strong rivals to those made form paraffin was in some markets. In Europe, especially, artificial gas and later electricity gained on kerosene as a source of light ..." <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 129</ref>

Thus, monopoly prices in kerosene and other products made by Standard Oil would have simply been replaced with substitute goods which Standard Oil did not control.

=== Controlling the price of oil ===
Standard Oil did not control the oil extraction business <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 88</ref>. At the end of its years as a trust it attempted to enter the market but was never a large force on the extraction market. Indeed, it bought its raw material from thousands of producers of crude oil <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 208</ref>. The prices of crude oil were determined on the stock exchange <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 89</ref> and Standard Oil did not speculate on the exchanges <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 88</ref>

=== Hidden companies ===
As Hidy notes, "How hidden the companies actualy were is not known, but the implication of critics was that Standard Oil was putting something over on the public. Standard Oil men certainly disliked the use of the practice by competitors." <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 118</ref>

== The unsung benefits of Standard Oil ==

=== Environmental friendliness/Curtailing of waste ===
Standard Oil came at a time when many of its competitors extracted only one product from oil and moved on without creating byproducts. Standard Oil instead squeezed the most it could out of oil and created numerous products from the products left after the creation of kerosene such as paraffin wax and lubricating oils, which allowed it to decrease its kerosene prices <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 193</ref>. Acid sludge was sold to fertilizer companies instead of the Atlantic Ocean and coke byproducts were either used internally or sold to outside companies <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 192-193</ref>.

=== Quality of products/Self-regulation ===
Standard Oil worked to bring both a higher and more uniform standard of products to the market <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 211</ref><ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 210</ref>. Indeed, it also built better infrastructure than competitors: when constructing its pipelines, it sunk the pipe beneath the earth at least eighteen inches deep, except over solid rock, while some competitors only sank their line when int crossed tilled land. This resulted in whipsawing of the pipes of competitors when cold weather came <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 81</ref>.

Standard Oil also provides an example of market regulations at work. Standard Oil engaged outside experts to investigate complaints and to recommend methods for improvement whenever necessary <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 140</ref>. When there were leaks in its barrels it immediately sealed them and sought out the cause (resulting in environmentally-friendly policies due to a desire to not lose profit). Furthermore, when there were allegations that the company was using inaccurate and fraudulent measurements on its tanks, Standard Oil invited all of the oil exchanges to send delegates to check their measurements. No errors were found, and honesty of Standard Oil's field storage units were never again seriously questioned <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 84</ref>.

=== Building of pipelines===
Standard Oil followed a policy geared to win the good-will of landowners along their right of way and was generous in the prices it paid to private individuals and in adjustments for damages <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 81</ref>.

=== Increased standard of living===
Through its superior quality goods and uniform standards, Standard Oil helped to increase the standard of living in millions of homes using kerosene. Furthermore, in efforts to create new markets, Standard Oil distributed heat stoves, lamps, and other utensils at little or no profit to consumers <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 116</ref>.

== Government influence on Standard Oil ==
Standard Oil's methods were fair, free-market methods, as covered above. However, it is important to note in what ways Standard Oil was in fact made larger than it would have been due to active government intervention in the free market (unlike the mainstream view that the Gilded Age was largely laissez-faire):

=== Patents===
Government granting of patent monopolies shielded Standard Oil from competition. Hidy note that Standard Oil "relied heavily on patent rights to attain an advantage over competitors in cost and quality of products. ... Patents for the mechanical fabrication of cans were practically monopolized by Standard Oil companies." <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 93</ref> Furthermore, "the Standard Oil combination received and fully utilized patents granted by the federal government. That patent monopoly constituted the foundation for the large earnings of several Standard Oil units for more than fifteen years." <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 168</ref> In this manner, government in fact ''granted'' Standard Oil monopolies in small regions (look up "Intellectual Property" for an explanation on why patent monopolies are not free-market tools but instead government intervention in the free market which curtails competition).

=== Tariffs===
Tariffs are another government intervention in the free market which contributed the the size of Standard Oil. There was a consistent tariff on kerosense in the US. In 1865 the kerosene tariff was increased to 40 cents per gallon <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 6</ref>. In 1984, kerosene was placed on the free list, yet with a catch: if another country had a tariff on the goods of the US, then the kerosene tariff on that country was 40 percent. As D.T. Armentano explains, tariffs restrict foreign competition, which is a vital section of the free market (after all, foreign competition is simply business which is outside of the arbitrarily-drawn line of a given country) <ref>Armentano, D.T. ''Monopoly''. Freedom Daily. 1992</ref>. In this way, by preventing possibly more efficient foreign competitors, Standard Oil was shielded from competition and hence from pressure to lower its prices even further. Indeed, abroad Standard Oil was forced to lower its prices to compete with Russian oil <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 139</ref>, yet the protective tariffs prevented the same from occurring in the US. This is another example of government intervention during the Gilded Age distorting market forces and creating inefficient, less competitive scenarios.

== Other important points of note ==

=== Competition ===
While Standard Oil owned 88% of refining business at its height (by no means a monopoly), its market share had already decreased to 64% by 1911 (before the anti-trust case) <ref>DiLorenzo, Thomas. ''The Truth About the "Robber Barons"''. Mises Daily. 2006. http://mises.org/daily/2317#3</ref>. Indeed, many competitors were present and ready to pick up any time that Standard Oil did not meet expectations <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 88</ref><ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 120</ref>. Furthermore, whenever Standard Oil hesitated in taking an action into a new field, competitors sprang up in the new area, as was the case with discovery of the inferior grade Lima oil which would require new processing techniques <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 156</ref>. This suggests that competition was hardly stifled and that Standard Oil retained the top spot thanks to its efficiency and quality (and its size was likely increased by the government ''help'', including patents and tariffs, mentioned above).

=== Trust cohesion ===
It is important to remember that Standard Oil was not a single monolithic company which was run strictly top-down. Indeed, minority interest in different companies had to be considered and Hidy note that "instances are not lacking of objections to recommendations by committees and outright refusal to cooperate on the part of companies, even when 100 percent of their stock was held by the Trust." <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 64</ref> This adds further evidence that Standard Oil survived because of its bending to satisfy many different desires and was always at a risk of member managers breaking off to form new refineries.

== References ==
{{reflist}}

Standard Oil

2011-11-08T23:28:26Z

Wheylous: /* Hidden companies */

'''Standard Oil''' was an American company principally concerned with oil refining to produce kerosene and petroleum byproducts (such as paraffin wax, lubricating oils, and naphtha) from its foundation in 1870 to its breakup by the Supreme Court in the 1911 antitrust case of ''Standard Oil Co. of New Jersey v. United States''.

== History ==
History pending. Meanwhile, consult Wikipedia. Alternatively, for a much more thorough look at its history, read ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)'' by Ralph Hidy and Muriel Hidy.

== Mainstream Portrayal ==
Standard Oil has been presented in mainstream history as one of the big ways in which capitalism failed in the Gilded Age and has been presented as proof for the necessity of regulating the free market. It was supposedly a company which used the free market to become too big and used the power to hurt the consumer.
Some of the accusations against Standard Oil are as follows:

=== Destruction of competition ===
Standard Oil was supposed to have used three methods of curtailing competition:

1) Buying up competitors: Standard Oil would buy up its competitors to destroy competition. Many small refiners were allegedly bought up aggressively.

2) Predatory pricing: Standard Oil would cut its prices below those of competitors to destroy their sales and force them to accept buyout proposals.

3) Preferential rail rates: Standard oil would strike deals with railroads to secure lower rail rates for its products over their competitors' products.

=== Monopoly pricing ===
After Standard Oil destroyed its competitors and had monopoly power, it would raise its prices above the market level and extort high rates from consumers

=== Controlling the price of oil ===
Through its size, Standard Oil could control the prices of crude oil.

=== Hidden companies ===
Standard Oil sometimes bought companies and did not publicly announce that they were its holdings.

== Libertarian Response ==
Standard Oil has been much misunderstood, both in its status as capitalist baddie and as a company which used the free market to gain advantage.

A general overview first:

Standard Oil emerged out of a period of cutthroat competition in the 1860s <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 9</ref>. It was a time when many young entrepreneurs tried their hands at the refining business <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 4</ref>. Supply was unstable and prices fluctuated wildly <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 9</ref>. Surface oil stores were tapped quickly for easy profit and then businessmen moved on <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 9</ref>. Standard Oil introduced order to a hectic market. They were able to stabilize prices and supply in an insecure market.

A response to mainstream accusations:
=== Destruction of competition ===
Standard Oil did indeed outcompete many of its competitors

1) Buying up competitors: The majority of Standard Oil buyouts were not aggressive and benefited both parties. As Hidy note, "Tockefeller and his associates ... won the confidence of competitors through comprehensive voluntary association." <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 33</ref>. Many of the former executives of the firms which were bought up were offered high-ranking position in the new company and a guarantee of equality in management <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 34</ref> and were integrated into the management due to their experience in refining and their knowledge of local markets.
The Standard Oil trust was not comprised of one company which had bought out all others. Instead, the Trust was very much a cooperation of different companies {{Citation needed}} which sought to improve their competitive advantage and which still maintained competition even in-between the member companies <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 71</ref>.

Furthermore, it is important to note, as Hidy do, that numerous oilmen successfully resisted pressure to be bought and to be out-competed <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 34</ref>

2) Predatory Pricing: This claim does not stand strongly against either history, sound economic thought, or logic:

- ''History'': There is no evidence for large-scale predatory pricing on the part of Standard Oil {{Citation needed}}. There have been recorded cases of such "price cutting wars," yet most have been initiated by competitors of Standard Oil, not Standard Oil itself {{Citation needed}}.

Furthermore, price cutting has been previously shown to be ineffective (and indeed counter-productive), as seen in the case of Herbert Dow {{Citation needed}}. Dow was selling cheap Bromine in Germany, angering the competing Bromkonvention which decided to retaliate by flooding the US market with below-cost bromine. Dow simply ordered his agents to buy up the cheap bromine and resell it in Germany below Bromkonvention's prices yet still at a profit (relative to the below-cost price), effectively destroying the attempt at predatory pricing.

Sometimes rebates that Standard Oil offered are pointed to as a way to obtain extra customers, yet 1) this is a fair market practice, and 2) competitors were using rebates as well <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 118</ref>

- ''Sound Economic thought'': The idea of predatory pricing begs the question "what qualifies as predatory pricing?" Price cutting by itself is not a negative thing in the market and is indeed how competition works{{Citation needed}}. When companies employ more efficient methods of production, they may lower their prices, thus gaining an advantage on the market. Furthermore, price cutting is an effective and recognized tactic to enter a new market which may already have an existing market power.

- ''Logic'': Predatory pricing fails on the logical front as a tool which simply cannot work to systematically drive out competitors <ref name="DiLorenzoMyth">DiLorenzo, Thomas. "The Myth of Predatory Pricing." Cato Institute Policy Analysis No. 169, 1992. http://www.scribd.com/fullscreen/31267845</ref>. To quote DiLorenzo extensively -

: "In the first place, such practices are very costly for the large firm, which is always assumed to be the predator. If price is set below average cost, the largest firm will incur the largest losses by virtue of having the largest volume of sales. Losing a dollar on each of 1,000 widgets sold per month is more costly than losing a dollar on each of 100 widgets.

: Second, there is great uncertainty about how long a price war would last. The prospect of incurring losses indefinitely in the hope of someday being able to charge monopolistic prices will give any business person pause. A price war is anextremely risky venture. Standard Oil was not the only trust accused of predatory pricing; antitrust folklore has it that virtually all of the late-19th-century trusts were guilty of the practice. However, as I have shown elsewhere, the industries accused of becoming monopolies during the congressional debates on the 1890 Sherman Antitrust Act all dropped their pricesmore rapidly than the general price level fell during the 10 years before the Sherman Act. It would certainly havebeen irrational for those businesses to have engaged in predatory pricing for an entire decade in the dim hope of someday being able to charge prices slightly above the competitive market rate.

: Third, there is nothing stopping the competition (or "prey") from temporarily shutting down and waiting for the priceto return to profitable levels. If that strategy is employed, price competition will render the predatory pricing strategyunprofitable--all loss and no compensatory benefit. Alternatively, even if the preyed-upon firms went bankrupt, otherfirms could purchase their facilities and compete with the alleged predator. Such competition is virtually guaranteed if the predator is charging monopolistic prices and earning above-normal profits.

: Fourth, there is the danger that the price war will spread to surrounding markets and cause the alleged predator to incurlosses in those markets as well.

: Fifth, the theory of predatory pricing assumes the prior existence of a "war chest of monopoly profits" that the predatorcan use to subsidize its practice of pricing below average cost. But how does that war chest come into being if the firmhas not yet become a monopoly? That part of the theory is simply a non sequitur." <ref name="DiLorenzoMyth" />

Furthermore, the idea of predatory pricing only considers the supply side of the equation without taking into account the demand side. Assuming that a company manages by some magical means to use predatory pricing to destroy a few competitors and then institute "monopoly prices" (see below), consumers in other parts of the nation who hear of such behavior must really be of a low mental caliber to buy up the cheaper products of Standard Oil when it comes in the future to their market knowing that this would help Standard Oil destroy competition and institute new high prices.

3) Preferential rail rates: Standard Oil did indeed make deals with railroads for cheaper product transport, as did many of its competitors, hardly making it an unfair market practice. In fact, almost all of the refiners in the country enjoyed some of the advantages of favorable railroad rates at one time or another <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 202</ref>. Railroads were quietly seeking the business of Standard Oil's competitors <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 198</ref>. Hidy note that "In fact, bargaining with railroads was a delicate task and the results were not always satisfactory. ... Once bulk stations had been built on a particular line, Standard Oil marketers could not easily transfer their business to another line and their bargaining capacity was curtailed. ... Standard Oil enjoyed advantages in rates, but the favors were neither so easily come by nor so certain as critics implied." <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 119</ref> Furthermore, if Standard Oil could secure for the railroads a stable inflow of traffic, then this is a legitimate market practice by any standard, as production is streamlined and stabilized. It is also important, as Hidy note, that "Rebates to Standard Oil on crude oil shipments had been virtually eliminated without recourse to legislative enactment." <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 89</ref>

The argument breaks down even more considering that Standard Oil increasingly transported oil through pipelines and not on rails <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 215</ref>.

=== Monopoly pricing ===
The argument that Standard Oil extorted high prices from the public is simply unsupported by evidence. Indeed, the opposite appears to be true: Refined oil prices "fell from over 30 cents per gallon in 1869, to 10 cents in 1874, to 8 cents in 1885, and to 5.9 cents in 1897." <ref>Galles, Gary ''100 Years of Myths about Standard Oil''. Mises Daily. 2011. http://mises.org/daily/5274</ref> Being a large market power, but a market power nonetheless, Standard Oil could not create monopoly prices for fear of competitors springing up to win over dissatisfied customers.

The argument of monopoly pricing further fails when considering substitute goods - alternative goods that customers may buy to achieve the same ends with different means. For example,

: "Coal continued to be a cheaper generator of heat and energy than petroleum. Vegetable and animal oils were used as illuminants and lubricants by the very large segments of the world's population living in relatively unindustrialized countries. ... Tallow and stearine candles constituted strong rivals to those made form paraffin was in some markets. In Europe, especially, artificial gas and later electricity gained on kerosene as a source of light ..." <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 129</ref>

Thus, monopoly prices in kerosene and other products made by Standard Oil would have simply been replaced with substitute goods which Standard Oil did not control.

=== Controlling the price of oil ===
Standard Oil did not control the oil extraction business <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 88</ref>. At the end of its years as a trust it attempted to enter the market but was never a large force on the extraction market. Indeed, it bought its raw material from thousands of producers of crude oil <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 208</ref>. The prices of crude oil were determined on the stock exchange <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 89</ref> and Standard Oil did not speculate on the exchanges <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 88</ref>

=== Hidden companies ===
As Hidy notes, "How hidden the companies actualy were is not known, but the implication of critics was that Standard Oil was putting something over on the public. Standard Oil men certainly disliked the use of the practice by competitors." <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 118</ref>

== The unsung benefits of Standard Oil ==

=== Environmental friendliness/Curtailing of waste ===
Standard Oil came at a time when many of its competitors extracted only one product from oil and moved on without creating byproducts. Standard Oil instead squeezed the most it could out of oil and created numerous products from the products left after the creation of kerosene such as paraffin wax and lubricating oils, which allowed it to decrease its kerosene prices <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 193</ref>. Acid sludge was sold to fertilizer companies instead of the Atlantic Ocean and coke byproducts were either used internally or sold to outside companies <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 192-193</ref>.

=== Quality of products/Self-regulation ===
Standard Oil worked to bring both a higher and more uniform standard of products to the market <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 211</ref><ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 210</ref>. Indeed, it also built better infrastructure than competitors: when constructing its pipelines, it sunk the pipe beneath the earth at least eighteen inches deep, except over solid rock, while some competitors only sank their line when int crossed tilled land. This resulted in whipsawing of the pipes of competitors when cold weather came <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 81</ref>.

Standard Oil also provides an example of market regulations at work. Standard Oil engaged outside experts to investigate complaints and to recommend methods for improvement whenever necessary <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 140</ref>. When there were leaks in its barrels it immediately sealed them and sought out the cause (resulting in environmentally-friendly policies due to a desire to not lose profit). Furthermore, when there were allegations that the company was using inaccurate and fraudulent measurements on its tanks, Standard Oil invited all of the oil exchanges to send delegates to check their measurements. No errors were found, and honesty of Standard Oil's field storage units were never again seriously questioned <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 84</ref>.

=== Building of pipelines===
Standard Oil followed a policy geared to win the good-will of landowners along their right of way and was generous in the prices it paid to private individuals and in adjustments for damages <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 81</ref>.

=== Increased standard of living===
Through its superior quality goods and uniform standards, Standard Oil helped to increase the standard of living in millions of homes using kerosene. Furthermore, in efforts to create new markets, Standard Oil distributed heat stoves, lamps, and other utensils at little or no profit to consumers <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 116</ref>.

== Government influence on Standard Oil ==
Standard Oil's methods were fair, free-market methods, as covered above. However, it is important to note in what ways Standard Oil was in fact made larger than it would have been due to active government intervention in the free market (unlike the mainstream view that the Gilded Age was largely laissez-faire):

=== Patents===
Government granting of patent monopolies shielded Standard Oil from competition. Hidy note that Standard Oil "relied heavily on patent rights to attain an advantage over competitors in cost and quality of products. ... Patents for the mechanical fabrication of cans were practically monopolized by Standard Oil companies." <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 93</ref> Furthermore, "the Standard Oil combination received and fully utilized patents granted by the federal government. That patent monopoly constituted the foundation for the large earnings of several Standard Oil units for more than fifteen years." <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 168</ref> In this manner, government in fact ''granted'' Standard Oil monopolies in small regions (look up "Intellectual Property" for an explanation on why patent monopolies are not free-market tools but instead government intervention in the free market which curtails competition).

=== Tariffs===
Tariffs are another government intervention in the free market which contributed the the size of Standard Oil. There was a consistent tariff on kerosense in the US. In 1865 the kerosene tariff was increased to 40 cents per gallon <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 6</ref>. In 1984, kerosene was placed on the free list, yet with a catch: if another country had a tariff on the goods of the US, then the kerosene tariff on that country was 40 percent. As D.T. Armentano explains, tariffs restrict foreign competition, which is a vital section of the free market (after all, foreign competition is simply business which is outside of the arbitrarily-drawn line of a given country) <ref>Armentano, D.T. ''Monopoly''. Freedom Daily. 1992</ref>. In this way, by preventing possibly more efficient foreign competitors, Standard Oil was shielded from competition and hence from pressure to lower its prices even further. Indeed, abroad Standard Oil was force to lower its prices to compete with Russian oil <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 139</ref>. The protective tariffs prevented the same from occurring in the US. This is another example of government intervention during the Gilded Age distorting market forces and creating inefficient, less competitive scenarios.

== Other important points of note ==

=== Competition ===
While Standard Oil owned 88% of refining business at its height (by no means a monopoly), its market share had already decreased to 64% by 1911 (before the anti-trust case) <ref>DiLorenzo, Thomas. ''The Truth About the "Robber Barons"''. Mises Daily. 2006. http://mises.org/daily/2317#3</ref>. Indeed, many competitors were present and ready to pick up any time that Standard Oil did not meet expectations <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 88</ref><ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 120</ref>. Furthermore, whenever Standard Oil hesitated in taking an action into a new field, competitors sprang up in the new area, as was the case with discovery of the inferior grade Lima oil which would require new processing techniques <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 156</ref>. This suggests that competition was hardly stifled and that Standard Oil retained the top spot thanks to its efficiency and quality (and its size was likely increased by the government ''help'', including patents and tariffs, mentioned above).

=== Trust cohesion ===
It is important to remember that Standard Oil was not a single monolithic company which was run strictly top-down. Indeed, minority interest in different companies had to be considered and Hidy note that "instances are not lacking of objections to recommendations by committees and outright refusal to cooperate on the part of companies, even when 100 percent of their stock was held by the Trust." <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 64</ref> This adds further evidence that Standard Oil survived because of its bending to satisfy many different desires and was always at a risk of member managers breaking off to form new refineries.

== References ==
{{reflist}}

Standard Oil

2011-11-08T23:26:42Z

Wheylous: /* Monopoly pricing */

'''Standard Oil''' was an American company principally concerned with oil refining to produce kerosene and petroleum byproducts (such as paraffin wax, lubricating oils, and naphtha) from its foundation in 1870 to its breakup by the Supreme Court in the 1911 antitrust case of ''Standard Oil Co. of New Jersey v. United States''.

== History ==
History pending. Meanwhile, consult Wikipedia. Alternatively, for a much more thorough look at its history, read ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)'' by Ralph Hidy and Muriel Hidy.

== Mainstream Portrayal ==
Standard Oil has been presented in mainstream history as one of the big ways in which capitalism failed in the Gilded Age and has been presented as proof for the necessity of regulating the free market. It was supposedly a company which used the free market to become too big and used the power to hurt the consumer.
Some of the accusations against Standard Oil are as follows:

=== Destruction of competition ===
Standard Oil was supposed to have used three methods of curtailing competition:

1) Buying up competitors: Standard Oil would buy up its competitors to destroy competition. Many small refiners were allegedly bought up aggressively.

2) Predatory pricing: Standard Oil would cut its prices below those of competitors to destroy their sales and force them to accept buyout proposals.

3) Preferential rail rates: Standard oil would strike deals with railroads to secure lower rail rates for its products over their competitors' products.

=== Monopoly pricing ===
After Standard Oil destroyed its competitors and had monopoly power, it would raise its prices above the market level and extort high rates from consumers

=== Controlling the price of oil ===
Through its size, Standard Oil could control the prices of crude oil.

=== Hidden companies ===
Standard Oil sometimes bought companies and did not publicly announce that they were its holdings.

== Libertarian Response ==
Standard Oil has been much misunderstood, both in its status as capitalist baddie and as a company which used the free market to gain advantage.

A general overview first:

Standard Oil emerged out of a period of cutthroat competition in the 1860s <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 9</ref>. It was a time when many young entrepreneurs tried their hands at the refining business <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 4</ref>. Supply was unstable and prices fluctuated wildly <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 9</ref>. Surface oil stores were tapped quickly for easy profit and then businessmen moved on <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 9</ref>. Standard Oil introduced order to a hectic market. They were able to stabilize prices and supply in an insecure market.

A response to mainstream accusations:
=== Destruction of competition ===
Standard Oil did indeed outcompete many of its competitors

1) Buying up competitors: The majority of Standard Oil buyouts were not aggressive and benefited both parties. As Hidy note, "Tockefeller and his associates ... won the confidence of competitors through comprehensive voluntary association." <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 33</ref>. Many of the former executives of the firms which were bought up were offered high-ranking position in the new company and a guarantee of equality in management <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 34</ref> and were integrated into the management due to their experience in refining and their knowledge of local markets.
The Standard Oil trust was not comprised of one company which had bought out all others. Instead, the Trust was very much a cooperation of different companies {{Citation needed}} which sought to improve their competitive advantage and which still maintained competition even in-between the member companies <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 71</ref>.

Furthermore, it is important to note, as Hidy do, that numerous oilmen successfully resisted pressure to be bought and to be out-competed <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 34</ref>

2) Predatory Pricing: This claim does not stand strongly against either history, sound economic thought, or logic:

- ''History'': There is no evidence for large-scale predatory pricing on the part of Standard Oil {{Citation needed}}. There have been recorded cases of such "price cutting wars," yet most have been initiated by competitors of Standard Oil, not Standard Oil itself {{Citation needed}}.

Furthermore, price cutting has been previously shown to be ineffective (and indeed counter-productive), as seen in the case of Herbert Dow {{Citation needed}}. Dow was selling cheap Bromine in Germany, angering the competing Bromkonvention which decided to retaliate by flooding the US market with below-cost bromine. Dow simply ordered his agents to buy up the cheap bromine and resell it in Germany below Bromkonvention's prices yet still at a profit (relative to the below-cost price), effectively destroying the attempt at predatory pricing.

Sometimes rebates that Standard Oil offered are pointed to as a way to obtain extra customers, yet 1) this is a fair market practice, and 2) competitors were using rebates as well <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 118</ref>

- ''Sound Economic thought'': The idea of predatory pricing begs the question "what qualifies as predatory pricing?" Price cutting by itself is not a negative thing in the market and is indeed how competition works{{Citation needed}}. When companies employ more efficient methods of production, they may lower their prices, thus gaining an advantage on the market. Furthermore, price cutting is an effective and recognized tactic to enter a new market which may already have an existing market power.

- ''Logic'': Predatory pricing fails on the logical front as a tool which simply cannot work to systematically drive out competitors <ref name="DiLorenzoMyth">DiLorenzo, Thomas. "The Myth of Predatory Pricing." Cato Institute Policy Analysis No. 169, 1992. http://www.scribd.com/fullscreen/31267845</ref>. To quote DiLorenzo extensively -

: "In the first place, such practices are very costly for the large firm, which is always assumed to be the predator. If price is set below average cost, the largest firm will incur the largest losses by virtue of having the largest volume of sales. Losing a dollar on each of 1,000 widgets sold per month is more costly than losing a dollar on each of 100 widgets.

: Second, there is great uncertainty about how long a price war would last. The prospect of incurring losses indefinitely in the hope of someday being able to charge monopolistic prices will give any business person pause. A price war is anextremely risky venture. Standard Oil was not the only trust accused of predatory pricing; antitrust folklore has it that virtually all of the late-19th-century trusts were guilty of the practice. However, as I have shown elsewhere, the industries accused of becoming monopolies during the congressional debates on the 1890 Sherman Antitrust Act all dropped their pricesmore rapidly than the general price level fell during the 10 years before the Sherman Act. It would certainly havebeen irrational for those businesses to have engaged in predatory pricing for an entire decade in the dim hope of someday being able to charge prices slightly above the competitive market rate.

: Third, there is nothing stopping the competition (or "prey") from temporarily shutting down and waiting for the priceto return to profitable levels. If that strategy is employed, price competition will render the predatory pricing strategyunprofitable--all loss and no compensatory benefit. Alternatively, even if the preyed-upon firms went bankrupt, otherfirms could purchase their facilities and compete with the alleged predator. Such competition is virtually guaranteed if the predator is charging monopolistic prices and earning above-normal profits.

: Fourth, there is the danger that the price war will spread to surrounding markets and cause the alleged predator to incurlosses in those markets as well.

: Fifth, the theory of predatory pricing assumes the prior existence of a "war chest of monopoly profits" that the predatorcan use to subsidize its practice of pricing below average cost. But how does that war chest come into being if the firmhas not yet become a monopoly? That part of the theory is simply a non sequitur." <ref name="DiLorenzoMyth" />

Furthermore, the idea of predatory pricing only considers the supply side of the equation without taking into account the demand side. Assuming that a company manages by some magical means to use predatory pricing to destroy a few competitors and then institute "monopoly prices" (see below), consumers in other parts of the nation who hear of such behavior must really be of a low mental caliber to buy up the cheaper products of Standard Oil when it comes in the future to their market knowing that this would help Standard Oil destroy competition and institute new high prices.

3) Preferential rail rates: Standard Oil did indeed make deals with railroads for cheaper product transport, as did many of its competitors, hardly making it an unfair market practice. In fact, almost all of the refiners in the country enjoyed some of the advantages of favorable railroad rates at one time or another <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 202</ref>. Railroads were quietly seeking the business of Standard Oil's competitors <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 198</ref>. Hidy note that "In fact, bargaining with railroads was a delicate task and the results were not always satisfactory. ... Once bulk stations had been built on a particular line, Standard Oil marketers could not easily transfer their business to another line and their bargaining capacity was curtailed. ... Standard Oil enjoyed advantages in rates, but the favors were neither so easily come by nor so certain as critics implied." <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 119</ref> Furthermore, if Standard Oil could secure for the railroads a stable inflow of traffic, then this is a legitimate market practice by any standard, as production is streamlined and stabilized. It is also important, as Hidy note, that "Rebates to Standard Oil on crude oil shipments had been virtually eliminated without recourse to legislative enactment." <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 89</ref>

The argument breaks down even more considering that Standard Oil increasingly transported oil through pipelines and not on rails <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 215</ref>.

=== Monopoly pricing ===
The argument that Standard Oil extorted high prices from the public is simply unsupported by evidence. Indeed, the opposite appears to be true: Refined oil prices "fell from over 30 cents per gallon in 1869, to 10 cents in 1874, to 8 cents in 1885, and to 5.9 cents in 1897." <ref>Galles, Gary ''100 Years of Myths about Standard Oil''. Mises Daily. 2011. http://mises.org/daily/5274</ref> Being a large market power, but a market power nonetheless, Standard Oil could not create monopoly prices for fear of competitors springing up to win over dissatisfied customers.

The argument of monopoly pricing further fails when considering substitute goods - alternative goods that customers may buy to achieve the same ends with different means. For example,

: "Coal continued to be a cheaper generator of heat and energy than petroleum. Vegetable and animal oils were used as illuminants and lubricants by the very large segments of the world's population living in relatively unindustrialized countries. ... Tallow and stearine candles constituted strong rivals to those made form paraffin was in some markets. In Europe, especially, artificial gas and later electricity gained on kerosene as a source of light ..." <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 129</ref>

Thus, monopoly prices in kerosene and other products made by Standard Oil would have simply been replaced with substitute goods which Standard Oil did not control.

=== Controlling the price of oil ===
Standard Oil did not control the oil extraction business <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 88</ref>. At the end of its years as a trust it attempted to enter the market but was never a large force on the extraction market. Indeed, it bought its raw material from thousands of producers of crude oil <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 208</ref>. The prices of crude oil were determined on the stock exchange <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 89</ref> and Standard Oil did not speculate on the exchanges <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 88</ref>

=== Hidden companies ===
As Hidy notes, "How hidden the companies actualy were is not known, but the implcation of critics was that Standard Oil was putting something over on the public. Standard Oil men certainly disliked the use of the practice by competitors." <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 118</ref>

== The unsung benefits of Standard Oil ==

=== Environmental friendliness/Curtailing of waste ===
Standard Oil came at a time when many of its competitors extracted only one product from oil and moved on without creating byproducts. Standard Oil instead squeezed the most it could out of oil and created numerous products from the products left after the creation of kerosene such as paraffin wax and lubricating oils, which allowed it to decrease its kerosene prices <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 193</ref>. Acid sludge was sold to fertilizer companies instead of the Atlantic Ocean and coke byproducts were either used internally or sold to outside companies <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 192-193</ref>.

=== Quality of products/Self-regulation ===
Standard Oil worked to bring both a higher and more uniform standard of products to the market <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 211</ref><ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 210</ref>. Indeed, it also built better infrastructure than competitors: when constructing its pipelines, it sunk the pipe beneath the earth at least eighteen inches deep, except over solid rock, while some competitors only sank their line when int crossed tilled land. This resulted in whipsawing of the pipes of competitors when cold weather came <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 81</ref>.

Standard Oil also provides an example of market regulations at work. Standard Oil engaged outside experts to investigate complaints and to recommend methods for improvement whenever necessary <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 140</ref>. When there were leaks in its barrels it immediately sealed them and sought out the cause (resulting in environmentally-friendly policies due to a desire to not lose profit). Furthermore, when there were allegations that the company was using inaccurate and fraudulent measurements on its tanks, Standard Oil invited all of the oil exchanges to send delegates to check their measurements. No errors were found, and honesty of Standard Oil's field storage units were never again seriously questioned <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 84</ref>.

=== Building of pipelines===
Standard Oil followed a policy geared to win the good-will of landowners along their right of way and was generous in the prices it paid to private individuals and in adjustments for damages <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 81</ref>.

=== Increased standard of living===
Through its superior quality goods and uniform standards, Standard Oil helped to increase the standard of living in millions of homes using kerosene. Furthermore, in efforts to create new markets, Standard Oil distributed heat stoves, lamps, and other utensils at little or no profit to consumers <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 116</ref>.

== Government influence on Standard Oil ==
Standard Oil's methods were fair, free-market methods, as covered above. However, it is important to note in what ways Standard Oil was in fact made larger than it would have been due to active government intervention in the free market (unlike the mainstream view that the Gilded Age was largely laissez-faire):

=== Patents===
Government granting of patent monopolies shielded Standard Oil from competition. Hidy note that Standard Oil "relied heavily on patent rights to attain an advantage over competitors in cost and quality of products. ... Patents for the mechanical fabrication of cans were practically monopolized by Standard Oil companies." <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 93</ref> Furthermore, "the Standard Oil combination received and fully utilized patents granted by the federal government. That patent monopoly constituted the foundation for the large earnings of several Standard Oil units for more than fifteen years." <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 168</ref> In this manner, government in fact ''granted'' Standard Oil monopolies in small regions (look up "Intellectual Property" for an explanation on why patent monopolies are not free-market tools but instead government intervention in the free market which curtails competition).

=== Tariffs===
Tariffs are another government intervention in the free market which contributed the the size of Standard Oil. There was a consistent tariff on kerosense in the US. In 1865 the kerosene tariff was increased to 40 cents per gallon <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 6</ref>. In 1984, kerosene was placed on the free list, yet with a catch: if another country had a tariff on the goods of the US, then the kerosene tariff on that country was 40 percent. As D.T. Armentano explains, tariffs restrict foreign competition, which is a vital section of the free market (after all, foreign competition is simply business which is outside of the arbitrarily-drawn line of a given country) <ref>Armentano, D.T. ''Monopoly''. Freedom Daily. 1992</ref>. In this way, by preventing possibly more efficient foreign competitors, Standard Oil was shielded from competition and hence from pressure to lower its prices even further. Indeed, abroad Standard Oil was force to lower its prices to compete with Russian oil <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 139</ref>. The protective tariffs prevented the same from occurring in the US. This is another example of government intervention during the Gilded Age distorting market forces and creating inefficient, less competitive scenarios.

== Other important points of note ==

=== Competition ===
While Standard Oil owned 88% of refining business at its height (by no means a monopoly), its market share had already decreased to 64% by 1911 (before the anti-trust case) <ref>DiLorenzo, Thomas. ''The Truth About the "Robber Barons"''. Mises Daily. 2006. http://mises.org/daily/2317#3</ref>. Indeed, many competitors were present and ready to pick up any time that Standard Oil did not meet expectations <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 88</ref><ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 120</ref>. Furthermore, whenever Standard Oil hesitated in taking an action into a new field, competitors sprang up in the new area, as was the case with discovery of the inferior grade Lima oil which would require new processing techniques <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 156</ref>. This suggests that competition was hardly stifled and that Standard Oil retained the top spot thanks to its efficiency and quality (and its size was likely increased by the government ''help'', including patents and tariffs, mentioned above).

=== Trust cohesion ===
It is important to remember that Standard Oil was not a single monolithic company which was run strictly top-down. Indeed, minority interest in different companies had to be considered and Hidy note that "instances are not lacking of objections to recommendations by committees and outright refusal to cooperate on the part of companies, even when 100 percent of their stock was held by the Trust." <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 64</ref> This adds further evidence that Standard Oil survived because of its bending to satisfy many different desires and was always at a risk of member managers breaking off to form new refineries.

== References ==
{{reflist}}

Standard Oil

2011-11-08T23:24:48Z

Wheylous: /* Destruction of competition */

'''Standard Oil''' was an American company principally concerned with oil refining to produce kerosene and petroleum byproducts (such as paraffin wax, lubricating oils, and naphtha) from its foundation in 1870 to its breakup by the Supreme Court in the 1911 antitrust case of ''Standard Oil Co. of New Jersey v. United States''.

== History ==
History pending. Meanwhile, consult Wikipedia. Alternatively, for a much more thorough look at its history, read ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)'' by Ralph Hidy and Muriel Hidy.

== Mainstream Portrayal ==
Standard Oil has been presented in mainstream history as one of the big ways in which capitalism failed in the Gilded Age and has been presented as proof for the necessity of regulating the free market. It was supposedly a company which used the free market to become too big and used the power to hurt the consumer.
Some of the accusations against Standard Oil are as follows:

=== Destruction of competition ===
Standard Oil was supposed to have used three methods of curtailing competition:

1) Buying up competitors: Standard Oil would buy up its competitors to destroy competition. Many small refiners were allegedly bought up aggressively.

2) Predatory pricing: Standard Oil would cut its prices below those of competitors to destroy their sales and force them to accept buyout proposals.

3) Preferential rail rates: Standard oil would strike deals with railroads to secure lower rail rates for its products over their competitors' products.

=== Monopoly pricing ===
After Standard Oil destroyed its competitors and had monopoly power, it would raise its prices above the market level and extort high rates from consumers

=== Controlling the price of oil ===
Through its size, Standard Oil could control the prices of crude oil.

=== Hidden companies ===
Standard Oil sometimes bought companies and did not publicly announce that they were its holdings.

== Libertarian Response ==
Standard Oil has been much misunderstood, both in its status as capitalist baddie and as a company which used the free market to gain advantage.

A general overview first:

Standard Oil emerged out of a period of cutthroat competition in the 1860s <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 9</ref>. It was a time when many young entrepreneurs tried their hands at the refining business <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 4</ref>. Supply was unstable and prices fluctuated wildly <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 9</ref>. Surface oil stores were tapped quickly for easy profit and then businessmen moved on <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 9</ref>. Standard Oil introduced order to a hectic market. They were able to stabilize prices and supply in an insecure market.

A response to mainstream accusations:
=== Destruction of competition ===
Standard Oil did indeed outcompete many of its competitors

1) Buying up competitors: The majority of Standard Oil buyouts were not aggressive and benefited both parties. As Hidy note, "Tockefeller and his associates ... won the confidence of competitors through comprehensive voluntary association." <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 33</ref>. Many of the former executives of the firms which were bought up were offered high-ranking position in the new company and a guarantee of equality in management <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 34</ref> and were integrated into the management due to their experience in refining and their knowledge of local markets.
The Standard Oil trust was not comprised of one company which had bought out all others. Instead, the Trust was very much a cooperation of different companies {{Citation needed}} which sought to improve their competitive advantage and which still maintained competition even in-between the member companies <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 71</ref>.

Furthermore, it is important to note, as Hidy do, that numerous oilmen successfully resisted pressure to be bought and to be out-competed <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 34</ref>

2) Predatory Pricing: This claim does not stand strongly against either history, sound economic thought, or logic:

- ''History'': There is no evidence for large-scale predatory pricing on the part of Standard Oil {{Citation needed}}. There have been recorded cases of such "price cutting wars," yet most have been initiated by competitors of Standard Oil, not Standard Oil itself {{Citation needed}}.

Furthermore, price cutting has been previously shown to be ineffective (and indeed counter-productive), as seen in the case of Herbert Dow {{Citation needed}}. Dow was selling cheap Bromine in Germany, angering the competing Bromkonvention which decided to retaliate by flooding the US market with below-cost bromine. Dow simply ordered his agents to buy up the cheap bromine and resell it in Germany below Bromkonvention's prices yet still at a profit (relative to the below-cost price), effectively destroying the attempt at predatory pricing.

Sometimes rebates that Standard Oil offered are pointed to as a way to obtain extra customers, yet 1) this is a fair market practice, and 2) competitors were using rebates as well <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 118</ref>

- ''Sound Economic thought'': The idea of predatory pricing begs the question "what qualifies as predatory pricing?" Price cutting by itself is not a negative thing in the market and is indeed how competition works{{Citation needed}}. When companies employ more efficient methods of production, they may lower their prices, thus gaining an advantage on the market. Furthermore, price cutting is an effective and recognized tactic to enter a new market which may already have an existing market power.

- ''Logic'': Predatory pricing fails on the logical front as a tool which simply cannot work to systematically drive out competitors <ref name="DiLorenzoMyth">DiLorenzo, Thomas. "The Myth of Predatory Pricing." Cato Institute Policy Analysis No. 169, 1992. http://www.scribd.com/fullscreen/31267845</ref>. To quote DiLorenzo extensively -

: "In the first place, such practices are very costly for the large firm, which is always assumed to be the predator. If price is set below average cost, the largest firm will incur the largest losses by virtue of having the largest volume of sales. Losing a dollar on each of 1,000 widgets sold per month is more costly than losing a dollar on each of 100 widgets.

: Second, there is great uncertainty about how long a price war would last. The prospect of incurring losses indefinitely in the hope of someday being able to charge monopolistic prices will give any business person pause. A price war is anextremely risky venture. Standard Oil was not the only trust accused of predatory pricing; antitrust folklore has it that virtually all of the late-19th-century trusts were guilty of the practice. However, as I have shown elsewhere, the industries accused of becoming monopolies during the congressional debates on the 1890 Sherman Antitrust Act all dropped their pricesmore rapidly than the general price level fell during the 10 years before the Sherman Act. It would certainly havebeen irrational for those businesses to have engaged in predatory pricing for an entire decade in the dim hope of someday being able to charge prices slightly above the competitive market rate.

: Third, there is nothing stopping the competition (or "prey") from temporarily shutting down and waiting for the priceto return to profitable levels. If that strategy is employed, price competition will render the predatory pricing strategyunprofitable--all loss and no compensatory benefit. Alternatively, even if the preyed-upon firms went bankrupt, otherfirms could purchase their facilities and compete with the alleged predator. Such competition is virtually guaranteed if the predator is charging monopolistic prices and earning above-normal profits.

: Fourth, there is the danger that the price war will spread to surrounding markets and cause the alleged predator to incurlosses in those markets as well.

: Fifth, the theory of predatory pricing assumes the prior existence of a "war chest of monopoly profits" that the predatorcan use to subsidize its practice of pricing below average cost. But how does that war chest come into being if the firmhas not yet become a monopoly? That part of the theory is simply a non sequitur." <ref name="DiLorenzoMyth" />

Furthermore, the idea of predatory pricing only considers the supply side of the equation without taking into account the demand side. Assuming that a company manages by some magical means to use predatory pricing to destroy a few competitors and then institute "monopoly prices" (see below), consumers in other parts of the nation who hear of such behavior must really be of a low mental caliber to buy up the cheaper products of Standard Oil when it comes in the future to their market knowing that this would help Standard Oil destroy competition and institute new high prices.

3) Preferential rail rates: Standard Oil did indeed make deals with railroads for cheaper product transport, as did many of its competitors, hardly making it an unfair market practice. In fact, almost all of the refiners in the country enjoyed some of the advantages of favorable railroad rates at one time or another <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 202</ref>. Railroads were quietly seeking the business of Standard Oil's competitors <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 198</ref>. Hidy note that "In fact, bargaining with railroads was a delicate task and the results were not always satisfactory. ... Once bulk stations had been built on a particular line, Standard Oil marketers could not easily transfer their business to another line and their bargaining capacity was curtailed. ... Standard Oil enjoyed advantages in rates, but the favors were neither so easily come by nor so certain as critics implied." <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 119</ref> Furthermore, if Standard Oil could secure for the railroads a stable inflow of traffic, then this is a legitimate market practice by any standard, as production is streamlined and stabilized. It is also important, as Hidy note, that "Rebates to Standard Oil on crude oil shipments had been virtually eliminated without recourse to legislative enactment." <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 89</ref>

The argument breaks down even more considering that Standard Oil increasingly transported oil through pipelines and not on rails <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 215</ref>.

=== Monopoly pricing ===
The argument that Standard Oil extorted high prices from the public is simply unsupported by evidence. Indeed, the opposite appears to be true: Refine oil prices "fell from over 30 cents per gallon in 1869, to 10 cents in 1874, to 8 cents in 1885, and to 5.9 cents in 1897." <ref>Galles, Gary ''100 Years of Myths about Standard Oil''. Mises Daily. 2011. http://mises.org/daily/5274</ref> Being a large market power, but a market power nonetheless, Standard Oil could not create monopoly prices for fear of competitors springing up to win over dissatisfied customers.

The argument of monopoly pricing further fails when considering substitute goods - alternative goods that customers may buy to achieve the same ends with different means. For example,

: "Coal continued to be a cheaper generator of heat and energy than petroleum. Vegetable and animal oils were used as illuminants and lubricants by the very large segments of the world's population living in relatively unindustrialized countries. ... Tallow and stearine candles constituted strong rivals to those made form paraffin was in some markets. In Europe, especially, artificial gas and later electricity gained on kerosene as a source of light ..." <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 129</ref>

Thus, monopoly prices in kerosene and other products made by Standard Oil would have simply been replaced with substitute goods which Standard Oil did not control.

=== Controlling the price of oil ===
Standard Oil did not control the oil extraction business <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 88</ref>. At the end of its years as a trust it attempted to enter the market but was never a large force on the extraction market. Indeed, it bought its raw material from thousands of producers of crude oil <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 208</ref>. The prices of crude oil were determined on the stock exchange <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 89</ref> and Standard Oil did not speculate on the exchanges <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 88</ref>

=== Hidden companies ===
As Hidy notes, "How hidden the companies actualy were is not known, but the implcation of critics was that Standard Oil was putting something over on the public. Standard Oil men certainly disliked the use of the practice by competitors." <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 118</ref>

== The unsung benefits of Standard Oil ==

=== Environmental friendliness/Curtailing of waste ===
Standard Oil came at a time when many of its competitors extracted only one product from oil and moved on without creating byproducts. Standard Oil instead squeezed the most it could out of oil and created numerous products from the products left after the creation of kerosene such as paraffin wax and lubricating oils, which allowed it to decrease its kerosene prices <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 193</ref>. Acid sludge was sold to fertilizer companies instead of the Atlantic Ocean and coke byproducts were either used internally or sold to outside companies <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 192-193</ref>.

=== Quality of products/Self-regulation ===
Standard Oil worked to bring both a higher and more uniform standard of products to the market <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 211</ref><ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 210</ref>. Indeed, it also built better infrastructure than competitors: when constructing its pipelines, it sunk the pipe beneath the earth at least eighteen inches deep, except over solid rock, while some competitors only sank their line when int crossed tilled land. This resulted in whipsawing of the pipes of competitors when cold weather came <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 81</ref>.

Standard Oil also provides an example of market regulations at work. Standard Oil engaged outside experts to investigate complaints and to recommend methods for improvement whenever necessary <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 140</ref>. When there were leaks in its barrels it immediately sealed them and sought out the cause (resulting in environmentally-friendly policies due to a desire to not lose profit). Furthermore, when there were allegations that the company was using inaccurate and fraudulent measurements on its tanks, Standard Oil invited all of the oil exchanges to send delegates to check their measurements. No errors were found, and honesty of Standard Oil's field storage units were never again seriously questioned <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 84</ref>.

=== Building of pipelines===
Standard Oil followed a policy geared to win the good-will of landowners along their right of way and was generous in the prices it paid to private individuals and in adjustments for damages <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 81</ref>.

=== Increased standard of living===
Through its superior quality goods and uniform standards, Standard Oil helped to increase the standard of living in millions of homes using kerosene. Furthermore, in efforts to create new markets, Standard Oil distributed heat stoves, lamps, and other utensils at little or no profit to consumers <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 116</ref>.

== Government influence on Standard Oil ==
Standard Oil's methods were fair, free-market methods, as covered above. However, it is important to note in what ways Standard Oil was in fact made larger than it would have been due to active government intervention in the free market (unlike the mainstream view that the Gilded Age was largely laissez-faire):

=== Patents===
Government granting of patent monopolies shielded Standard Oil from competition. Hidy note that Standard Oil "relied heavily on patent rights to attain an advantage over competitors in cost and quality of products. ... Patents for the mechanical fabrication of cans were practically monopolized by Standard Oil companies." <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 93</ref> Furthermore, "the Standard Oil combination received and fully utilized patents granted by the federal government. That patent monopoly constituted the foundation for the large earnings of several Standard Oil units for more than fifteen years." <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 168</ref> In this manner, government in fact ''granted'' Standard Oil monopolies in small regions (look up "Intellectual Property" for an explanation on why patent monopolies are not free-market tools but instead government intervention in the free market which curtails competition).

=== Tariffs===
Tariffs are another government intervention in the free market which contributed the the size of Standard Oil. There was a consistent tariff on kerosense in the US. In 1865 the kerosene tariff was increased to 40 cents per gallon <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 6</ref>. In 1984, kerosene was placed on the free list, yet with a catch: if another country had a tariff on the goods of the US, then the kerosene tariff on that country was 40 percent. As D.T. Armentano explains, tariffs restrict foreign competition, which is a vital section of the free market (after all, foreign competition is simply business which is outside of the arbitrarily-drawn line of a given country) <ref>Armentano, D.T. ''Monopoly''. Freedom Daily. 1992</ref>. In this way, by preventing possibly more efficient foreign competitors, Standard Oil was shielded from competition and hence from pressure to lower its prices even further. Indeed, abroad Standard Oil was force to lower its prices to compete with Russian oil <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 139</ref>. The protective tariffs prevented the same from occurring in the US. This is another example of government intervention during the Gilded Age distorting market forces and creating inefficient, less competitive scenarios.

== Other important points of note ==

=== Competition ===
While Standard Oil owned 88% of refining business at its height (by no means a monopoly), its market share had already decreased to 64% by 1911 (before the anti-trust case) <ref>DiLorenzo, Thomas. ''The Truth About the "Robber Barons"''. Mises Daily. 2006. http://mises.org/daily/2317#3</ref>. Indeed, many competitors were present and ready to pick up any time that Standard Oil did not meet expectations <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 88</ref><ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 120</ref>. Furthermore, whenever Standard Oil hesitated in taking an action into a new field, competitors sprang up in the new area, as was the case with discovery of the inferior grade Lima oil which would require new processing techniques <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 156</ref>. This suggests that competition was hardly stifled and that Standard Oil retained the top spot thanks to its efficiency and quality (and its size was likely increased by the government ''help'', including patents and tariffs, mentioned above).

=== Trust cohesion ===
It is important to remember that Standard Oil was not a single monolithic company which was run strictly top-down. Indeed, minority interest in different companies had to be considered and Hidy note that "instances are not lacking of objections to recommendations by committees and outright refusal to cooperate on the part of companies, even when 100 percent of their stock was held by the Trust." <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 64</ref> This adds further evidence that Standard Oil survived because of its bending to satisfy many different desires and was always at a risk of member managers breaking off to form new refineries.

== References ==
{{reflist}}

Standard Oil

2011-11-08T23:22:49Z

Wheylous: /* Libertarian Response */

'''Standard Oil''' was an American company principally concerned with oil refining to produce kerosene and petroleum byproducts (such as paraffin wax, lubricating oils, and naphtha) from its foundation in 1870 to its breakup by the Supreme Court in the 1911 antitrust case of ''Standard Oil Co. of New Jersey v. United States''.

== History ==
History pending. Meanwhile, consult Wikipedia. Alternatively, for a much more thorough look at its history, read ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)'' by Ralph Hidy and Muriel Hidy.

== Mainstream Portrayal ==
Standard Oil has been presented in mainstream history as one of the big ways in which capitalism failed in the Gilded Age and has been presented as proof for the necessity of regulating the free market. It was supposedly a company which used the free market to become too big and used the power to hurt the consumer.
Some of the accusations against Standard Oil are as follows:

=== Destruction of competition ===
Standard Oil was supposed to have used three methods of curtailing competition:

1) Buying up competitors: Standard Oil would buy up its competitors to destroy competition. Many small refiners were allegedly bought up aggressively.

2) Predatory pricing: Standard Oil would cut its prices below those of competitors to destroy their sales and force them to accept buyout proposals.

3) Preferential rail rates: Standard oil would strike deals with railroads to secure lower rail rates for its products over their competitors' products.

=== Monopoly pricing ===
After Standard Oil destroyed its competitors and had monopoly power, it would raise its prices above the market level and extort high rates from consumers

=== Controlling the price of oil ===
Through its size, Standard Oil could control the prices of crude oil.

=== Hidden companies ===
Standard Oil sometimes bought companies and did not publicly announce that they were its holdings.

== Libertarian Response ==
Standard Oil has been much misunderstood, both in its status as capitalist baddie and as a company which used the free market to gain advantage.

A general overview first:

Standard Oil emerged out of a period of cutthroat competition in the 1860s <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 9</ref>. It was a time when many young entrepreneurs tried their hands at the refining business <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 4</ref>. Supply was unstable and prices fluctuated wildly <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 9</ref>. Surface oil stores were tapped quickly for easy profit and then businessmen moved on <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 9</ref>. Standard Oil introduced order to a hectic market. They were able to stabilize prices and supply in an insecure market.

A response to mainstream accusations:
=== Destruction of competition ===
Standard Oil did indeed outcompete many of its competitors

1) Buying up competitors: The majority of Standard Oil buyouts were not aggressive and benefited both parties. As Hidy note, "Tockefeller and his associates ... won the confidence of competitors through comprehensive voluntary association." <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 33</ref>. Many of the former executives of the firms which were bought up were offered high-ranking position in the new company and a guarantee of equality in management <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 34</ref> and were integrated into the management due to their experience in refining and their knowledge of local markets.
The Standard Oil trust was not comprised of one company which had bought out all others. Instead, the Trust was very much a cooperation of different companies {{Citation needed}} which sought to improve their competitive advantage and which still maintained competition even in-between the member companies <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 71</ref>.

Furthermore, it is important to note, as Hidy do, that numerous oilmen successfully resisted pressure to be bought and to be out-competed <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 34</ref>

2) Predatory Pricing: This claim does not stand strongly against either history, sound economic thought, or logic:

- ''History'': There is no evidence for large-scale predatory pricing on the part of Standard Oil {{Citation needed}}. There have been recorded cases of such "price cutting wars," yet most have been initiated by competitors of Standard Oil, not Standard Oil itself {{Citation needed}}.

Furthermore, price cutting has been previously shown to be ineffective (and indeed counter-productive), as seen in the case of Herbert Dow {{Citation needed}}. Dow was selling cheap Bromine in Germany, angering the competing Bromkonvention which decided to retaliate by flooding the US market with below-cost bromine. Dow simply ordered his agents to buy up the cheap bromine and resell it in Germany below Bromkonvention's prices yet still at a profit (relative to the below-cost price), effectively destroying the attempt at predatory pricing.

Sometimes rebates that Standard Oil offered are pointed to as a way to obtain extra customers, yet 1) this is a fair market practice, and 2) competitors were using rebates as well <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 118</ref>

- ''Sound Economic thought'': The idea of predatory pricing begs the question "what qualifies as predatory pricing?" Price cutting by itself is not a negative thing in the market and is indeed how competition works{{Citation needed}}. When companies employ more efficient methods of production, they may lower their prices, thus gaining an advantage on the market. Furthermore, price cutting is an effective and recognized tactic to enter a new market which may already have an existing market power.

- ''Logic'': Predatory pricing fails on the logical front as a tool which simply cannot work to systematically drive out competitors <ref name="DiLorenzoMyth">DiLorenzo, Thomas. "The Myth of Predatory Pricing." Cato Institute Policy Analysis No. 169, 1992. http://www.scribd.com/fullscreen/31267845</ref>. To quote DiLorenzo extensively -

: "In the first place, such practices are very costly for the large firm, which is always assumed to be the predator. If price is set below average cost, the largest firm will incur the largest losses by virtue of having the largest volume of sales. Losing a dollar on each of 1,000 widgets sold per month is more costly than losing a dollar on each of 100 widgets.

: Second, there is great uncertainty about how long a price war would last. The prospect of incurring losses indefinitely in the hope of someday being able to charge monopolistic prices will give any business person pause. A price war is anextremely risky venture. Standard Oil was not the only trust accused of predatory pricing; antitrust folklore has it that virtually all of the late-19th-century trusts were guilty of the practice. However, as I have shown elsewhere, the industries accused of becoming monopolies during the congressional debates on the 1890 Sherman Antitrust Act all dropped their pricesmore rapidly than the general price level fell during the 10 years before the Sherman Act. It would certainly havebeen irrational for those businesses to have engaged in predatory pricing for an entire decade in the dim hope of someday being able to charge prices slightly above the competitive market rate.

: Third, there is nothing stopping the competition (or "prey") from temporarily shutting down and waiting for the priceto return to profitable levels. If that strategy is employed, price competition will render the predatory pricing strategyunprofitable--all loss and no compensatory benefit. Alternatively, even if the preyed-upon firms went bankrupt, otherfirms could purchase their facilities and compete with the alleged predator. Such competition is virtually guaranteed if the predator is charging monopolistic prices and earning above-normal profits.

: Fourth, there is the danger that the price war will spread to surrounding markets and cause the alleged predator to incurlosses in those markets as well.

: Fifth, the theory of predatory pricing assumes the prior existence of a "war chest of monopoly profits" that the predatorcan use to subsidize its practice of pricing below average cost. But how does that war chest come into being if the firmhas not yet become a monopoly? That part of the theory is simply a non sequitur." <ref name="DiLorenzoMyth" />

Furthermore, the idea of predatory pricing only considers the supply side of the equation without taking into account the demand side. Assuming that a company manages by some magical means to use predatory pricing to destroy a few competitors and then institute "monopoly prices" (see below), consumers in other parts of the nation who hear of such behavior must really be of a low mental caliber to buy up the cheaper products of Standard Oil when it came to their market knowing that this would help Standard Oil destroy competition and institute new high prices.

3) Preferential rail rates: Standard Oil did indeed make deals with railroads for cheaper product transport, as did many of its competitors, hardly making it an unfair market practice. In fact, almost all of the refiners in the country enjoyed some of the advantages of favorable railroad rates at one time or another <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 202</ref>. Railroads were quietly seeking the business of Standard Oil's competitors <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 198</ref>. Hidy note that "In fact, bargaining with railroads was a delicate task and the results were not always satisfactory. ... Once bulk stations had been built on a particular line, Standard Oil marketers could not easily transfer their business to another line and their bargaining capacity was curtailed. ... Standard Oil enjoyed advantages in rates, but the favors were neither so easily come by nor so certain as critics implied." <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 119</ref> Furthermore, if Standard Oil could secure for the railroads a stable inflow of traffic, then this is a legitimate market practice by any standard, as production is streamlined and stabilized. It is also important, as Hidy note, that "Rebates to Standard Oil on crude oil shipments had been virtually eliminated without recourse to legislative enactment." <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 89</ref>

The argument breaks down even more considering that Standard Oil increasingly transported oil through pipelines and not on rails <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 215</ref>.

=== Monopoly pricing ===
The argument that Standard Oil extorted high prices from the public is simply unsupported by evidence. Indeed, the opposite appears to be true: Refine oil prices "fell from over 30 cents per gallon in 1869, to 10 cents in 1874, to 8 cents in 1885, and to 5.9 cents in 1897." <ref>Galles, Gary ''100 Years of Myths about Standard Oil''. Mises Daily. 2011. http://mises.org/daily/5274</ref> Being a large market power, but a market power nonetheless, Standard Oil could not create monopoly prices for fear of competitors springing up to win over dissatisfied customers.

The argument of monopoly pricing further fails when considering substitute goods - alternative goods that customers may buy to achieve the same ends with different means. For example,

: "Coal continued to be a cheaper generator of heat and energy than petroleum. Vegetable and animal oils were used as illuminants and lubricants by the very large segments of the world's population living in relatively unindustrialized countries. ... Tallow and stearine candles constituted strong rivals to those made form paraffin was in some markets. In Europe, especially, artificial gas and later electricity gained on kerosene as a source of light ..." <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 129</ref>

Thus, monopoly prices in kerosene and other products made by Standard Oil would have simply been replaced with substitute goods which Standard Oil did not control.

=== Controlling the price of oil ===
Standard Oil did not control the oil extraction business <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 88</ref>. At the end of its years as a trust it attempted to enter the market but was never a large force on the extraction market. Indeed, it bought its raw material from thousands of producers of crude oil <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 208</ref>. The prices of crude oil were determined on the stock exchange <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 89</ref> and Standard Oil did not speculate on the exchanges <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 88</ref>

=== Hidden companies ===
As Hidy notes, "How hidden the companies actualy were is not known, but the implcation of critics was that Standard Oil was putting something over on the public. Standard Oil men certainly disliked the use of the practice by competitors." <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 118</ref>

== The unsung benefits of Standard Oil ==

=== Environmental friendliness/Curtailing of waste ===
Standard Oil came at a time when many of its competitors extracted only one product from oil and moved on without creating byproducts. Standard Oil instead squeezed the most it could out of oil and created numerous products from the products left after the creation of kerosene such as paraffin wax and lubricating oils, which allowed it to decrease its kerosene prices <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 193</ref>. Acid sludge was sold to fertilizer companies instead of the Atlantic Ocean and coke byproducts were either used internally or sold to outside companies <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 192-193</ref>.

=== Quality of products/Self-regulation ===
Standard Oil worked to bring both a higher and more uniform standard of products to the market <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 211</ref><ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 210</ref>. Indeed, it also built better infrastructure than competitors: when constructing its pipelines, it sunk the pipe beneath the earth at least eighteen inches deep, except over solid rock, while some competitors only sank their line when int crossed tilled land. This resulted in whipsawing of the pipes of competitors when cold weather came <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 81</ref>.

Standard Oil also provides an example of market regulations at work. Standard Oil engaged outside experts to investigate complaints and to recommend methods for improvement whenever necessary <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 140</ref>. When there were leaks in its barrels it immediately sealed them and sought out the cause (resulting in environmentally-friendly policies due to a desire to not lose profit). Furthermore, when there were allegations that the company was using inaccurate and fraudulent measurements on its tanks, Standard Oil invited all of the oil exchanges to send delegates to check their measurements. No errors were found, and honesty of Standard Oil's field storage units were never again seriously questioned <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 84</ref>.

=== Building of pipelines===
Standard Oil followed a policy geared to win the good-will of landowners along their right of way and was generous in the prices it paid to private individuals and in adjustments for damages <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 81</ref>.

=== Increased standard of living===
Through its superior quality goods and uniform standards, Standard Oil helped to increase the standard of living in millions of homes using kerosene. Furthermore, in efforts to create new markets, Standard Oil distributed heat stoves, lamps, and other utensils at little or no profit to consumers <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 116</ref>.

== Government influence on Standard Oil ==
Standard Oil's methods were fair, free-market methods, as covered above. However, it is important to note in what ways Standard Oil was in fact made larger than it would have been due to active government intervention in the free market (unlike the mainstream view that the Gilded Age was largely laissez-faire):

=== Patents===
Government granting of patent monopolies shielded Standard Oil from competition. Hidy note that Standard Oil "relied heavily on patent rights to attain an advantage over competitors in cost and quality of products. ... Patents for the mechanical fabrication of cans were practically monopolized by Standard Oil companies." <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 93</ref> Furthermore, "the Standard Oil combination received and fully utilized patents granted by the federal government. That patent monopoly constituted the foundation for the large earnings of several Standard Oil units for more than fifteen years." <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 168</ref> In this manner, government in fact ''granted'' Standard Oil monopolies in small regions (look up "Intellectual Property" for an explanation on why patent monopolies are not free-market tools but instead government intervention in the free market which curtails competition).

=== Tariffs===
Tariffs are another government intervention in the free market which contributed the the size of Standard Oil. There was a consistent tariff on kerosense in the US. In 1865 the kerosene tariff was increased to 40 cents per gallon <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 6</ref>. In 1984, kerosene was placed on the free list, yet with a catch: if another country had a tariff on the goods of the US, then the kerosene tariff on that country was 40 percent. As D.T. Armentano explains, tariffs restrict foreign competition, which is a vital section of the free market (after all, foreign competition is simply business which is outside of the arbitrarily-drawn line of a given country) <ref>Armentano, D.T. ''Monopoly''. Freedom Daily. 1992</ref>. In this way, by preventing possibly more efficient foreign competitors, Standard Oil was shielded from competition and hence from pressure to lower its prices even further. Indeed, abroad Standard Oil was force to lower its prices to compete with Russian oil <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 139</ref>. The protective tariffs prevented the same from occurring in the US. This is another example of government intervention during the Gilded Age distorting market forces and creating inefficient, less competitive scenarios.

== Other important points of note ==

=== Competition ===
While Standard Oil owned 88% of refining business at its height (by no means a monopoly), its market share had already decreased to 64% by 1911 (before the anti-trust case) <ref>DiLorenzo, Thomas. ''The Truth About the "Robber Barons"''. Mises Daily. 2006. http://mises.org/daily/2317#3</ref>. Indeed, many competitors were present and ready to pick up any time that Standard Oil did not meet expectations <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 88</ref><ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 120</ref>. Furthermore, whenever Standard Oil hesitated in taking an action into a new field, competitors sprang up in the new area, as was the case with discovery of the inferior grade Lima oil which would require new processing techniques <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 156</ref>. This suggests that competition was hardly stifled and that Standard Oil retained the top spot thanks to its efficiency and quality (and its size was likely increased by the government ''help'', including patents and tariffs, mentioned above).

=== Trust cohesion ===
It is important to remember that Standard Oil was not a single monolithic company which was run strictly top-down. Indeed, minority interest in different companies had to be considered and Hidy note that "instances are not lacking of objections to recommendations by committees and outright refusal to cooperate on the part of companies, even when 100 percent of their stock was held by the Trust." <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 64</ref> This adds further evidence that Standard Oil survived because of its bending to satisfy many different desires and was always at a risk of member managers breaking off to form new refineries.

== References ==
{{reflist}}

Standard Oil

2011-11-08T23:06:57Z

Wheylous: /* Hidden companies */

'''Standard Oil''' was an American company principally concerned with oil refining to produce kerosene and petroleum byproducts (such as paraffin wax, lubricating oils, and naphtha) from its foundation in 1870 to its breakup by the Supreme Court in the 1911 antitrust case of ''Standard Oil Co. of New Jersey v. United States''.

== History ==
History pending. Meanwhile, consult Wikipedia. Alternatively, for a much more thorough look at its history, read ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)'' by Ralph Hidy and Muriel Hidy.

== Mainstream Portrayal ==
Standard Oil has been presented in mainstream history as one of the big ways in which capitalism failed in the Gilded Age and has been presented as proof for the necessity of regulating the free market. It was supposedly a company which used the free market to become too big and used the power to hurt the consumer.
Some of the accusations against Standard Oil are as follows:

=== Destruction of competition ===
Standard Oil was supposed to have used three methods of curtailing competition:

1) Buying up competitors: Standard Oil would buy up its competitors to destroy competition. Many small refiners were allegedly bought up aggressively.

2) Predatory pricing: Standard Oil would cut its prices below those of competitors to destroy their sales and force them to accept buyout proposals.

3) Preferential rail rates: Standard oil would strike deals with railroads to secure lower rail rates for its products over their competitors' products.

=== Monopoly pricing ===
After Standard Oil destroyed its competitors and had monopoly power, it would raise its prices above the market level and extort high rates from consumers

=== Controlling the price of oil ===
Through its size, Standard Oil could control the prices of crude oil.

=== Hidden companies ===
Standard Oil sometimes bought companies and did not publicly announce that they were its holdings.

== Libertarian Response ==
Standard Oil has been much misunderstood, both in its status as capitalism baddie and as a company which used the free market to gain advantage.

A general overview first:

Standard Oil emerged out of a period of cutthroat competition in the 1860s <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 9</ref>. It was a time when many young entrepreneurs tried their hands at the refining business <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 4</ref>. Supply was unstable and prices fluctuated wildly <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 9</ref>. Surface oil stores were tapped quickly for easy profit and then businessmen moved on <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 9</ref>. Standard Oil introduced order to a hectic market. They were able to stabilize prices and supply in an insecure market.

A response to mainstream accusations:
=== Destruction of competition ===
Standard Oil did indeed outcompete many of its competitors

1) Buying up competitors: The majority of Standard Oil buyouts were not aggressive and benefited both parties. As Hidy note, "Tockefeller and his associates ... won the confidence of competitors through comprehensive voluntary association." <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 33</ref>. Many of the former executives of the firms which were bought up were offered high-ranking position in the new company and a guarantee of equality in management <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 34</ref> and were integrated into the management due to their experience in refining and their knowledge of local markets.
The Standard Oil trust was not comprised of one company which had bought out all others. Instead, the Trust was very much a cooperation of different companies {{Citation needed}} which sought to improve their competitive advantage and which still maintained competition even in-between the member companies <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 71</ref>.

Furthermore, it is important to note, as Hidy do, that numerous oilmen successfully resisted pressure to be bought and to be out-competed <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 34</ref>

2) Predatory Pricing: This claim does not stand strongly against either history, sound economic thought, or logic:

- ''History'': There is no evidence for large-scale predatory pricing on the part of Standard Oil {{Citation needed}}. There have been recorded cases of such "price cutting wars," yet most have been initiated by competitors of Standard Oil, not Standard Oil itself {{Citation needed}}.

Furthermore, price cutting has been previously shown to be ineffective (and indeed counter-productive), as seen in the case of Herbert Dow {{Citation needed}}. Dow was selling cheap Bromine in Germany, angering the competing Bromkonvention which decided to retaliate by flooding the US market with below-cost bromine. Dow simply ordered his agents to buy up the cheap bromine and resell it in Germany below Bromkonvention's prices yet still at a profit (relative to the below-cost price), effectively destroying the attempt at predatory pricing.

Sometimes rebates that Standard Oil offered are pointed to as a way to obtain extra customers, yet 1) this is a fair market practice, and 2) competitors were using rebates as well <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 118</ref>

- ''Sound Economic thought'': The idea of predatory pricing begs the question "what qualifies as predatory pricing?" Price cutting by itself is not a negative thing in the market and is indeed how competition works{{Citation needed}}. When companies employ more efficient methods of production, they may lower their prices, thus gaining an advantage on the market. Furthermore, price cutting is an effective and recognized tactic to enter a new market which may already have an existing market power.

- ''Logic'': Predatory pricing fails on the logical front as a tool which simply cannot work to systematically drive out competitors <ref name="DiLorenzoMyth">DiLorenzo, Thomas. "The Myth of Predatory Pricing." Cato Institute Policy Analysis No. 169, 1992. http://www.scribd.com/fullscreen/31267845</ref>. To quote DiLorenzo extensively -

: "In the first place, such practices are very costly for the large firm, which is always assumed to be the predator. If price is set below average cost, the largest firm will incur the largest losses by virtue of having the largest volume of sales. Losing a dollar on each of 1,000 widgets sold per month is more costly than losing a dollar on each of 100 widgets.

: Second, there is great uncertainty about how long a price war would last. The prospect of incurring losses indefinitely in the hope of someday being able to charge monopolistic prices will give any business person pause. A price war is anextremely risky venture. Standard Oil was not the only trust accused of predatory pricing; antitrust folklore has it that virtually all of the late-19th-century trusts were guilty of the practice. However, as I have shown elsewhere, the industries accused of becoming monopolies during the congressional debates on the 1890 Sherman Antitrust Act all dropped their pricesmore rapidly than the general price level fell during the 10 years before the Sherman Act. It would certainly havebeen irrational for those businesses to have engaged in predatory pricing for an entire decade in the dim hope of someday being able to charge prices slightly above the competitive market rate.

: Third, there is nothing stopping the competition (or "prey") from temporarily shutting down and waiting for the priceto return to profitable levels. If that strategy is employed, price competition will render the predatory pricing strategyunprofitable--all loss and no compensatory benefit. Alternatively, even if the preyed-upon firms went bankrupt, otherfirms could purchase their facilities and compete with the alleged predator. Such competition is virtually guaranteed if the predator is charging monopolistic prices and earning above-normal profits.

: Fourth, there is the danger that the price war will spread to surrounding markets and cause the alleged predator to incurlosses in those markets as well.

: Fifth, the theory of predatory pricing assumes the prior existence of a "war chest of monopoly profits" that the predatorcan use to subsidize its practice of pricing below average cost. But how does that war chest come into being if the firmhas not yet become a monopoly? That part of the theory is simply a non sequitur." <ref name="DiLorenzoMyth" />

Furthermore, the idea of predatory pricing only considers the supply side of the equation without taking into account the demand side. Assuming that a company manages by some magical means to use predatory pricing to destroy a few competitors and then institute "monopoly prices" (see below), consumers in other parts of the nation who hear of such behavior must really be of a low mental caliber to buy up the cheaper products of Standard Oil when it came to their market knowing that this would help Standard Oil destroy competition and institute new high prices.

3) Preferential rail rates: Standard Oil did indeed make deals with railroads for cheaper product transport, as did many of its competitors, hardly making it an unfair market practice. In fact, almost all of the refiners in the country enjoyed some of the advantages of favorable railroad rates at one time or another <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 202</ref>. Railroads were quietly seeking the business of Standard Oil's competitors <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 198</ref>. Hidy note that "In fact, bargaining with railroads was a delicate task and the results were not always satisfactory. ... Once bulk stations had been built on a particular line, Standard Oil marketers could not easily transfer their business to another line and their bargaining capacity was curtailed. ... Standard Oil enjoyed advantages in rates, but the favors were neither so easily come by nor so certain as critics implied." <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 119</ref> Furthermore, if Standard Oil could secure for the railroads a stable inflow of traffic, then this is a legitimate market practice by any standard, as production is streamlined and stabilized. It is also important, as Hidy note, that "Rebates to Standard Oil on crude oil shipments had been virtually eliminated without recourse to legislative enactment." <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 89</ref>

The argument breaks down even more considering that Standard Oil increasingly transported oil through pipelines and not on rails <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 215</ref>.

=== Monopoly pricing ===
The argument that Standard Oil extorted high prices from the public is simply unsupported by evidence. Indeed, the opposite appears to be true: Refine oil prices "fell from over 30 cents per gallon in 1869, to 10 cents in 1874, to 8 cents in 1885, and to 5.9 cents in 1897." <ref>Galles, Gary ''100 Years of Myths about Standard Oil''. Mises Daily. 2011. http://mises.org/daily/5274</ref> Being a large market power, but a market power nonetheless, Standard Oil could not create monopoly prices for fear of competitors springing up to win over dissatisfied customers.

The argument of monopoly pricing further fails when considering substitute goods - alternative goods that customers may buy to achieve the same ends with different means. For example,

: "Coal continued to be a cheaper generator of heat and energy than petroleum. Vegetable and animal oils were used as illuminants and lubricants by the very large segments of the world's population living in relatively unindustrialized countries. ... Tallow and stearine candles constituted strong rivals to those made form paraffin was in some markets. In Europe, especially, artificial gas and later electricity gained on kerosene as a source of light ..." <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 129</ref>

Thus, monopoly prices in kerosene and other products made by Standard Oil would have simply been replaced with substitute goods which Standard Oil did not control.

=== Controlling the price of oil ===
Standard Oil did not control the oil extraction business <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 88</ref>. At the end of its years as a trust it attempted to enter the market but was never a large force on the extraction market. Indeed, it bought its raw material from thousands of producers of crude oil <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 208</ref>. The prices of crude oil were determined on the stock exchange <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 89</ref> and Standard Oil did not speculate on the exchanges <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 88</ref>

=== Hidden companies ===
As Hidy notes, "How hidden the companies actualy were is not known, but the implcation of critics was that Standard Oil was putting something over on the public. Standard Oil men certainly disliked the use of the practice by competitors." <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 118</ref>

== The unsung benefits of Standard Oil ==

=== Environmental friendliness/Curtailing of waste ===
Standard Oil came at a time when many of its competitors extracted only one product from oil and moved on without creating byproducts. Standard Oil instead squeezed the most it could out of oil and created numerous products from the products left after the creation of kerosene such as paraffin wax and lubricating oils, which allowed it to decrease its kerosene prices <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 193</ref>. Acid sludge was sold to fertilizer companies instead of the Atlantic Ocean and coke byproducts were either used internally or sold to outside companies <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 192-193</ref>.

=== Quality of products/Self-regulation ===
Standard Oil worked to bring both a higher and more uniform standard of products to the market <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 211</ref><ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 210</ref>. Indeed, it also built better infrastructure than competitors: when constructing its pipelines, it sunk the pipe beneath the earth at least eighteen inches deep, except over solid rock, while some competitors only sank their line when int crossed tilled land. This resulted in whipsawing of the pipes of competitors when cold weather came <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 81</ref>.

Standard Oil also provides an example of market regulations at work. Standard Oil engaged outside experts to investigate complaints and to recommend methods for improvement whenever necessary <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 140</ref>. When there were leaks in its barrels it immediately sealed them and sought out the cause (resulting in environmentally-friendly policies due to a desire to not lose profit). Furthermore, when there were allegations that the company was using inaccurate and fraudulent measurements on its tanks, Standard Oil invited all of the oil exchanges to send delegates to check their measurements. No errors were found, and honesty of Standard Oil's field storage units were never again seriously questioned <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 84</ref>.

=== Building of pipelines===
Standard Oil followed a policy geared to win the good-will of landowners along their right of way and was generous in the prices it paid to private individuals and in adjustments for damages <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 81</ref>.

=== Increased standard of living===
Through its superior quality goods and uniform standards, Standard Oil helped to increase the standard of living in millions of homes using kerosene. Furthermore, in efforts to create new markets, Standard Oil distributed heat stoves, lamps, and other utensils at little or no profit to consumers <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 116</ref>.

== Government influence on Standard Oil ==
Standard Oil's methods were fair, free-market methods, as covered above. However, it is important to note in what ways Standard Oil was in fact made larger than it would have been due to active government intervention in the free market (unlike the mainstream view that the Gilded Age was largely laissez-faire):

=== Patents===
Government granting of patent monopolies shielded Standard Oil from competition. Hidy note that Standard Oil "relied heavily on patent rights to attain an advantage over competitors in cost and quality of products. ... Patents for the mechanical fabrication of cans were practically monopolized by Standard Oil companies." <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 93</ref> Furthermore, "the Standard Oil combination received and fully utilized patents granted by the federal government. That patent monopoly constituted the foundation for the large earnings of several Standard Oil units for more than fifteen years." <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 168</ref> In this manner, government in fact ''granted'' Standard Oil monopolies in small regions (look up "Intellectual Property" for an explanation on why patent monopolies are not free-market tools but instead government intervention in the free market which curtails competition).

=== Tariffs===
Tariffs are another government intervention in the free market which contributed the the size of Standard Oil. There was a consistent tariff on kerosense in the US. In 1865 the kerosene tariff was increased to 40 cents per gallon <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 6</ref>. In 1984, kerosene was placed on the free list, yet with a catch: if another country had a tariff on the goods of the US, then the kerosene tariff on that country was 40 percent. As D.T. Armentano explains, tariffs restrict foreign competition, which is a vital section of the free market (after all, foreign competition is simply business which is outside of the arbitrarily-drawn line of a given country) <ref>Armentano, D.T. ''Monopoly''. Freedom Daily. 1992</ref>. In this way, by preventing possibly more efficient foreign competitors, Standard Oil was shielded from competition and hence from pressure to lower its prices even further. Indeed, abroad Standard Oil was force to lower its prices to compete with Russian oil <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 139</ref>. The protective tariffs prevented the same from occurring in the US. This is another example of government intervention during the Gilded Age distorting market forces and creating inefficient, less competitive scenarios.

== Other important points of note ==

=== Competition ===
While Standard Oil owned 88% of refining business at its height (by no means a monopoly), its market share had already decreased to 64% by 1911 (before the anti-trust case) <ref>DiLorenzo, Thomas. ''The Truth About the "Robber Barons"''. Mises Daily. 2006. http://mises.org/daily/2317#3</ref>. Indeed, many competitors were present and ready to pick up any time that Standard Oil did not meet expectations <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 88</ref><ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 120</ref>. Furthermore, whenever Standard Oil hesitated in taking an action into a new field, competitors sprang up in the new area, as was the case with discovery of the inferior grade Lima oil which would require new processing techniques <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 156</ref>. This suggests that competition was hardly stifled and that Standard Oil retained the top spot thanks to its efficiency and quality (and its size was likely increased by the government ''help'', including patents and tariffs, mentioned above).

=== Trust cohesion ===
It is important to remember that Standard Oil was not a single monolithic company which was run strictly top-down. Indeed, minority interest in different companies had to be considered and Hidy note that "instances are not lacking of objections to recommendations by committees and outright refusal to cooperate on the part of companies, even when 100 percent of their stock was held by the Trust." <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 64</ref> This adds further evidence that Standard Oil survived because of its bending to satisfy many different desires and was always at a risk of member managers breaking off to form new refineries.

== References ==
{{reflist}}

Austrian Economics Wiki:2011 article improvement drive/November

2011-11-08T23:05:14Z

Wheylous: /* Contest contributions */

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=== Wheylous ===
Created:
* Pages: [[Standard Oil]]

Standard Oil

2011-11-08T23:03:28Z

Wheylous:

'''Standard Oil''' was an American company principally concerned with oil refining to produce kerosene and petroleum byproducts (such as paraffin wax, lubricating oils, and naphtha) from its foundation in 1870 to its breakup by the Supreme Court in the 1911 antitrust case of ''Standard Oil Co. of New Jersey v. United States''.

== History ==
History pending. Meanwhile, consult Wikipedia. Alternatively, for a much more thorough look at its history, read ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)'' by Ralph Hidy and Muriel Hidy.

== Mainstream Portrayal ==
Standard Oil has been presented in mainstream history as one of the big ways in which capitalism failed in the Gilded Age and has been presented as proof for the necessity of regulating the free market. It was supposedly a company which used the free market to become too big and used the power to hurt the consumer.
Some of the accusations against Standard Oil are as follows:

=== Destruction of competition ===
Standard Oil was supposed to have used three methods of curtailing competition:

1) Buying up competitors: Standard Oil would buy up its competitors to destroy competition. Many small refiners were allegedly bought up aggressively.

2) Predatory pricing: Standard Oil would cut its prices below those of competitors to destroy their sales and force them to accept buyout proposals.

3) Preferential rail rates: Standard oil would strike deals with railroads to secure lower rail rates for its products over their competitors' products.

=== Monopoly pricing ===
After Standard Oil destroyed its competitors and had monopoly power, it would raise its prices above the market level and extort high rates from consumers

=== Controlling the price of oil ===
Through its size, Standard Oil could control the prices of crude oil.

=== Hidden companies ===
Standard Oil sometimes bought companies and did not publicly announce that it was their holding.

== Libertarian Response ==
Standard Oil has been much misunderstood, both in its status as capitalism baddie and as a company which used the free market to gain advantage.

A general overview first:

Standard Oil emerged out of a period of cutthroat competition in the 1860s <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 9</ref>. It was a time when many young entrepreneurs tried their hands at the refining business <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 4</ref>. Supply was unstable and prices fluctuated wildly <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 9</ref>. Surface oil stores were tapped quickly for easy profit and then businessmen moved on <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 9</ref>. Standard Oil introduced order to a hectic market. They were able to stabilize prices and supply in an insecure market.

A response to mainstream accusations:
=== Destruction of competition ===
Standard Oil did indeed outcompete many of its competitors

1) Buying up competitors: The majority of Standard Oil buyouts were not aggressive and benefited both parties. As Hidy note, "Tockefeller and his associates ... won the confidence of competitors through comprehensive voluntary association." <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 33</ref>. Many of the former executives of the firms which were bought up were offered high-ranking position in the new company and a guarantee of equality in management <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 34</ref> and were integrated into the management due to their experience in refining and their knowledge of local markets.
The Standard Oil trust was not comprised of one company which had bought out all others. Instead, the Trust was very much a cooperation of different companies {{Citation needed}} which sought to improve their competitive advantage and which still maintained competition even in-between the member companies <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 71</ref>.

Furthermore, it is important to note, as Hidy do, that numerous oilmen successfully resisted pressure to be bought and to be out-competed <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 34</ref>

2) Predatory Pricing: This claim does not stand strongly against either history, sound economic thought, or logic:

- ''History'': There is no evidence for large-scale predatory pricing on the part of Standard Oil {{Citation needed}}. There have been recorded cases of such "price cutting wars," yet most have been initiated by competitors of Standard Oil, not Standard Oil itself {{Citation needed}}.

Furthermore, price cutting has been previously shown to be ineffective (and indeed counter-productive), as seen in the case of Herbert Dow {{Citation needed}}. Dow was selling cheap Bromine in Germany, angering the competing Bromkonvention which decided to retaliate by flooding the US market with below-cost bromine. Dow simply ordered his agents to buy up the cheap bromine and resell it in Germany below Bromkonvention's prices yet still at a profit (relative to the below-cost price), effectively destroying the attempt at predatory pricing.

Sometimes rebates that Standard Oil offered are pointed to as a way to obtain extra customers, yet 1) this is a fair market practice, and 2) competitors were using rebates as well <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 118</ref>

- ''Sound Economic thought'': The idea of predatory pricing begs the question "what qualifies as predatory pricing?" Price cutting by itself is not a negative thing in the market and is indeed how competition works{{Citation needed}}. When companies employ more efficient methods of production, they may lower their prices, thus gaining an advantage on the market. Furthermore, price cutting is an effective and recognized tactic to enter a new market which may already have an existing market power.

- ''Logic'': Predatory pricing fails on the logical front as a tool which simply cannot work to systematically drive out competitors <ref name="DiLorenzoMyth">DiLorenzo, Thomas. "The Myth of Predatory Pricing." Cato Institute Policy Analysis No. 169, 1992. http://www.scribd.com/fullscreen/31267845</ref>. To quote DiLorenzo extensively -

: "In the first place, such practices are very costly for the large firm, which is always assumed to be the predator. If price is set below average cost, the largest firm will incur the largest losses by virtue of having the largest volume of sales. Losing a dollar on each of 1,000 widgets sold per month is more costly than losing a dollar on each of 100 widgets.

: Second, there is great uncertainty about how long a price war would last. The prospect of incurring losses indefinitely in the hope of someday being able to charge monopolistic prices will give any business person pause. A price war is anextremely risky venture. Standard Oil was not the only trust accused of predatory pricing; antitrust folklore has it that virtually all of the late-19th-century trusts were guilty of the practice. However, as I have shown elsewhere, the industries accused of becoming monopolies during the congressional debates on the 1890 Sherman Antitrust Act all dropped their pricesmore rapidly than the general price level fell during the 10 years before the Sherman Act. It would certainly havebeen irrational for those businesses to have engaged in predatory pricing for an entire decade in the dim hope of someday being able to charge prices slightly above the competitive market rate.

: Third, there is nothing stopping the competition (or "prey") from temporarily shutting down and waiting for the priceto return to profitable levels. If that strategy is employed, price competition will render the predatory pricing strategyunprofitable--all loss and no compensatory benefit. Alternatively, even if the preyed-upon firms went bankrupt, otherfirms could purchase their facilities and compete with the alleged predator. Such competition is virtually guaranteed if the predator is charging monopolistic prices and earning above-normal profits.

: Fourth, there is the danger that the price war will spread to surrounding markets and cause the alleged predator to incurlosses in those markets as well.

: Fifth, the theory of predatory pricing assumes the prior existence of a "war chest of monopoly profits" that the predatorcan use to subsidize its practice of pricing below average cost. But how does that war chest come into being if the firmhas not yet become a monopoly? That part of the theory is simply a non sequitur." <ref name="DiLorenzoMyth" />

Furthermore, the idea of predatory pricing only considers the supply side of the equation without taking into account the demand side. Assuming that a company manages by some magical means to use predatory pricing to destroy a few competitors and then institute "monopoly prices" (see below), consumers in other parts of the nation who hear of such behavior must really be of a low mental caliber to buy up the cheaper products of Standard Oil when it came to their market knowing that this would help Standard Oil destroy competition and institute new high prices.

3) Preferential rail rates: Standard Oil did indeed make deals with railroads for cheaper product transport, as did many of its competitors, hardly making it an unfair market practice. In fact, almost all of the refiners in the country enjoyed some of the advantages of favorable railroad rates at one time or another <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 202</ref>. Railroads were quietly seeking the business of Standard Oil's competitors <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 198</ref>. Hidy note that "In fact, bargaining with railroads was a delicate task and the results were not always satisfactory. ... Once bulk stations had been built on a particular line, Standard Oil marketers could not easily transfer their business to another line and their bargaining capacity was curtailed. ... Standard Oil enjoyed advantages in rates, but the favors were neither so easily come by nor so certain as critics implied." <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 119</ref> Furthermore, if Standard Oil could secure for the railroads a stable inflow of traffic, then this is a legitimate market practice by any standard, as production is streamlined and stabilized. It is also important, as Hidy note, that "Rebates to Standard Oil on crude oil shipments had been virtually eliminated without recourse to legislative enactment." <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 89</ref>

The argument breaks down even more considering that Standard Oil increasingly transported oil through pipelines and not on rails <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 215</ref>.

=== Monopoly pricing ===
The argument that Standard Oil extorted high prices from the public is simply unsupported by evidence. Indeed, the opposite appears to be true: Refine oil prices "fell from over 30 cents per gallon in 1869, to 10 cents in 1874, to 8 cents in 1885, and to 5.9 cents in 1897." <ref>Galles, Gary ''100 Years of Myths about Standard Oil''. Mises Daily. 2011. http://mises.org/daily/5274</ref> Being a large market power, but a market power nonetheless, Standard Oil could not create monopoly prices for fear of competitors springing up to win over dissatisfied customers.

The argument of monopoly pricing further fails when considering substitute goods - alternative goods that customers may buy to achieve the same ends with different means. For example,

: "Coal continued to be a cheaper generator of heat and energy than petroleum. Vegetable and animal oils were used as illuminants and lubricants by the very large segments of the world's population living in relatively unindustrialized countries. ... Tallow and stearine candles constituted strong rivals to those made form paraffin was in some markets. In Europe, especially, artificial gas and later electricity gained on kerosene as a source of light ..." <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 129</ref>

Thus, monopoly prices in kerosene and other products made by Standard Oil would have simply been replaced with substitute goods which Standard Oil did not control.

=== Controlling the price of oil ===
Standard Oil did not control the oil extraction business <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 88</ref>. At the end of its years as a trust it attempted to enter the market but was never a large force on the extraction market. Indeed, it bought its raw material from thousands of producers of crude oil <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 208</ref>. The prices of crude oil were determined on the stock exchange <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 89</ref> and Standard Oil did not speculate on the exchanges <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 88</ref>

=== Hidden companies ===
As Hidy notes, "How hidden the companies actualy were is not known, but the implcation of critics was that Standard Oil was putting something over on the public. Standard Oil men certainly disliked the use of the practice by competitors." <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 118</ref>

== The unsung benefits of Standard Oil ==

=== Environmental friendliness/Curtailing of waste ===
Standard Oil came at a time when many of its competitors extracted only one product from oil and moved on without creating byproducts. Standard Oil instead squeezed the most it could out of oil and created numerous products from the products left after the creation of kerosene such as paraffin wax and lubricating oils, which allowed it to decrease its kerosene prices <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 193</ref>. Acid sludge was sold to fertilizer companies instead of the Atlantic Ocean and coke byproducts were either used internally or sold to outside companies <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 192-193</ref>.

=== Quality of products/Self-regulation ===
Standard Oil worked to bring both a higher and more uniform standard of products to the market <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 211</ref><ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 210</ref>. Indeed, it also built better infrastructure than competitors: when constructing its pipelines, it sunk the pipe beneath the earth at least eighteen inches deep, except over solid rock, while some competitors only sank their line when int crossed tilled land. This resulted in whipsawing of the pipes of competitors when cold weather came <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 81</ref>.

Standard Oil also provides an example of market regulations at work. Standard Oil engaged outside experts to investigate complaints and to recommend methods for improvement whenever necessary <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 140</ref>. When there were leaks in its barrels it immediately sealed them and sought out the cause (resulting in environmentally-friendly policies due to a desire to not lose profit). Furthermore, when there were allegations that the company was using inaccurate and fraudulent measurements on its tanks, Standard Oil invited all of the oil exchanges to send delegates to check their measurements. No errors were found, and honesty of Standard Oil's field storage units were never again seriously questioned <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 84</ref>.

=== Building of pipelines===
Standard Oil followed a policy geared to win the good-will of landowners along their right of way and was generous in the prices it paid to private individuals and in adjustments for damages <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 81</ref>.

=== Increased standard of living===
Through its superior quality goods and uniform standards, Standard Oil helped to increase the standard of living in millions of homes using kerosene. Furthermore, in efforts to create new markets, Standard Oil distributed heat stoves, lamps, and other utensils at little or no profit to consumers <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 116</ref>.

== Government influence on Standard Oil ==
Standard Oil's methods were fair, free-market methods, as covered above. However, it is important to note in what ways Standard Oil was in fact made larger than it would have been due to active government intervention in the free market (unlike the mainstream view that the Gilded Age was largely laissez-faire):

=== Patents===
Government granting of patent monopolies shielded Standard Oil from competition. Hidy note that Standard Oil "relied heavily on patent rights to attain an advantage over competitors in cost and quality of products. ... Patents for the mechanical fabrication of cans were practically monopolized by Standard Oil companies." <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 93</ref> Furthermore, "the Standard Oil combination received and fully utilized patents granted by the federal government. That patent monopoly constituted the foundation for the large earnings of several Standard Oil units for more than fifteen years." <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 168</ref> In this manner, government in fact ''granted'' Standard Oil monopolies in small regions (look up "Intellectual Property" for an explanation on why patent monopolies are not free-market tools but instead government intervention in the free market which curtails competition).

=== Tariffs===
Tariffs are another government intervention in the free market which contributed the the size of Standard Oil. There was a consistent tariff on kerosense in the US. In 1865 the kerosene tariff was increased to 40 cents per gallon <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 6</ref>. In 1984, kerosene was placed on the free list, yet with a catch: if another country had a tariff on the goods of the US, then the kerosene tariff on that country was 40 percent. As D.T. Armentano explains, tariffs restrict foreign competition, which is a vital section of the free market (after all, foreign competition is simply business which is outside of the arbitrarily-drawn line of a given country) <ref>Armentano, D.T. ''Monopoly''. Freedom Daily. 1992</ref>. In this way, by preventing possibly more efficient foreign competitors, Standard Oil was shielded from competition and hence from pressure to lower its prices even further. Indeed, abroad Standard Oil was force to lower its prices to compete with Russian oil <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 139</ref>. The protective tariffs prevented the same from occurring in the US. This is another example of government intervention during the Gilded Age distorting market forces and creating inefficient, less competitive scenarios.

== Other important points of note ==

=== Competition ===
While Standard Oil owned 88% of refining business at its height (by no means a monopoly), its market share had already decreased to 64% by 1911 (before the anti-trust case) <ref>DiLorenzo, Thomas. ''The Truth About the "Robber Barons"''. Mises Daily. 2006. http://mises.org/daily/2317#3</ref>. Indeed, many competitors were present and ready to pick up any time that Standard Oil did not meet expectations <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 88</ref><ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 120</ref>. Furthermore, whenever Standard Oil hesitated in taking an action into a new field, competitors sprang up in the new area, as was the case with discovery of the inferior grade Lima oil which would require new processing techniques <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 156</ref>. This suggests that competition was hardly stifled and that Standard Oil retained the top spot thanks to its efficiency and quality (and its size was likely increased by the government ''help'', including patents and tariffs, mentioned above).

=== Trust cohesion ===
It is important to remember that Standard Oil was not a single monolithic company which was run strictly top-down. Indeed, minority interest in different companies had to be considered and Hidy note that "instances are not lacking of objections to recommendations by committees and outright refusal to cooperate on the part of companies, even when 100 percent of their stock was held by the Trust." <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 64</ref> This adds further evidence that Standard Oil survived because of its bending to satisfy many different desires and was always at a risk of member managers breaking off to form new refineries.

== References ==
{{reflist}}

Standard Oil

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{{Stub}}

'''Standard Oil''' was an American company principally concerned with oil refining to produce kerosene and petroleum byproducts (such as paraffin wax, lubricating oils, and naphtha) from its foundation in 1870 to its breakup by the Supreme Court in the 1911 antitrust case of ''Standard Oil Co. of New Jersey v. United States''.

== History ==
History pending. Meanwhile, consult Wikipedia. Alternatively, for a much more thorough look at its history, read ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)'' by Ralph Hidy and Muriel Hidy.

== Mainstream Portrayal ==
Standard Oil has been presented in mainstream history as one of the big ways in which capitalism failed in the Gilded Age and has been presented as proof for the necessity of regulating the free market. It was supposedly a company which used the free market to become too big and used the power to hurt the consumer.
Some of the accusations against Standard Oil are as follows:

=== Destruction of competition ===
Standard Oil was supposed to have used three methods of curtailing competition:

1) Buying up competitors: Standard Oil would buy up its competitors to destroy competition. Many small refiners were allegedly bought up aggressively.

2) Predatory pricing: Standard Oil would cut its prices below those of competitors to destroy their sales and force them to accept buyout proposals.

3) Preferential rail rates: Standard oil would strike deals with railroads to secure lower rail rates for its products over their competitors' products.

=== Monopoly pricing ===
After Standard Oil destroyed its competitors and had monopoly power, it would raise its prices above the market level and extort high rates from consumers

=== Controlling the price of oil ===
Through its size, Standard Oil could control the prices of crude oil.

=== Hidden companies ===
Standard Oil sometimes bought companies and did not publicly announce that it was their holding.

== Libertarian Response ==
Standard Oil has been much misunderstood, both in its status as capitalism baddie and as a company which used the free market to gain advantage.

A general overview first:

Standard Oil emerged out of a period of cutthroat competition in the 1860s <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 9</ref>. It was a time when many young entrepreneurs tried their hands at the refining business <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 4</ref>. Supply was unstable and prices fluctuated wildly <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 9</ref>. Surface oil stores were tapped quickly for easy profit and then businessmen moved on <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 9</ref>. Standard Oil introduced order to a hectic market. They were able to stabilize prices and supply in an insecure market.

A response to mainstream accusations:
=== Destruction of competition ===
Standard Oil did indeed outcompete many of its competitors

1) Buying up competitors: The majority of Standard Oil buyouts were not aggressive and benefited both parties. As Hidy note, "Tockefeller and his associates ... won the confidence of competitors through comprehensive voluntary association." <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 33</ref>. Many of the former executives of the firms which were bought up were offered high-ranking position in the new company and a guarantee of equality in management <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 34</ref> and were integrated into the management due to their experience in refining and their knowledge of local markets.
The Standard Oil trust was not comprised of one company which had bought out all others. Instead, the Trust was very much a cooperation of different companies {{Citation needed}} which sought to improve their competitive advantage and which still maintained competition even in-between the member companies <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 71</ref>.

Furthermore, it is important to note, as Hidy do, that numerous oilmen successfully resisted pressure to be bought and to be out-competed <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 34</ref>

2) Predatory Pricing: This claim does not stand strongly against either history, sound economic thought, or logic:

- ''History'': There is no evidence for large-scale predatory pricing on the part of Standard Oil {{Citation needed}}. There have been recorded cases of such "price cutting wars," yet most have been initiated by competitors of Standard Oil, not Standard Oil itself {{Citation needed}}.

Furthermore, price cutting has been previously shown to be ineffective (and indeed counter-productive), as seen in the case of Herbert Dow {{Citation needed}}. Dow was selling cheap Bromine in Germany, angering the competing Bromkonvention which decided to retaliate by flooding the US market with below-cost bromine. Dow simply ordered his agents to buy up the cheap bromine and resell it in Germany below Bromkonvention's prices yet still at a profit (relative to the below-cost price), effectively destroying the attempt at predatory pricing.

Sometimes rebates that Standard Oil offered are pointed to as a way to obtain extra customers, yet 1) this is a fair market practice, and 2) competitors were using rebates as well <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 118</ref>

- ''Sound Economic thought'': The idea of predatory pricing begs the question "what qualifies as predatory pricing?" Price cutting by itself is not a negative thing in the market and is indeed how competition works{{Citation needed}}. When companies employ more efficient methods of production, they may lower their prices, thus gaining an advantage on the market. Furthermore, price cutting is an effective and recognized tactic to enter a new market which may already have an existing market power.

- ''Logic'': Predatory pricing fails on the logical front as a tool which simply cannot work to systematically drive out competitors <ref name="DiLorenzoMyth">DiLorenzo, Thomas. "The Myth of Predatory Pricing." Cato Institute Policy Analysis No. 169, 1992. http://www.scribd.com/fullscreen/31267845</ref>. To quote DiLorenzo extensively -

: "In the first place, such practices are very costly for the large firm, which is always assumed to be the predator. If price is set below average cost, the largest firm will incur the largest losses by virtue of having the largest volume of sales. Losing a dollar on each of 1,000 widgets sold per month is more costly than losing a dollar on each of 100 widgets.

: Second, there is great uncertainty about how long a price war would last. The prospect of incurring losses indefinitely in the hope of someday being able to charge monopolistic prices will give any business person pause. A price war is anextremely risky venture. Standard Oil was not the only trust accused of predatory pricing; antitrust folklore has it that virtually all of the late-19th-century trusts were guilty of the practice. However, as I have shown elsewhere, the industries accused of becoming monopolies during the congressional debates on the 1890 Sherman Antitrust Act all dropped their pricesmore rapidly than the general price level fell during the 10 years before the Sherman Act. It would certainly havebeen irrational for those businesses to have engaged in predatory pricing for an entire decade in the dim hope of someday being able to charge prices slightly above the competitive market rate.

: Third, there is nothing stopping the competition (or "prey") from temporarily shutting down and waiting for the priceto return to profitable levels. If that strategy is employed, price competition will render the predatory pricing strategyunprofitable--all loss and no compensatory benefit. Alternatively, even if the preyed-upon firms went bankrupt, otherfirms could purchase their facilities and compete with the alleged predator. Such competition is virtually guaranteed if the predator is charging monopolistic prices and earning above-normal profits.

: Fourth, there is the danger that the price war will spread to surrounding markets and cause the alleged predator to incurlosses in those markets as well.

: Fifth, the theory of predatory pricing assumes the prior existence of a "war chest of monopoly profits" that the predatorcan use to subsidize its practice of pricing below average cost. But how does that war chest come into being if the firmhas not yet become a monopoly? That part of the theory is simply a non sequitur." <ref name="DiLorenzoMyth" />

Furthermore, the idea of predatory pricing only considers the supply side of the equation without taking into account the demand side. Assuming that a company manages by some magical means to use predatory pricing to destroy a few competitors and then institute "monopoly prices" (see below), consumers in other parts of the nation who hear of such behavior must really be of a low mental caliber to buy up the cheaper products of Standard Oil when it came to their market knowing that this would help Standard Oil destroy competition and institute new high prices.

3) Preferential rail rates: Standard Oil did indeed make deals with railroads for cheaper product transport, as did many of its competitors, hardly making it an unfair market practice. In fact, almost all of the refiners in the country enjoyed some of the advantages of favorable railroad rates at one time or another <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 202</ref>. Railroads were quietly seeking the business of Standard Oil's competitors <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 198</ref>. Hidy note that "In fact, bargaining with railroads was a delicate task and the results were not always satisfactory. ... Once bulk stations had been built on a particular line, Standard Oil marketers could not easily transfer their business to another line and their bargaining capacity was curtailed. ... Standard Oil enjoyed advantages in rates, but the favors were neither so easily come by nor so certain as critics implied." <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 119</ref> Furthermore, if Standard Oil could secure for the railroads a stable inflow of traffic, then this is a legitimate market practice by any standard, as production is streamlined and stabilized. It is also important, as Hidy note, that "Rebates to Standard Oil on crude oil shipments had been virtually eliminated without recourse to legislative enactment." <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 89</ref>

The argument breaks down even more considering that Standard Oil increasingly transported oil through pipelines and not on rails <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 215</ref>.

=== Monopoly pricing ===
The argument that Standard Oil extorted high prices from the public is simply unsupported by evidence. Indeed, the opposite appears to be true: Refine oil prices "fell from over 30 cents per gallon in 1869, to 10 cents in 1874, to 8 cents in 1885, and to 5.9 cents in 1897." <ref>Galles, Gary ''100 Years of Myths about Standard Oil''. Mises Daily. 2011. http://mises.org/daily/5274</ref> Being a large market power, but a market power nonetheless, Standard Oil could not create monopoly prices for fear of competitors springing up to win over dissatisfied customers.

The argument of monopoly pricing further fails when considering substitute goods - alternative goods that customers may buy to achieve the same ends with different means. For example,

: "Coal continued to be a cheaper generator of heat and energy than petroleum. Vegetable and animal oils were used as illuminants and lubricants by the very large segments of the world's population living in relatively unindustrialized countries. ... Tallow and stearine candles constituted strong rivals to those made form paraffin was in some markets. In Europe, especially, artificial gas and later electricity gained on kerosene as a source of light ..." <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 129</ref>

Thus, monopoly prices in kerosene and other products made by Standard Oil would have simply been replaced with substitute goods which Standard Oil did not control.

=== Controlling the price of oil ===
Standard Oil did not control the oil extraction business <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 88</ref>. At the end of its years as a trust it attempted to enter the market but was never a large force on the extraction market. Indeed, it bought its raw material from thousands of producers of crude oil <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 208</ref>. The prices of crude oil were determined on the stock exchange <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 89</ref> and Standard Oil did not speculate on the exchanges <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 88</ref>

=== Hidden companies ===
As Hidy notes, "How hidden the companies actualy were is not known, but the implcation of critics was that Standard Oil was putting something over on the public. Standard Oil men certainly disliked the use of the practice by competitors." <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 118</ref>

== The unsung benefits of Standard Oil ==

=== Environmental friendliness/Curtailing of waste ===
Standard Oil came at a time when many of its competitors extracted only one product from oil and moved on without creating byproducts. Standard Oil instead squeezed the most it could out of oil and created numerous products from the products left after the creation of kerosene such as paraffin wax and lubricating oils, which allowed it to decrease its kerosene prices <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 193</ref>. Acid sludge was sold to fertilizer companies instead of the Atlantic Ocean and coke byproducts were either used internally or sold to outside companies <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 192-193</ref>.

=== Quality of products/Self-regulation ===
Standard Oil worked to bring both a higher and more uniform standard of products to the market <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 211</ref><ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 210</ref>. Indeed, it also built better infrastructure than competitors: when constructing its pipelines, it sunk the pipe beneath the earth at least eighteen inches deep, except over solid rock, while some competitors only sank their line when int crossed tilled land. This resulted in whipsawing of the pipes of competitors when cold weather came <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 81</ref>.

Standard Oil also provides an example of market regulations at work. Standard Oil engaged outside experts to investigate complaints and to recommend methods for improvement whenever necessary <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 140</ref>. When there were leaks in its barrels it immediately sealed them and sought out the cause (resulting in environmentally-friendly policies due to a desire to not lose profit). Furthermore, when there were allegations that the company was using inaccurate and fraudulent measurements on its tanks, Standard Oil invited all of the oil exchanges to send delegates to check their measurements. No errors were found, and honesty of Standard Oil's field storage units were never again seriously questioned <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 84</ref>.

=== Building of pipelines===
Standard Oil followed a policy geared to win the good-will of landowners along their right of way and was generous in the prices it paid to private individuals and in adjustments for damages <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 81</ref>.

=== Increased standard of living===
Through its superior quality goods and uniform standards, Standard Oil helped to increase the standard of living in millions of homes using kerosene. Furthermore, in efforts to create new markets, Standard Oil distributed heat stoves, lamps, and other utensils at little or no profit to consumers <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 116</ref>.

== Government influence on Standard Oil ==
Standard Oil's methods were fair, free-market methods, as covered above. However, it is important to note in what ways Standard Oil was in fact made larger than it would have been due to active government intervention in the free market (unlike the mainstream view that the Gilded Age was largely laissez-faire):

=== Patents===
Government granting of patent monopolies shielded Standard Oil from competition. Hidy note that Standard Oil "relied heavily on patent rights to attain an advantage over competitors in cost and quality of products. ... Patents for the mechanical fabrication of cans were practically monopolized by Standard Oil companies." <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 93</ref> Furthermore, "the Standard Oil combination received and fully utilized patents granted by the federal government. That patent monopoly constituted the foundation for the large earnings of several Standard Oil units for more than fifteen years." <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 168</ref> In this manner, government in fact ''granted'' Standard Oil monopolies in small regions (look up "Intellectual Property" for an explanation on why patent monopolies are not free-market tools but instead government intervention in the free market which curtails competition).

=== Tariffs===
Tariffs are another government intervention in the free market which contributed the the size of Standard Oil. There was a consistent tariff on kerosense in the US. In 1865 the kerosene tariff was increased to 40 cents per gallon <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 6</ref>. In 1984, kerosene was placed on the free list, yet with a catch: if another country had a tariff on the goods of the US, then the kerosene tariff on that country was 40 percent. As D.T. Armentano explains, tariffs restrict foreign competition, which is a vital section of the free market (after all, foreign competition is simply business which is outside of the arbitrarily-drawn line of a given country) <ref>Armentano, D.T. ''Monopoly''. Freedom Daily. 1992</ref>. In this way, by preventing possibly more efficient foreign competitors, Standard Oil was shielded from competition and hence from pressure to lower its prices even further. Indeed, abroad Standard Oil was force to lower its prices to compete with Russian oil <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 139</ref>. The protective tariffs prevented the same from occurring in the US. This is another example of government intervention during the Gilded Age distorting market forces and creating inefficient, less competitive scenarios.

== Other important points of note ==

=== Competition ===
While Standard Oil owned 88% of refining business at its height (by no means a monopoly), its market share had already decreased to 64% by 1911 (before the anti-trust case) <ref>DiLorenzo, Thomas. ''The Truth About the "Robber Barons"''. Mises Daily. 2006. http://mises.org/daily/2317#3</ref>. Indeed, many competitors were present and ready to pick up any time that Standard Oil did not meet expectations <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 88</ref><ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 120</ref>. Furthermore, whenever Standard Oil hesitated in taking an action into a new field, competitors sprang up in the new area, as was the case with discovery of the inferior grade Lima oil which would require new processing techniques <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 156</ref>. This suggests that competition was hardly stifled and that Standard Oil retained the top spot thanks to its efficiency and quality (and its size was likely increased by the government ''help'', including patents and tariffs, mentioned above).

=== Trust cohesion ===
It is important to remember that Standard Oil was not a single monolithic company which was run strictly top-down. Indeed, minority interest in different companies had to be considered and Hidy note that "instances are not lacking of objections to recommendations by committees and outright refusal to cooperate on the part of companies, even when 100 percent of their stock was held by the Trust." <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 64</ref> This adds further evidence that Standard Oil survived because of its bending to satisfy many different desires and was always at a risk of member managers breaking off to form new refineries.

== References ==
{{reflist}}

Standard Oil

2011-11-08T23:02:16Z

Wheylous: /* Government influence on Standard Oil */

{{Stub}}

'''Standard Oil''' was an American company principally concerned with oil refining to produce kerosene and petroleum byproducts (such as paraffin wax, lubricating oils, and naphtha) from its foundation in 1870 to its breakup by the Supreme Court in the 1911 antitrust case of ''Standard Oil Co. of New Jersey v. United States''.

== History ==
History pending. Meanwhile, consult Wikipedia. Alternatively, for a much more thorough look at its history, read ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)'' by Ralph Hidy and Muriel Hidy.

== Mainstream Portrayal ==
Standard Oil has been presented in mainstream history as one of the big ways in which capitalism failed in the Gilded Age and has been presented as proof for the necessity of regulating the free market. It was supposedly a company which used the free market to become too big and used the power to hurt the consumer.
Some of the accusations against Standard Oil are as follows:

=== Destruction of competition ===
Standard Oil was supposed to have used three methods of curtailing competition:

1) Buying up competitors: Standard Oil would buy up its competitors to destroy competition. Many small refiners were allegedly bought up aggressively.

2) Predatory pricing: Standard Oil would cut its prices below those of competitors to destroy their sales and force them to accept buyout proposals.

3) Preferential rail rates: Standard oil would strike deals with railroads to secure lower rail rates for its products over their competitors' products.

=== Monopoly pricing ===
After Standard Oil destroyed its competitors and had monopoly power, it would raise its prices above the market level and extort high rates from consumers

=== Controlling the price of oil ===
Through its size, Standard Oil could control the prices of crude oil.

=== Hidden companies ===
Standard Oil sometimes bought companies and did not publicly announce that it was their holding.

== Libertarian Response ==
Standard Oil has been much misunderstood, both in its status as capitalism baddie and as a company which used the free market to gain advantage.

A general overview first:

Standard Oil emerged out of a period of cutthroat competition in the 1860s <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 9</ref>. It was a time when many young entrepreneurs tried their hands at the refining business <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 4</ref>. Supply was unstable and prices fluctuated wildly <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 9</ref>. Surface oil stores were tapped quickly for easy profit and then businessmen moved on <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 9</ref>. Standard Oil introduced order to a hectic market. They were able to stabilize prices and supply in an insecure market.

A response to mainstream accusations:
=== Destruction of competition ===
Standard Oil did indeed outcompete many of its competitors

1) Buying up competitors: The majority of Standard Oil buyouts were not aggressive and benefited both parties. As Hidy note, "Tockefeller and his associates ... won the confidence of competitors through comprehensive voluntary association." <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 33</ref>. Many of the former executives of the firms which were bought up were offered high-ranking position in the new company and a guarantee of equality in management <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 34</ref> and were integrated into the management due to their experience in refining and their knowledge of local markets.
The Standard Oil trust was not comprised of one company which had bought out all others. Instead, the Trust was very much a cooperation of different companies {{Citation needed}} which sought to improve their competitive advantage and which still maintained competition even in-between the member companies <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 71</ref>.

Furthermore, it is important to note, as Hidy do, that numerous oilmen successfully resisted pressure to be bought and to be out-competed <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 34</ref>

2) Predatory Pricing: This claim does not stand strongly against either history, sound economic thought, or logic:

- ''History'': There is no evidence for large-scale predatory pricing on the part of Standard Oil {{Citation needed}}. There have been recorded cases of such "price cutting wars," yet most have been initiated by competitors of Standard Oil, not Standard Oil itself {{Citation needed}}.

Furthermore, price cutting has been previously shown to be ineffective (and indeed counter-productive), as seen in the case of Herbert Dow {{Citation needed}}. Dow was selling cheap Bromine in Germany, angering the competing Bromkonvention which decided to retaliate by flooding the US market with below-cost bromine. Dow simply ordered his agents to buy up the cheap bromine and resell it in Germany below Bromkonvention's prices yet still at a profit (relative to the below-cost price), effectively destroying the attempt at predatory pricing.

Sometimes rebates that Standard Oil offered are pointed to as a way to obtain extra customers, yet 1) this is a fair market practice, and 2) competitors were using rebates as well <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 118</ref>

- ''Sound Economic thought'': The idea of predatory pricing begs the question "what qualifies as predatory pricing?" Price cutting by itself is not a negative thing in the market and is indeed how competition works{{Citation needed}}. When companies employ more efficient methods of production, they may lower their prices, thus gaining an advantage on the market. Furthermore, price cutting is an effective and recognized tactic to enter a new market which may already have an existing market power.

- ''Logic'': Predatory pricing fails on the logical front as a tool which simply cannot work to systematically drive out competitors <ref name="DiLorenzoMyth">DiLorenzo, Thomas. "The Myth of Predatory Pricing." Cato Institute Policy Analysis No. 169, 1992. http://www.scribd.com/fullscreen/31267845</ref>. To quote DiLorenzo extensively -

: "In the first place, such practices are very costly for the large firm, which is always assumed to be the predator. If price is set below average cost, the largest firm will incur the largest losses by virtue of having the largest volume of sales. Losing a dollar on each of 1,000 widgets sold per month is more costly than losing a dollar on each of 100 widgets.

: Second, there is great uncertainty about how long a price war would last. The prospect of incurring losses indefinitely in the hope of someday being able to charge monopolistic prices will give any business person pause. A price war is anextremely risky venture. Standard Oil was not the only trust accused of predatory pricing; antitrust folklore has it that virtually all of the late-19th-century trusts were guilty of the practice. However, as I have shown elsewhere, the industries accused of becoming monopolies during the congressional debates on the 1890 Sherman Antitrust Act all dropped their pricesmore rapidly than the general price level fell during the 10 years before the Sherman Act. It would certainly havebeen irrational for those businesses to have engaged in predatory pricing for an entire decade in the dim hope of someday being able to charge prices slightly above the competitive market rate.

: Third, there is nothing stopping the competition (or "prey") from temporarily shutting down and waiting for the priceto return to profitable levels. If that strategy is employed, price competition will render the predatory pricing strategyunprofitable--all loss and no compensatory benefit. Alternatively, even if the preyed-upon firms went bankrupt, otherfirms could purchase their facilities and compete with the alleged predator. Such competition is virtually guaranteed if the predator is charging monopolistic prices and earning above-normal profits.

: Fourth, there is the danger that the price war will spread to surrounding markets and cause the alleged predator to incurlosses in those markets as well.

: Fifth, the theory of predatory pricing assumes the prior existence of a "war chest of monopoly profits" that the predatorcan use to subsidize its practice of pricing below average cost. But how does that war chest come into being if the firmhas not yet become a monopoly? That part of the theory is simply a non sequitur." <ref name="DiLorenzoMyth" />

Furthermore, the idea of predatory pricing only considers the supply side of the equation without taking into account the demand side. Assuming that a company manages by some magical means to use predatory pricing to destroy a few competitors and then institute "monopoly prices" (see below), consumers in other parts of the nation who hear of such behavior must really be of a low mental caliber to buy up the cheaper products of Standard Oil when it came to their market knowing that this would help Standard Oil destroy competition and institute new high prices.

3) Preferential rail rates: Standard Oil did indeed make deals with railroads for cheaper product transport, as did many of its competitors, hardly making it an unfair market practice. In fact, almost all of the refiners in the country enjoyed some of the advantages of favorable railroad rates at one time or another <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 202</ref>. Railroads were quietly seeking the business of Standard Oil's competitors <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 198</ref>. Hidy note that "In fact, bargaining with railroads was a delicate task and the results were not always satisfactory. ... Once bulk stations had been built on a particular line, Standard Oil marketers could not easily transfer their business to another line and their bargaining capacity was curtailed. ... Standard Oil enjoyed advantages in rates, but the favors were neither so easily come by nor so certain as critics implied." <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 119</ref> Furthermore, if Standard Oil could secure for the railroads a stable inflow of traffic, then this is a legitimate market practice by any standard, as production is streamlined and stabilized. It is also important, as Hidy note, that "Rebates to Standard Oil on crude oil shipments had been virtually eliminated without recourse to legislative enactment." <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 89</ref>

The argument breaks down even more considering that Standard Oil increasingly transported oil through pipelines and not on rails <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 215</ref>.

=== Monopoly pricing ===
The argument that Standard Oil extorted high prices from the public is simply unsupported by evidence. Indeed, the opposite appears to be true: Refine oil prices "fell from over 30 cents per gallon in 1869, to 10 cents in 1874, to 8 cents in 1885, and to 5.9 cents in 1897." <ref>Galles, Gary ''100 Years of Myths about Standard Oil''. Mises Daily. 2011. http://mises.org/daily/5274</ref> Being a large market power, but a market power nonetheless, Standard Oil could not create monopoly prices for fear of competitors springing up to win over dissatisfied customers.

The argument of monopoly pricing further fails when considering substitute goods - alternative goods that customers may buy to achieve the same ends with different means. For example,

: "Coal continued to be a cheaper generator of heat and energy than petroleum. Vegetable and animal oils were used as illuminants and lubricants by the very large segments of the world's population living in relatively unindustrialized countries. ... Tallow and stearine candles constituted strong rivals to those made form paraffin was in some markets. In Europe, especially, artificial gas and later electricity gained on kerosene as a source of light ..." <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 129</ref>

Thus, monopoly prices in kerosene and other products made by Standard Oil would have simply been replaced with substitute goods which Standard Oil did not control.

=== Controlling the price of oil ===
Standard Oil did not control the oil extraction business <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 88</ref>. At the end of its years as a trust it attempted to enter the market but was never a large force on the extraction market. Indeed, it bought its raw material from thousands of producers of crude oil <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 208</ref>. The prices of crude oil were determined on the stock exchange <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 89</ref> and Standard Oil did not speculate on the exchanges <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 88</ref>

=== Hidden companies ===
As Hidy notes, "How hidden the companies actualy were is not known, but the implcation of critics was that Standard Oil was putting something over on the public. Standard Oil men certainly disliked the use of the practice by competitors." <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 118</ref>

== The unsung benefits of Standard Oil ==

=== Environmental friendliness/Curtailing of waste ===
Standard Oil came at a time when many of its competitors extracted only one product from oil and moved on without creating byproducts. Standard Oil instead squeezed the most it could out of oil and created numerous products from the products left after the creation of kerosene such as paraffin wax and lubricating oils, which allowed it to decrease its kerosene prices <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 193</ref>. Acid sludge was sold to fertilizer companies instead of the Atlantic Ocean and coke byproducts were either used internally or sold to outside companies <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 192-193</ref>.

=== Quality of products/Self-regulation ===
Standard Oil worked to bring both a higher and more uniform standard of products to the market <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 211</ref><ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 210</ref>. Indeed, it also built better infrastructure than competitors: when constructing its pipelines, it sunk the pipe beneath the earth at least eighteen inches deep, except over solid rock, while some competitors only sank their line when int crossed tilled land. This resulted in whipsawing of the pipes of competitors when cold weather came <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 81</ref>.

Standard Oil also provides an example of market regulations at work. Standard Oil engaged outside experts to investigate complaints and to recommend methods for improvement whenever necessary <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 140</ref>. When there were leaks in its barrels it immediately sealed them and sought out the cause (resulting in environmentally-friendly policies due to a desire to not lose profit). Furthermore, when there were allegations that the company was using inaccurate and fraudulent measurements on its tanks, Standard Oil invited all of the oil exchanges to send delegates to check their measurements. No errors were found, and honesty of Standard Oil's field storage units were never again seriously questioned <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 84</ref>.

=== Building of pipelines===
Standard Oil followed a policy geared to win the good-will of landowners along their right of way and was generous in the prices it paid to private individuals and in adjustments for damages <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 81</ref>.

=== Increased standard of living===
Through its superior quality goods and uniform standards, Standard Oil helped to increase the standard of living in millions of homes using kerosene. Furthermore, in efforts to create new markets, Standard Oil distributed heat stoves, lamps, and other utensils at little or no profit to consumers <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 116</ref>.

== Government influence on Standard Oil ==
Standard Oil's methods were fair, free-market methods, as covered above. However, it is important to note in what ways Standard Oil was in fact made larger than it would have been due to active government intervention in the free market (unlike the mainstream view that the Gilded Age was largely laissez-faire):

=== Patents===
Government granting of patent monopolies shielded Standard Oil from competition. Hidy note that Standard Oil "relied heavily on patent rights to attain an advantage over competitors in cost and quality of products. ... Patents for the mechanical fabrication of cans were practically monopolized by Standard Oil companies." <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 93</ref> Furthermore, "the Standard Oil combination received and fully utilized patents granted by the federal government. That patent monopoly constituted the foundation for the large earnings of several Standard Oil units for more than fifteen years." <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 168</ref> In this manner, government in fact ''granted'' Standard Oil monopolies in small regions (look up "Intellectual Property" for an explanation on why patent monopolies are not free-market tools but instead government intervention in the free market which curtails competition).

=== Tariffs===
Tariffs are another government intervention in the free market which contributed the the size of Standard Oil. There was a consistent tariff on kerosense in the US. In 1865 the kerosene tariff was increased to 40 cents per gallon <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 6</ref>. In 1984, kerosene was placed on the free list, yet with a catch: if another country had a tariff on the goods of the US, then the kerosene tariff on that country was 40 percent. As D.T. Armentano explains, tariffs restrict foreign competition, which is a vital section of the free market (after all, foreign competition is simply business which is outside of the arbitrarily-drawn line of a given country) <ref>Armentano, D.T. ''Monopoly''. Freedom Daily. 1992</ref>. In this way, by preventing possibly more efficient foreign competitors, Standard Oil was shielded from competition and hence from pressure to lower its prices even further. Indeed, abroad Standard Oil was force to lower its prices to compete with Russian oil <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 139</ref>. The protective tariffs prevented the same from occurring in the US. This is another example of government intervention during the Gilded Age distorting market forces and creating inefficient, less competitive scenarios.

== Other important points of note ==

* '''Competition''' - While Standard Oil owned 88% of refining business at its height (by no means a monopoly), its market share had already decreased to 64% by 1911 (before the anti-trust case) <ref>DiLorenzo, Thomas. ''The Truth About the "Robber Barons"''. Mises Daily. 2006. http://mises.org/daily/2317#3</ref>. Indeed, many competitors were present and ready to pick up any time that Standard Oil did not meet expectations <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 88</ref><ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 120</ref>. Furthermore, whenever Standard Oil hesitated in taking an action into a new field, competitors sprang up in the new area, as was the case with discovery of the inferior grade Lima oil which would require new processing techniques <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 156</ref>. This suggests that competition was hardly stifled and that Standard Oil retained the top spot thanks to its efficiency and quality (and its size was likely increased by the government ''help'', including patents and tariffs, mentioned above).

* '''Trust cohesion''' - It is important to remember that Standard Oil was not a single monolithic company which was run strictly top-down. Indeed, minority interest in different companies had to be considered and Hidy note that "instances are not lacking of objections to recommendations by committees and outright refusal to cooperate on the part of companies, even when 100 percent of their stock was held by the Trust." <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 64</ref> This adds further evidence that Standard Oil survived because of its bending to satisfy many different desires and was always at a risk of member managers breaking off to form new refineries.

== References ==
{{reflist}}

Standard Oil

2011-11-08T23:01:25Z

Wheylous: /* The unsung benefits of Standard Oil */

{{Stub}}

'''Standard Oil''' was an American company principally concerned with oil refining to produce kerosene and petroleum byproducts (such as paraffin wax, lubricating oils, and naphtha) from its foundation in 1870 to its breakup by the Supreme Court in the 1911 antitrust case of ''Standard Oil Co. of New Jersey v. United States''.

== History ==
History pending. Meanwhile, consult Wikipedia. Alternatively, for a much more thorough look at its history, read ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)'' by Ralph Hidy and Muriel Hidy.

== Mainstream Portrayal ==
Standard Oil has been presented in mainstream history as one of the big ways in which capitalism failed in the Gilded Age and has been presented as proof for the necessity of regulating the free market. It was supposedly a company which used the free market to become too big and used the power to hurt the consumer.
Some of the accusations against Standard Oil are as follows:

=== Destruction of competition ===
Standard Oil was supposed to have used three methods of curtailing competition:

1) Buying up competitors: Standard Oil would buy up its competitors to destroy competition. Many small refiners were allegedly bought up aggressively.

2) Predatory pricing: Standard Oil would cut its prices below those of competitors to destroy their sales and force them to accept buyout proposals.

3) Preferential rail rates: Standard oil would strike deals with railroads to secure lower rail rates for its products over their competitors' products.

=== Monopoly pricing ===
After Standard Oil destroyed its competitors and had monopoly power, it would raise its prices above the market level and extort high rates from consumers

=== Controlling the price of oil ===
Through its size, Standard Oil could control the prices of crude oil.

=== Hidden companies ===
Standard Oil sometimes bought companies and did not publicly announce that it was their holding.

== Libertarian Response ==
Standard Oil has been much misunderstood, both in its status as capitalism baddie and as a company which used the free market to gain advantage.

A general overview first:

Standard Oil emerged out of a period of cutthroat competition in the 1860s <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 9</ref>. It was a time when many young entrepreneurs tried their hands at the refining business <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 4</ref>. Supply was unstable and prices fluctuated wildly <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 9</ref>. Surface oil stores were tapped quickly for easy profit and then businessmen moved on <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 9</ref>. Standard Oil introduced order to a hectic market. They were able to stabilize prices and supply in an insecure market.

A response to mainstream accusations:
=== Destruction of competition ===
Standard Oil did indeed outcompete many of its competitors

1) Buying up competitors: The majority of Standard Oil buyouts were not aggressive and benefited both parties. As Hidy note, "Tockefeller and his associates ... won the confidence of competitors through comprehensive voluntary association." <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 33</ref>. Many of the former executives of the firms which were bought up were offered high-ranking position in the new company and a guarantee of equality in management <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 34</ref> and were integrated into the management due to their experience in refining and their knowledge of local markets.
The Standard Oil trust was not comprised of one company which had bought out all others. Instead, the Trust was very much a cooperation of different companies {{Citation needed}} which sought to improve their competitive advantage and which still maintained competition even in-between the member companies <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 71</ref>.

Furthermore, it is important to note, as Hidy do, that numerous oilmen successfully resisted pressure to be bought and to be out-competed <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 34</ref>

2) Predatory Pricing: This claim does not stand strongly against either history, sound economic thought, or logic:

- ''History'': There is no evidence for large-scale predatory pricing on the part of Standard Oil {{Citation needed}}. There have been recorded cases of such "price cutting wars," yet most have been initiated by competitors of Standard Oil, not Standard Oil itself {{Citation needed}}.

Furthermore, price cutting has been previously shown to be ineffective (and indeed counter-productive), as seen in the case of Herbert Dow {{Citation needed}}. Dow was selling cheap Bromine in Germany, angering the competing Bromkonvention which decided to retaliate by flooding the US market with below-cost bromine. Dow simply ordered his agents to buy up the cheap bromine and resell it in Germany below Bromkonvention's prices yet still at a profit (relative to the below-cost price), effectively destroying the attempt at predatory pricing.

Sometimes rebates that Standard Oil offered are pointed to as a way to obtain extra customers, yet 1) this is a fair market practice, and 2) competitors were using rebates as well <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 118</ref>

- ''Sound Economic thought'': The idea of predatory pricing begs the question "what qualifies as predatory pricing?" Price cutting by itself is not a negative thing in the market and is indeed how competition works{{Citation needed}}. When companies employ more efficient methods of production, they may lower their prices, thus gaining an advantage on the market. Furthermore, price cutting is an effective and recognized tactic to enter a new market which may already have an existing market power.

- ''Logic'': Predatory pricing fails on the logical front as a tool which simply cannot work to systematically drive out competitors <ref name="DiLorenzoMyth">DiLorenzo, Thomas. "The Myth of Predatory Pricing." Cato Institute Policy Analysis No. 169, 1992. http://www.scribd.com/fullscreen/31267845</ref>. To quote DiLorenzo extensively -

: "In the first place, such practices are very costly for the large firm, which is always assumed to be the predator. If price is set below average cost, the largest firm will incur the largest losses by virtue of having the largest volume of sales. Losing a dollar on each of 1,000 widgets sold per month is more costly than losing a dollar on each of 100 widgets.

: Second, there is great uncertainty about how long a price war would last. The prospect of incurring losses indefinitely in the hope of someday being able to charge monopolistic prices will give any business person pause. A price war is anextremely risky venture. Standard Oil was not the only trust accused of predatory pricing; antitrust folklore has it that virtually all of the late-19th-century trusts were guilty of the practice. However, as I have shown elsewhere, the industries accused of becoming monopolies during the congressional debates on the 1890 Sherman Antitrust Act all dropped their pricesmore rapidly than the general price level fell during the 10 years before the Sherman Act. It would certainly havebeen irrational for those businesses to have engaged in predatory pricing for an entire decade in the dim hope of someday being able to charge prices slightly above the competitive market rate.

: Third, there is nothing stopping the competition (or "prey") from temporarily shutting down and waiting for the priceto return to profitable levels. If that strategy is employed, price competition will render the predatory pricing strategyunprofitable--all loss and no compensatory benefit. Alternatively, even if the preyed-upon firms went bankrupt, otherfirms could purchase their facilities and compete with the alleged predator. Such competition is virtually guaranteed if the predator is charging monopolistic prices and earning above-normal profits.

: Fourth, there is the danger that the price war will spread to surrounding markets and cause the alleged predator to incurlosses in those markets as well.

: Fifth, the theory of predatory pricing assumes the prior existence of a "war chest of monopoly profits" that the predatorcan use to subsidize its practice of pricing below average cost. But how does that war chest come into being if the firmhas not yet become a monopoly? That part of the theory is simply a non sequitur." <ref name="DiLorenzoMyth" />

Furthermore, the idea of predatory pricing only considers the supply side of the equation without taking into account the demand side. Assuming that a company manages by some magical means to use predatory pricing to destroy a few competitors and then institute "monopoly prices" (see below), consumers in other parts of the nation who hear of such behavior must really be of a low mental caliber to buy up the cheaper products of Standard Oil when it came to their market knowing that this would help Standard Oil destroy competition and institute new high prices.

3) Preferential rail rates: Standard Oil did indeed make deals with railroads for cheaper product transport, as did many of its competitors, hardly making it an unfair market practice. In fact, almost all of the refiners in the country enjoyed some of the advantages of favorable railroad rates at one time or another <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 202</ref>. Railroads were quietly seeking the business of Standard Oil's competitors <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 198</ref>. Hidy note that "In fact, bargaining with railroads was a delicate task and the results were not always satisfactory. ... Once bulk stations had been built on a particular line, Standard Oil marketers could not easily transfer their business to another line and their bargaining capacity was curtailed. ... Standard Oil enjoyed advantages in rates, but the favors were neither so easily come by nor so certain as critics implied." <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 119</ref> Furthermore, if Standard Oil could secure for the railroads a stable inflow of traffic, then this is a legitimate market practice by any standard, as production is streamlined and stabilized. It is also important, as Hidy note, that "Rebates to Standard Oil on crude oil shipments had been virtually eliminated without recourse to legislative enactment." <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 89</ref>

The argument breaks down even more considering that Standard Oil increasingly transported oil through pipelines and not on rails <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 215</ref>.

=== Monopoly pricing ===
The argument that Standard Oil extorted high prices from the public is simply unsupported by evidence. Indeed, the opposite appears to be true: Refine oil prices "fell from over 30 cents per gallon in 1869, to 10 cents in 1874, to 8 cents in 1885, and to 5.9 cents in 1897." <ref>Galles, Gary ''100 Years of Myths about Standard Oil''. Mises Daily. 2011. http://mises.org/daily/5274</ref> Being a large market power, but a market power nonetheless, Standard Oil could not create monopoly prices for fear of competitors springing up to win over dissatisfied customers.

The argument of monopoly pricing further fails when considering substitute goods - alternative goods that customers may buy to achieve the same ends with different means. For example,

: "Coal continued to be a cheaper generator of heat and energy than petroleum. Vegetable and animal oils were used as illuminants and lubricants by the very large segments of the world's population living in relatively unindustrialized countries. ... Tallow and stearine candles constituted strong rivals to those made form paraffin was in some markets. In Europe, especially, artificial gas and later electricity gained on kerosene as a source of light ..." <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 129</ref>

Thus, monopoly prices in kerosene and other products made by Standard Oil would have simply been replaced with substitute goods which Standard Oil did not control.

=== Controlling the price of oil ===
Standard Oil did not control the oil extraction business <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 88</ref>. At the end of its years as a trust it attempted to enter the market but was never a large force on the extraction market. Indeed, it bought its raw material from thousands of producers of crude oil <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 208</ref>. The prices of crude oil were determined on the stock exchange <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 89</ref> and Standard Oil did not speculate on the exchanges <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 88</ref>

=== Hidden companies ===
As Hidy notes, "How hidden the companies actualy were is not known, but the implcation of critics was that Standard Oil was putting something over on the public. Standard Oil men certainly disliked the use of the practice by competitors." <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 118</ref>

== The unsung benefits of Standard Oil ==

=== Environmental friendliness/Curtailing of waste ===
Standard Oil came at a time when many of its competitors extracted only one product from oil and moved on without creating byproducts. Standard Oil instead squeezed the most it could out of oil and created numerous products from the products left after the creation of kerosene such as paraffin wax and lubricating oils, which allowed it to decrease its kerosene prices <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 193</ref>. Acid sludge was sold to fertilizer companies instead of the Atlantic Ocean and coke byproducts were either used internally or sold to outside companies <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 192-193</ref>.

=== Quality of products/Self-regulation ===
Standard Oil worked to bring both a higher and more uniform standard of products to the market <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 211</ref><ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 210</ref>. Indeed, it also built better infrastructure than competitors: when constructing its pipelines, it sunk the pipe beneath the earth at least eighteen inches deep, except over solid rock, while some competitors only sank their line when int crossed tilled land. This resulted in whipsawing of the pipes of competitors when cold weather came <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 81</ref>.

Standard Oil also provides an example of market regulations at work. Standard Oil engaged outside experts to investigate complaints and to recommend methods for improvement whenever necessary <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 140</ref>. When there were leaks in its barrels it immediately sealed them and sought out the cause (resulting in environmentally-friendly policies due to a desire to not lose profit). Furthermore, when there were allegations that the company was using inaccurate and fraudulent measurements on its tanks, Standard Oil invited all of the oil exchanges to send delegates to check their measurements. No errors were found, and honesty of Standard Oil's field storage units were never again seriously questioned <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 84</ref>.

=== Building of pipelines===
Standard Oil followed a policy geared to win the good-will of landowners along their right of way and was generous in the prices it paid to private individuals and in adjustments for damages <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 81</ref>.

=== Increased standard of living===
Through its superior quality goods and uniform standards, Standard Oil helped to increase the standard of living in millions of homes using kerosene. Furthermore, in efforts to create new markets, Standard Oil distributed heat stoves, lamps, and other utensils at little or no profit to consumers <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 116</ref>.

== Government influence on Standard Oil ==
Standard Oil's methods were fair, free-market methods, as covered above. However, it is important to note in what ways Standard Oil was in fact made larger than it would have been due to active government intervention in the free market (unlike the mainstream view that the Gilded Age was largely laissez-faire):

* '''Patents''' - Government granting of patent monopolies shielded Standard Oil from competition. Hidy note that Standard Oil "relied heavily on patent rights to attain an advantage over competitors in cost and quality of products. ... Patents for the mechanical fabrication of cans were practically monopolized by Standard Oil companies." <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 93</ref> Furthermore, "the Standard Oil combination received and fully utilized patents granted by the federal government. That patent monopoly constituted the foundation for the large earnings of several Standard Oil units for more than fifteen years." <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 168</ref> In this manner, government in fact ''granted'' Standard Oil monopolies in small regions (look up "Intellectual Property" for an explanation on why patent monopolies are not free-market tools but instead government intervention in the free market which curtails competition).

* '''Tariffs''' - Tariffs are another government intervention in the free market which contributed the the size of Standard Oil. There was a consistent tariff on kerosense in the US. In 1865 the kerosene tariff was increased to 40 cents per gallon <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 6</ref>. In 1984, kerosene was placed on the free list, yet with a catch: if another country had a tariff on the goods of the US, then the kerosene tariff on that country was 40 percent. As D.T. Armentano explains, tariffs restrict foreign competition, which is a vital section of the free market (after all, foreign competition is simply business which is outside of the arbitrarily-drawn line of a given country) <ref>Armentano, D.T. ''Monopoly''. Freedom Daily. 1992</ref>. In this way, by preventing possibly more efficient foreign competitors, Standard Oil was shielded from competition and hence from pressure to lower its prices even further. Indeed, abroad Standard Oil was force to lower its prices to compete with Russian oil <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 139</ref>. The protective tariffs prevented the same from occurring in the US. This is another example of government intervention during the Gilded Age distorting market forces and creating inefficient, less competitive scenarios.

== Other important points of note ==

* '''Competition''' - While Standard Oil owned 88% of refining business at its height (by no means a monopoly), its market share had already decreased to 64% by 1911 (before the anti-trust case) <ref>DiLorenzo, Thomas. ''The Truth About the "Robber Barons"''. Mises Daily. 2006. http://mises.org/daily/2317#3</ref>. Indeed, many competitors were present and ready to pick up any time that Standard Oil did not meet expectations <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 88</ref><ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 120</ref>. Furthermore, whenever Standard Oil hesitated in taking an action into a new field, competitors sprang up in the new area, as was the case with discovery of the inferior grade Lima oil which would require new processing techniques <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 156</ref>. This suggests that competition was hardly stifled and that Standard Oil retained the top spot thanks to its efficiency and quality (and its size was likely increased by the government ''help'', including patents and tariffs, mentioned above).

* '''Trust cohesion''' - It is important to remember that Standard Oil was not a single monolithic company which was run strictly top-down. Indeed, minority interest in different companies had to be considered and Hidy note that "instances are not lacking of objections to recommendations by committees and outright refusal to cooperate on the part of companies, even when 100 percent of their stock was held by the Trust." <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 64</ref> This adds further evidence that Standard Oil survived because of its bending to satisfy many different desires and was always at a risk of member managers breaking off to form new refineries.

== References ==
{{reflist}}

Standard Oil

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{{Stub}}

'''Standard Oil''' was an American company principally concerned with oil refining to produce kerosene and petroleum byproducts (such as paraffin wax, lubricating oils, and naphtha) from its foundation in 1870 to its breakup by the Supreme Court in the 1911 antitrust case of ''Standard Oil Co. of New Jersey v. United States''.

== History ==
History pending. Meanwhile, consult Wikipedia. Alternatively, for a much more thorough look at its history, read ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)'' by Ralph Hidy and Muriel Hidy.

== Mainstream Portrayal ==
Standard Oil has been presented in mainstream history as one of the big ways in which capitalism failed in the Gilded Age and has been presented as proof for the necessity of regulating the free market. It was supposedly a company which used the free market to become too big and used the power to hurt the consumer.
Some of the accusations against Standard Oil are as follows:

=== Destruction of competition ===
Standard Oil was supposed to have used three methods of curtailing competition:

1) Buying up competitors: Standard Oil would buy up its competitors to destroy competition. Many small refiners were allegedly bought up aggressively.

2) Predatory pricing: Standard Oil would cut its prices below those of competitors to destroy their sales and force them to accept buyout proposals.

3) Preferential rail rates: Standard oil would strike deals with railroads to secure lower rail rates for its products over their competitors' products.

=== Monopoly pricing ===
After Standard Oil destroyed its competitors and had monopoly power, it would raise its prices above the market level and extort high rates from consumers

=== Controlling the price of oil ===
Through its size, Standard Oil could control the prices of crude oil.

=== Hidden companies ===
Standard Oil sometimes bought companies and did not publicly announce that it was their holding.

== Libertarian Response ==
Standard Oil has been much misunderstood, both in its status as capitalism baddie and as a company which used the free market to gain advantage.

A general overview first:

Standard Oil emerged out of a period of cutthroat competition in the 1860s <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 9</ref>. It was a time when many young entrepreneurs tried their hands at the refining business <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 4</ref>. Supply was unstable and prices fluctuated wildly <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 9</ref>. Surface oil stores were tapped quickly for easy profit and then businessmen moved on <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 9</ref>. Standard Oil introduced order to a hectic market. They were able to stabilize prices and supply in an insecure market.

A response to mainstream accusations:
=== Destruction of competition ===
Standard Oil did indeed outcompete many of its competitors

1) Buying up competitors: The majority of Standard Oil buyouts were not aggressive and benefited both parties. As Hidy note, "Tockefeller and his associates ... won the confidence of competitors through comprehensive voluntary association." <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 33</ref>. Many of the former executives of the firms which were bought up were offered high-ranking position in the new company and a guarantee of equality in management <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 34</ref> and were integrated into the management due to their experience in refining and their knowledge of local markets.
The Standard Oil trust was not comprised of one company which had bought out all others. Instead, the Trust was very much a cooperation of different companies {{Citation needed}} which sought to improve their competitive advantage and which still maintained competition even in-between the member companies <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 71</ref>.

Furthermore, it is important to note, as Hidy do, that numerous oilmen successfully resisted pressure to be bought and to be out-competed <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 34</ref>

2) Predatory Pricing: This claim does not stand strongly against either history, sound economic thought, or logic:

- ''History'': There is no evidence for large-scale predatory pricing on the part of Standard Oil {{Citation needed}}. There have been recorded cases of such "price cutting wars," yet most have been initiated by competitors of Standard Oil, not Standard Oil itself {{Citation needed}}.

Furthermore, price cutting has been previously shown to be ineffective (and indeed counter-productive), as seen in the case of Herbert Dow {{Citation needed}}. Dow was selling cheap Bromine in Germany, angering the competing Bromkonvention which decided to retaliate by flooding the US market with below-cost bromine. Dow simply ordered his agents to buy up the cheap bromine and resell it in Germany below Bromkonvention's prices yet still at a profit (relative to the below-cost price), effectively destroying the attempt at predatory pricing.

Sometimes rebates that Standard Oil offered are pointed to as a way to obtain extra customers, yet 1) this is a fair market practice, and 2) competitors were using rebates as well <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 118</ref>

- ''Sound Economic thought'': The idea of predatory pricing begs the question "what qualifies as predatory pricing?" Price cutting by itself is not a negative thing in the market and is indeed how competition works{{Citation needed}}. When companies employ more efficient methods of production, they may lower their prices, thus gaining an advantage on the market. Furthermore, price cutting is an effective and recognized tactic to enter a new market which may already have an existing market power.

- ''Logic'': Predatory pricing fails on the logical front as a tool which simply cannot work to systematically drive out competitors <ref name="DiLorenzoMyth">DiLorenzo, Thomas. "The Myth of Predatory Pricing." Cato Institute Policy Analysis No. 169, 1992. http://www.scribd.com/fullscreen/31267845</ref>. To quote DiLorenzo extensively -

: "In the first place, such practices are very costly for the large firm, which is always assumed to be the predator. If price is set below average cost, the largest firm will incur the largest losses by virtue of having the largest volume of sales. Losing a dollar on each of 1,000 widgets sold per month is more costly than losing a dollar on each of 100 widgets.

: Second, there is great uncertainty about how long a price war would last. The prospect of incurring losses indefinitely in the hope of someday being able to charge monopolistic prices will give any business person pause. A price war is anextremely risky venture. Standard Oil was not the only trust accused of predatory pricing; antitrust folklore has it that virtually all of the late-19th-century trusts were guilty of the practice. However, as I have shown elsewhere, the industries accused of becoming monopolies during the congressional debates on the 1890 Sherman Antitrust Act all dropped their pricesmore rapidly than the general price level fell during the 10 years before the Sherman Act. It would certainly havebeen irrational for those businesses to have engaged in predatory pricing for an entire decade in the dim hope of someday being able to charge prices slightly above the competitive market rate.

: Third, there is nothing stopping the competition (or "prey") from temporarily shutting down and waiting for the priceto return to profitable levels. If that strategy is employed, price competition will render the predatory pricing strategyunprofitable--all loss and no compensatory benefit. Alternatively, even if the preyed-upon firms went bankrupt, otherfirms could purchase their facilities and compete with the alleged predator. Such competition is virtually guaranteed if the predator is charging monopolistic prices and earning above-normal profits.

: Fourth, there is the danger that the price war will spread to surrounding markets and cause the alleged predator to incurlosses in those markets as well.

: Fifth, the theory of predatory pricing assumes the prior existence of a "war chest of monopoly profits" that the predatorcan use to subsidize its practice of pricing below average cost. But how does that war chest come into being if the firmhas not yet become a monopoly? That part of the theory is simply a non sequitur." <ref name="DiLorenzoMyth" />

Furthermore, the idea of predatory pricing only considers the supply side of the equation without taking into account the demand side. Assuming that a company manages by some magical means to use predatory pricing to destroy a few competitors and then institute "monopoly prices" (see below), consumers in other parts of the nation who hear of such behavior must really be of a low mental caliber to buy up the cheaper products of Standard Oil when it came to their market knowing that this would help Standard Oil destroy competition and institute new high prices.

3) Preferential rail rates: Standard Oil did indeed make deals with railroads for cheaper product transport, as did many of its competitors, hardly making it an unfair market practice. In fact, almost all of the refiners in the country enjoyed some of the advantages of favorable railroad rates at one time or another <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 202</ref>. Railroads were quietly seeking the business of Standard Oil's competitors <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 198</ref>. Hidy note that "In fact, bargaining with railroads was a delicate task and the results were not always satisfactory. ... Once bulk stations had been built on a particular line, Standard Oil marketers could not easily transfer their business to another line and their bargaining capacity was curtailed. ... Standard Oil enjoyed advantages in rates, but the favors were neither so easily come by nor so certain as critics implied." <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 119</ref> Furthermore, if Standard Oil could secure for the railroads a stable inflow of traffic, then this is a legitimate market practice by any standard, as production is streamlined and stabilized. It is also important, as Hidy note, that "Rebates to Standard Oil on crude oil shipments had been virtually eliminated without recourse to legislative enactment." <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 89</ref>

The argument breaks down even more considering that Standard Oil increasingly transported oil through pipelines and not on rails <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 215</ref>.

=== Monopoly pricing ===
The argument that Standard Oil extorted high prices from the public is simply unsupported by evidence. Indeed, the opposite appears to be true: Refine oil prices "fell from over 30 cents per gallon in 1869, to 10 cents in 1874, to 8 cents in 1885, and to 5.9 cents in 1897." <ref>Galles, Gary ''100 Years of Myths about Standard Oil''. Mises Daily. 2011. http://mises.org/daily/5274</ref> Being a large market power, but a market power nonetheless, Standard Oil could not create monopoly prices for fear of competitors springing up to win over dissatisfied customers.

The argument of monopoly pricing further fails when considering substitute goods - alternative goods that customers may buy to achieve the same ends with different means. For example,

: "Coal continued to be a cheaper generator of heat and energy than petroleum. Vegetable and animal oils were used as illuminants and lubricants by the very large segments of the world's population living in relatively unindustrialized countries. ... Tallow and stearine candles constituted strong rivals to those made form paraffin was in some markets. In Europe, especially, artificial gas and later electricity gained on kerosene as a source of light ..." <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 129</ref>

Thus, monopoly prices in kerosene and other products made by Standard Oil would have simply been replaced with substitute goods which Standard Oil did not control.

=== Controlling the price of oil ===
Standard Oil did not control the oil extraction business <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 88</ref>. At the end of its years as a trust it attempted to enter the market but was never a large force on the extraction market. Indeed, it bought its raw material from thousands of producers of crude oil <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 208</ref>. The prices of crude oil were determined on the stock exchange <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 89</ref> and Standard Oil did not speculate on the exchanges <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 88</ref>

=== Hidden companies ===
As Hidy notes, "How hidden the companies actualy were is not known, but the implcation of critics was that Standard Oil was putting something over on the public. Standard Oil men certainly disliked the use of the practice by competitors." <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 118</ref>

== The unsung benefits of Standard Oil ==

* '''Environmental friendliness/Curtailing of waste''' - Standard Oil came at a time when many of its competitors extracted only one product from oil and moved on without creating byproducts. Standard Oil instead squeezed the most it could out of oil and created numerous products from the products left after the creation of kerosene such as paraffin wax and lubricating oils, which allowed it to decrease its kerosene prices <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 193</ref>. Acid sludge was sold to fertilizer companies instead of the Atlantic Ocean and coke byproducts were either used internally or sold to outside companies <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 192-193</ref>.

* '''Quality of products/Self-regulation''' - Standard Oil worked to bring both a higher and more uniform standard of products to the market <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 211</ref><ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 210</ref>. Indeed, it also built better infrastructure than competitors: when constructing its pipelines, it sunk the pipe beneath the earth at least eighteen inches deep, except over solid rock, while some competitors only sank their line when int crossed tilled land. This resulted in whipsawing of the pipes of competitors when cold weather came <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 81</ref>.

Standard Oil also provides an example of market regulations at work. Standard Oil engaged outside experts to investigate complaints and to recommend methods for improvement whenever necessary <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 140</ref>. When there were leaks in its barrels it immediately sealed them and sought out the cause (resulting in environmentally-friendly policies due to a desire to not lose profit). Furthermore, when there were allegations that the company was using inaccurate and fraudulent measurements on its tanks, Standard Oil invited all of the oil exchanges to send delegates to check their measurements. No errors were found, and honesty of Standard Oil's field storage units were never again seriously questioned <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 84</ref>.

* '''Building of pipelines''' - Standard Oil followed a policy geared to win the good-will of landowners along their right of way and was generous in the prices it paid to private individuals and in adjustments for damages <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 81</ref>.

* '''Increased standard of living''' - Through its superior quality goods and uniform standards, Standard Oil helped to increase the standard of living in millions of homes using kerosene. Furthermore, in efforts to create new markets, Standard Oil distributed heat stoves, lamps, and other utensils at little or no profit to consumers <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 116</ref>.

== Government influence on Standard Oil ==
Standard Oil's methods were fair, free-market methods, as covered above. However, it is important to note in what ways Standard Oil was in fact made larger than it would have been due to active government intervention in the free market (unlike the mainstream view that the Gilded Age was largely laissez-faire):

* '''Patents''' - Government granting of patent monopolies shielded Standard Oil from competition. Hidy note that Standard Oil "relied heavily on patent rights to attain an advantage over competitors in cost and quality of products. ... Patents for the mechanical fabrication of cans were practically monopolized by Standard Oil companies." <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 93</ref> Furthermore, "the Standard Oil combination received and fully utilized patents granted by the federal government. That patent monopoly constituted the foundation for the large earnings of several Standard Oil units for more than fifteen years." <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 168</ref> In this manner, government in fact ''granted'' Standard Oil monopolies in small regions (look up "Intellectual Property" for an explanation on why patent monopolies are not free-market tools but instead government intervention in the free market which curtails competition).

* '''Tariffs''' - Tariffs are another government intervention in the free market which contributed the the size of Standard Oil. There was a consistent tariff on kerosense in the US. In 1865 the kerosene tariff was increased to 40 cents per gallon <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 6</ref>. In 1984, kerosene was placed on the free list, yet with a catch: if another country had a tariff on the goods of the US, then the kerosene tariff on that country was 40 percent. As D.T. Armentano explains, tariffs restrict foreign competition, which is a vital section of the free market (after all, foreign competition is simply business which is outside of the arbitrarily-drawn line of a given country) <ref>Armentano, D.T. ''Monopoly''. Freedom Daily. 1992</ref>. In this way, by preventing possibly more efficient foreign competitors, Standard Oil was shielded from competition and hence from pressure to lower its prices even further. Indeed, abroad Standard Oil was force to lower its prices to compete with Russian oil <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 139</ref>. The protective tariffs prevented the same from occurring in the US. This is another example of government intervention during the Gilded Age distorting market forces and creating inefficient, less competitive scenarios.

== Other important points of note ==

* '''Competition''' - While Standard Oil owned 88% of refining business at its height (by no means a monopoly), its market share had already decreased to 64% by 1911 (before the anti-trust case) <ref>DiLorenzo, Thomas. ''The Truth About the "Robber Barons"''. Mises Daily. 2006. http://mises.org/daily/2317#3</ref>. Indeed, many competitors were present and ready to pick up any time that Standard Oil did not meet expectations <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 88</ref><ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 120</ref>. Furthermore, whenever Standard Oil hesitated in taking an action into a new field, competitors sprang up in the new area, as was the case with discovery of the inferior grade Lima oil which would require new processing techniques <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 156</ref>. This suggests that competition was hardly stifled and that Standard Oil retained the top spot thanks to its efficiency and quality (and its size was likely increased by the government ''help'', including patents and tariffs, mentioned above).

* '''Trust cohesion''' - It is important to remember that Standard Oil was not a single monolithic company which was run strictly top-down. Indeed, minority interest in different companies had to be considered and Hidy note that "instances are not lacking of objections to recommendations by committees and outright refusal to cooperate on the part of companies, even when 100 percent of their stock was held by the Trust." <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 64</ref> This adds further evidence that Standard Oil survived because of its bending to satisfy many different desires and was always at a risk of member managers breaking off to form new refineries.

== References ==
{{reflist}}

Standard Oil

2011-11-08T22:59:34Z

Wheylous: /* Libertarian Response */

{{Stub}}

'''Standard Oil''' was an American company principally concerned with oil refining to produce kerosene and petroleum byproducts (such as paraffin wax, lubricating oils, and naphtha) from its foundation in 1870 to its breakup by the Supreme Court in the 1911 antitrust case of ''Standard Oil Co. of New Jersey v. United States''.

== History ==
History pending. Meanwhile, consult Wikipedia. Alternatively, for a much more thorough look at its history, read ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)'' by Ralph Hidy and Muriel Hidy.

== Mainstream Portrayal ==
Standard Oil has been presented in mainstream history as one of the big ways in which capitalism failed in the Gilded Age and has been presented as proof for the necessity of regulating the free market. It was supposedly a company which used the free market to become too big and used the power to hurt the consumer.
Some of the accusations against Standard Oil are as follows:

=== Destruction of competition ===
Standard Oil was supposed to have used three methods of curtailing competition:

1) Buying up competitors: Standard Oil would buy up its competitors to destroy competition. Many small refiners were allegedly bought up aggressively.

2) Predatory pricing: Standard Oil would cut its prices below those of competitors to destroy their sales and force them to accept buyout proposals.

3) Preferential rail rates: Standard oil would strike deals with railroads to secure lower rail rates for its products over their competitors' products.

=== Monopoly pricing ===
After Standard Oil destroyed its competitors and had monopoly power, it would raise its prices above the market level and extort high rates from consumers

=== Controlling the price of oil ===
Through its size, Standard Oil could control the prices of crude oil.

=== Hidden companies ===
Standard Oil sometimes bought companies and did not publicly announce that it was their holding.

== Libertarian Response ==
Standard Oil has been much misunderstood, both in its status as capitalism baddie and as a company which used the free market to gain advantage.

A general overview first:

Standard Oil emerged out of a period of cutthroat competition in the 1860s <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 9</ref>. It was a time when many young entrepreneurs tried their hands at the refining business <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 4</ref>. Supply was unstable and prices fluctuated wildly <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 9</ref>. Surface oil stores were tapped quickly for easy profit and then businessmen moved on <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 9</ref>. Standard Oil introduced order to a hectic market. They were able to stabilize prices and supply in an insecure market.

A response to mainstream accusations:
=== Destruction of competition ===
Standard Oil did indeed outcompete many of its competitors
1) Buying up competitors: The majority of Standard Oil buyouts were not aggressive and benefited both parties. As Hidy note, "Tockefeller and his associates ... won the confidence of competitors through comprehensive voluntary association." <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 33</ref>. Many of the former executives of the firms which were bought up were offered high-ranking position in the new company and a guarantee of equality in management <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 34</ref> and were integrated into the management due to their experience in refining and their knowledge of local markets.
The Standard Oil trust was not comprised of one company which had bought out all others. Instead, the Trust was very much a cooperation of different companies {{Citation needed}} which sought to improve their competitive advantage and which still maintained competition even in-between the member companies <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 71</ref>.

Furthermore, it is important to note, as Hidy do, that numerous oilmen successfully resisted pressure to be bought and to be out-competed <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 34</ref>

2) Predatory Pricing: This claim does not stand strongly against either history, sound economic thought, or logic:

- ''History'': There is no evidence for large-scale predatory pricing on the part of Standard Oil {{Citation needed}}. There have been recorded cases of such "price cutting wars," yet most have been initiated by competitors of Standard Oil, not Standard Oil itself {{Citation needed}}.

Furthermore, price cutting has been previously shown to be ineffective (and indeed counter-productive), as seen in the case of Herbert Dow {{Citation needed}}. Dow was selling cheap Bromine in Germany, angering the competing Bromkonvention which decided to retaliate by flooding the US market with below-cost bromine. Dow simply ordered his agents to buy up the cheap bromine and resell it in Germany below Bromkonvention's prices yet still at a profit (relative to the below-cost price), effectively destroying the attempt at predatory pricing.

Sometimes rebates that Standard Oil offered are pointed to as a way to obtain extra customers, yet 1) this is a fair market practice, and 2) competitors were using rebates as well <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 118</ref>

- ''Sound Economic thought'': The idea of predatory pricing begs the question "what qualifies as predatory pricing?" Price cutting by itself is not a negative thing in the market and is indeed how competition works{{Citation needed}}. When companies employ more efficient methods of production, they may lower their prices, thus gaining an advantage on the market. Furthermore, price cutting is an effective and recognized tactic to enter a new market which may already have an existing market power.

- ''Logic'': Predatory pricing fails on the logical front as a tool which simply cannot work to systematically drive out competitors <ref name="DiLorenzoMyth">DiLorenzo, Thomas. "The Myth of Predatory Pricing." Cato Institute Policy Analysis No. 169, 1992. http://www.scribd.com/fullscreen/31267845</ref>. To quote DiLorenzo extensively -

: "In the first place, such practices are very costly for the large firm, which is always assumed to be the predator. If price is set below average cost, the largest firm will incur the largest losses by virtue of having the largest volume of sales. Losing a dollar on each of 1,000 widgets sold per month is more costly than losing a dollar on each of 100 widgets.

: Second, there is great uncertainty about how long a price war would last. The prospect of incurring losses indefinitely in the hope of someday being able to charge monopolistic prices will give any business person pause. A price war is anextremely risky venture. Standard Oil was not the only trust accused of predatory pricing; antitrust folklore has it that virtually all of the late-19th-century trusts were guilty of the practice. However, as I have shown elsewhere, the industries accused of becoming monopolies during the congressional debates on the 1890 Sherman Antitrust Act all dropped their pricesmore rapidly than the general price level fell during the 10 years before the Sherman Act. It would certainly havebeen irrational for those businesses to have engaged in predatory pricing for an entire decade in the dim hope of someday being able to charge prices slightly above the competitive market rate.

: Third, there is nothing stopping the competition (or "prey") from temporarily shutting down and waiting for the priceto return to profitable levels. If that strategy is employed, price competition will render the predatory pricing strategyunprofitable--all loss and no compensatory benefit. Alternatively, even if the preyed-upon firms went bankrupt, otherfirms could purchase their facilities and compete with the alleged predator. Such competition is virtually guaranteed if the predator is charging monopolistic prices and earning above-normal profits.

: Fourth, there is the danger that the price war will spread to surrounding markets and cause the alleged predator to incurlosses in those markets as well.

: Fifth, the theory of predatory pricing assumes the prior existence of a "war chest of monopoly profits" that the predatorcan use to subsidize its practice of pricing below average cost. But how does that war chest come into being if the firmhas not yet become a monopoly? That part of the theory is simply a non sequitur." <ref name="DiLorenzoMyth" />

Furthermore, the idea of predatory pricing only considers the supply side of the equation without taking into account the demand side. Assuming that a company manages by some magical means to use predatory pricing to destroy a few competitors and then institute "monopoly prices" (see below), consumers in other parts of the nation who hear of such behavior must really be of a low mental caliber to buy up the cheaper products of Standard Oil when it came to their market knowing that this would help Standard Oil destroy competition and institute new high prices.

3) Preferential rail rates: Standard Oil did indeed make deals with railroads for cheaper product transport, as did many of its competitors, hardly making it an unfair market practice. In fact, almost all of the refiners in the country enjoyed some of the advantages of favorable railroad rates at one time or another <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 202</ref>. Railroads were quietly seeking the business of Standard Oil's competitors <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 198</ref>. Hidy note that "In fact, bargaining with railroads was a delicate task and the results were not always satisfactory. ... Once bulk stations had been built on a particular line, Standard Oil marketers could not easily transfer their business to another line and their bargaining capacity was curtailed. ... Standard Oil enjoyed advantages in rates, but the favors were neither so easily come by nor so certain as critics implied." <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 119</ref> Furthermore, if Standard Oil could secure for the railroads a stable inflow of traffic, then this is a legitimate market practice by any standard, as production is streamlined and stabilized. It is also important, as Hidy note, that "Rebates to Standard Oil on crude oil shipments had been virtually eliminated without recourse to legislative enactment." <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 89</ref>

The argument breaks down even more considering that Standard Oil increasingly transported oil through pipelines and not on rails <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 215</ref>.

=== Monopoly pricing ===
The argument that Standard Oil extorted high prices from the public is simply unsupported by evidence. Indeed, the opposite appears to be true: Refine oil prices "fell from over 30 cents per gallon in 1869, to 10 cents in 1874, to 8 cents in 1885, and to 5.9 cents in 1897." <ref>Galles, Gary ''100 Years of Myths about Standard Oil''. Mises Daily. 2011. http://mises.org/daily/5274</ref> Being a large market power, but a market power nonetheless, Standard Oil could not create monopoly prices for fear of competitors springing up to win over dissatisfied customers.

The argument of monopoly pricing further fails when considering substitute goods - alternative goods that customers may buy to achieve the same ends with different means. For example,

: "Coal continued to be a cheaper generator of heat and energy than petroleum. Vegetable and animal oils were used as illuminants and lubricants by the very large segments of the world's population living in relatively unindustrialized countries. ... Tallow and stearine candles constituted strong rivals to those made form paraffin was in some markets. In Europe, especially, artificial gas and later electricity gained on kerosene as a source of light ..." <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 129</ref>

Thus, monopoly prices in kerosene and other products made by Standard Oil would have simply been replaced with substitute goods which Standard Oil did not control.

=== Controlling the price of oil ===
Standard Oil did not control the oil extraction business <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 88</ref>. At the end of its years as a trust it attempted to enter the market but was never a large force on the extraction market. Indeed, it bought its raw material from thousands of producers of crude oil <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 208</ref>. The prices of crude oil were determined on the stock exchange <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 89</ref> and Standard Oil did not speculate on the exchanges <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 88</ref>

=== Hidden companies ===
As Hidy notes, "How hidden the companies actualy were is not known, but the implcation of critics was that Standard Oil was putting something over on the public. Standard Oil men certainly disliked the use of the practice by competitors." <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 118</ref>

== The unsung benefits of Standard Oil ==

* '''Environmental friendliness/Curtailing of waste''' - Standard Oil came at a time when many of its competitors extracted only one product from oil and moved on without creating byproducts. Standard Oil instead squeezed the most it could out of oil and created numerous products from the products left after the creation of kerosene such as paraffin wax and lubricating oils, which allowed it to decrease its kerosene prices <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 193</ref>. Acid sludge was sold to fertilizer companies instead of the Atlantic Ocean and coke byproducts were either used internally or sold to outside companies <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 192-193</ref>.

* '''Quality of products/Self-regulation''' - Standard Oil worked to bring both a higher and more uniform standard of products to the market <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 211</ref><ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 210</ref>. Indeed, it also built better infrastructure than competitors: when constructing its pipelines, it sunk the pipe beneath the earth at least eighteen inches deep, except over solid rock, while some competitors only sank their line when int crossed tilled land. This resulted in whipsawing of the pipes of competitors when cold weather came <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 81</ref>.

Standard Oil also provides an example of market regulations at work. Standard Oil engaged outside experts to investigate complaints and to recommend methods for improvement whenever necessary <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 140</ref>. When there were leaks in its barrels it immediately sealed them and sought out the cause (resulting in environmentally-friendly policies due to a desire to not lose profit). Furthermore, when there were allegations that the company was using inaccurate and fraudulent measurements on its tanks, Standard Oil invited all of the oil exchanges to send delegates to check their measurements. No errors were found, and honesty of Standard Oil's field storage units were never again seriously questioned <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 84</ref>.

* '''Building of pipelines''' - Standard Oil followed a policy geared to win the good-will of landowners along their right of way and was generous in the prices it paid to private individuals and in adjustments for damages <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 81</ref>.

* '''Increased standard of living''' - Through its superior quality goods and uniform standards, Standard Oil helped to increase the standard of living in millions of homes using kerosene. Furthermore, in efforts to create new markets, Standard Oil distributed heat stoves, lamps, and other utensils at little or no profit to consumers <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 116</ref>.

== Government influence on Standard Oil ==
Standard Oil's methods were fair, free-market methods, as covered above. However, it is important to note in what ways Standard Oil was in fact made larger than it would have been due to active government intervention in the free market (unlike the mainstream view that the Gilded Age was largely laissez-faire):

* '''Patents''' - Government granting of patent monopolies shielded Standard Oil from competition. Hidy note that Standard Oil "relied heavily on patent rights to attain an advantage over competitors in cost and quality of products. ... Patents for the mechanical fabrication of cans were practically monopolized by Standard Oil companies." <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 93</ref> Furthermore, "the Standard Oil combination received and fully utilized patents granted by the federal government. That patent monopoly constituted the foundation for the large earnings of several Standard Oil units for more than fifteen years." <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 168</ref> In this manner, government in fact ''granted'' Standard Oil monopolies in small regions (look up "Intellectual Property" for an explanation on why patent monopolies are not free-market tools but instead government intervention in the free market which curtails competition).

* '''Tariffs''' - Tariffs are another government intervention in the free market which contributed the the size of Standard Oil. There was a consistent tariff on kerosense in the US. In 1865 the kerosene tariff was increased to 40 cents per gallon <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 6</ref>. In 1984, kerosene was placed on the free list, yet with a catch: if another country had a tariff on the goods of the US, then the kerosene tariff on that country was 40 percent. As D.T. Armentano explains, tariffs restrict foreign competition, which is a vital section of the free market (after all, foreign competition is simply business which is outside of the arbitrarily-drawn line of a given country) <ref>Armentano, D.T. ''Monopoly''. Freedom Daily. 1992</ref>. In this way, by preventing possibly more efficient foreign competitors, Standard Oil was shielded from competition and hence from pressure to lower its prices even further. Indeed, abroad Standard Oil was force to lower its prices to compete with Russian oil <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 139</ref>. The protective tariffs prevented the same from occurring in the US. This is another example of government intervention during the Gilded Age distorting market forces and creating inefficient, less competitive scenarios.

== Other important points of note ==

* '''Competition''' - While Standard Oil owned 88% of refining business at its height (by no means a monopoly), its market share had already decreased to 64% by 1911 (before the anti-trust case) <ref>DiLorenzo, Thomas. ''The Truth About the "Robber Barons"''. Mises Daily. 2006. http://mises.org/daily/2317#3</ref>. Indeed, many competitors were present and ready to pick up any time that Standard Oil did not meet expectations <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 88</ref><ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 120</ref>. Furthermore, whenever Standard Oil hesitated in taking an action into a new field, competitors sprang up in the new area, as was the case with discovery of the inferior grade Lima oil which would require new processing techniques <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 156</ref>. This suggests that competition was hardly stifled and that Standard Oil retained the top spot thanks to its efficiency and quality (and its size was likely increased by the government ''help'', including patents and tariffs, mentioned above).

* '''Trust cohesion''' - It is important to remember that Standard Oil was not a single monolithic company which was run strictly top-down. Indeed, minority interest in different companies had to be considered and Hidy note that "instances are not lacking of objections to recommendations by committees and outright refusal to cooperate on the part of companies, even when 100 percent of their stock was held by the Trust." <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 64</ref> This adds further evidence that Standard Oil survived because of its bending to satisfy many different desires and was always at a risk of member managers breaking off to form new refineries.

== References ==
{{reflist}}

Standard Oil

2011-11-08T22:58:06Z

Wheylous: /* Mainstream Portrayal */

{{Stub}}

'''Standard Oil''' was an American company principally concerned with oil refining to produce kerosene and petroleum byproducts (such as paraffin wax, lubricating oils, and naphtha) from its foundation in 1870 to its breakup by the Supreme Court in the 1911 antitrust case of ''Standard Oil Co. of New Jersey v. United States''.

== History ==
History pending. Meanwhile, consult Wikipedia. Alternatively, for a much more thorough look at its history, read ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)'' by Ralph Hidy and Muriel Hidy.

== Mainstream Portrayal ==
Standard Oil has been presented in mainstream history as one of the big ways in which capitalism failed in the Gilded Age and has been presented as proof for the necessity of regulating the free market. It was supposedly a company which used the free market to become too big and used the power to hurt the consumer.
Some of the accusations against Standard Oil are as follows:

=== Destruction of competition ===
Standard Oil was supposed to have used three methods of curtailing competition:

1) Buying up competitors: Standard Oil would buy up its competitors to destroy competition. Many small refiners were allegedly bought up aggressively.

2) Predatory pricing: Standard Oil would cut its prices below those of competitors to destroy their sales and force them to accept buyout proposals.

3) Preferential rail rates: Standard oil would strike deals with railroads to secure lower rail rates for its products over their competitors' products.

=== Monopoly pricing ===
After Standard Oil destroyed its competitors and had monopoly power, it would raise its prices above the market level and extort high rates from consumers

=== Controlling the price of oil ===
Through its size, Standard Oil could control the prices of crude oil.

=== Hidden companies ===
Standard Oil sometimes bought companies and did not publicly announce that it was their holding.

== Libertarian Response ==
Standard Oil has been much misunderstood, both in its status as capitalism baddie and as a company which used the free market to gain advantage.

A general overview first:

Standard Oil emerged out of a period of cutthroat competition in the 1860s <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 9</ref>. It was a time when many young entrepreneurs tried their hands at the refining business <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 4</ref>. Supply was unstable and prices fluctuated wildly <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 9</ref>. Surface oil stores were tapped quickly for easy profit and then businessmen moved on <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 9</ref>. Standard Oil introduced order to a hectic market. They were able to stabilize prices and supply in an insecure market.

A response to mainstream accusations:
* '''Destruction of competition''' - Standard Oil did indeed outcompete many of its competitors
1) Buying up competitors: The majority of Standard Oil buyouts were not aggressive and benefited both parties. As Hidy note, "Tockefeller and his associates ... won the confidence of competitors through comprehensive voluntary association." <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 33</ref>. Many of the former executives of the firms which were bought up were offered high-ranking position in the new company and a guarantee of equality in management <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 34</ref> and were integrated into the management due to their experience in refining and their knowledge of local markets.
The Standard Oil trust was not comprised of one company which had bought out all others. Instead, the Trust was very much a cooperation of different companies {{Citation needed}} which sought to improve their competitive advantage and which still maintained competition even in-between the member companies <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 71</ref>.

Furthermore, it is important to note, as Hidy do, that numerous oilmen successfully resisted pressure to be bought and to be out-competed <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 34</ref>

2) Predatory Pricing: This claim does not stand strongly against either history, sound economic thought, or logic:

- ''History'': There is no evidence for large-scale predatory pricing on the part of Standard Oil {{Citation needed}}. There have been recorded cases of such "price cutting wars," yet most have been initiated by competitors of Standard Oil, not Standard Oil itself {{Citation needed}}.

Furthermore, price cutting has been previously shown to be ineffective (and indeed counter-productive), as seen in the case of Herbert Dow {{Citation needed}}. Dow was selling cheap Bromine in Germany, angering the competing Bromkonvention which decided to retaliate by flooding the US market with below-cost bromine. Dow simply ordered his agents to buy up the cheap bromine and resell it in Germany below Bromkonvention's prices yet still at a profit (relative to the below-cost price), effectively destroying the attempt at predatory pricing.

Sometimes rebates that Standard Oil offered are pointed to as a way to obtain extra customers, yet 1) this is a fair market practice, and 2) competitors were using rebates as well <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 118</ref>

- ''Sound Economic thought'': The idea of predatory pricing begs the question "what qualifies as predatory pricing?" Price cutting by itself is not a negative thing in the market and is indeed how competition works{{Citation needed}}. When companies employ more efficient methods of production, they may lower their prices, thus gaining an advantage on the market. Furthermore, price cutting is an effective and recognized tactic to enter a new market which may already have an existing market power.

- ''Logic'': Predatory pricing fails on the logical front as a tool which simply cannot work to systematically drive out competitors <ref name="DiLorenzoMyth">DiLorenzo, Thomas. "The Myth of Predatory Pricing." Cato Institute Policy Analysis No. 169, 1992. http://www.scribd.com/fullscreen/31267845</ref>. To quote DiLorenzo extensively -

: "In the first place, such practices are very costly for the large firm, which is always assumed to be the predator. If price is set below average cost, the largest firm will incur the largest losses by virtue of having the largest volume of sales. Losing a dollar on each of 1,000 widgets sold per month is more costly than losing a dollar on each of 100 widgets.

: Second, there is great uncertainty about how long a price war would last. The prospect of incurring losses indefinitely in the hope of someday being able to charge monopolistic prices will give any business person pause. A price war is anextremely risky venture. Standard Oil was not the only trust accused of predatory pricing; antitrust folklore has it that virtually all of the late-19th-century trusts were guilty of the practice. However, as I have shown elsewhere, the industries accused of becoming monopolies during the congressional debates on the 1890 Sherman Antitrust Act all dropped their pricesmore rapidly than the general price level fell during the 10 years before the Sherman Act. It would certainly havebeen irrational for those businesses to have engaged in predatory pricing for an entire decade in the dim hope of someday being able to charge prices slightly above the competitive market rate.

: Third, there is nothing stopping the competition (or "prey") from temporarily shutting down and waiting for the priceto return to profitable levels. If that strategy is employed, price competition will render the predatory pricing strategyunprofitable--all loss and no compensatory benefit. Alternatively, even if the preyed-upon firms went bankrupt, otherfirms could purchase their facilities and compete with the alleged predator. Such competition is virtually guaranteed if the predator is charging monopolistic prices and earning above-normal profits.

: Fourth, there is the danger that the price war will spread to surrounding markets and cause the alleged predator to incurlosses in those markets as well.

: Fifth, the theory of predatory pricing assumes the prior existence of a "war chest of monopoly profits" that the predatorcan use to subsidize its practice of pricing below average cost. But how does that war chest come into being if the firmhas not yet become a monopoly? That part of the theory is simply a non sequitur." <ref name="DiLorenzoMyth" />

Furthermore, the idea of predatory pricing only considers the supply side of the equation without taking into account the demand side. Assuming that a company manages by some magical means to use predatory pricing to destroy a few competitors and then institute "monopoly prices" (see below), consumers in other parts of the nation who hear of such behavior must really be of a low mental caliber to buy up the cheaper products of Standard Oil when it came to their market knowing that this would help Standard Oil destroy competition and institute new high prices.

3) Preferential rail rates: Standard Oil did indeed make deals with railroads for cheaper product transport, as did many of its competitors, hardly making it an unfair market practice. In fact, almost all of the refiners in the country enjoyed some of the advantages of favorable railroad rates at one time or another <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 202</ref>. Railroads were quietly seeking the business of Standard Oil's competitors <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 198</ref>. Hidy note that "In fact, bargaining with railroads was a delicate task and the results were not always satisfactory. ... Once bulk stations had been built on a particular line, Standard Oil marketers could not easily transfer their business to another line and their bargaining capacity was curtailed. ... Standard Oil enjoyed advantages in rates, but the favors were neither so easily come by nor so certain as critics implied." <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 119</ref> Furthermore, if Standard Oil could secure for the railroads a stable inflow of traffic, then this is a legitimate market practice by any standard, as production is streamlined and stabilized. It is also important, as Hidy note, that "Rebates to Standard Oil on crude oil shipments had been virtually eliminated without recourse to legislative enactment." <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 89</ref>

The argument breaks down even more considering that Standard Oil increasingly transported oil through pipelines and not on rails <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 215</ref>.

* '''Monopoly pricing''' - The argument that Standard Oil extorted high prices from the public is simply unsupported by evidence. Indeed, the opposite appears to be true: Refine oil prices "fell from over 30 cents per gallon in 1869, to 10 cents in 1874, to 8 cents in 1885, and to 5.9 cents in 1897." <ref>Galles, Gary ''100 Years of Myths about Standard Oil''. Mises Daily. 2011. http://mises.org/daily/5274</ref> Being a large market power, but a market power nonetheless, Standard Oil could not create monopoly prices for fear of competitors springing up to win over dissatisfied customers.

The argument of monopoly pricing further fails when considering substitute goods - alternative goods that customers may buy to achieve the same ends with different means. For example,

: "Coal continued to be a cheaper generator of heat and energy than petroleum. Vegetable and animal oils were used as illuminants and lubricants by the very large segments of the world's population living in relatively unindustrialized countries. ... Tallow and stearine candles constituted strong rivals to those made form paraffin was in some markets. In Europe, especially, artificial gas and later electricity gained on kerosene as a source of light ..." <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 129</ref>

Thus, monopoly prices in kerosene and other products made by Standard Oil would have simply been replaced with substitute goods which Standard Oil did not control.

* '''Controlling the price of oil''' - Standard Oil did not control the oil extraction business <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 88</ref>. At the end of its years as a trust it attempted to enter the market but was never a large force on the extraction market. Indeed, it bought its raw material from thousands of producers of crude oil <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 208</ref>. The prices of crude oil were determined on the stock exchange <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 89</ref> and Standard Oil did not speculate on the exchanges <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 88</ref>

* '''Hidden companies''' - As Hidy notes, "How hidden the companies actualy were is not known, but the implcation of critics was that Standard Oil was putting something over on the public. Standard Oil men certainly disliked the use of the practice by competitors." <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 118</ref>

== The unsung benefits of Standard Oil ==

* '''Environmental friendliness/Curtailing of waste''' - Standard Oil came at a time when many of its competitors extracted only one product from oil and moved on without creating byproducts. Standard Oil instead squeezed the most it could out of oil and created numerous products from the products left after the creation of kerosene such as paraffin wax and lubricating oils, which allowed it to decrease its kerosene prices <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 193</ref>. Acid sludge was sold to fertilizer companies instead of the Atlantic Ocean and coke byproducts were either used internally or sold to outside companies <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 192-193</ref>.

* '''Quality of products/Self-regulation''' - Standard Oil worked to bring both a higher and more uniform standard of products to the market <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 211</ref><ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 210</ref>. Indeed, it also built better infrastructure than competitors: when constructing its pipelines, it sunk the pipe beneath the earth at least eighteen inches deep, except over solid rock, while some competitors only sank their line when int crossed tilled land. This resulted in whipsawing of the pipes of competitors when cold weather came <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 81</ref>.

Standard Oil also provides an example of market regulations at work. Standard Oil engaged outside experts to investigate complaints and to recommend methods for improvement whenever necessary <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 140</ref>. When there were leaks in its barrels it immediately sealed them and sought out the cause (resulting in environmentally-friendly policies due to a desire to not lose profit). Furthermore, when there were allegations that the company was using inaccurate and fraudulent measurements on its tanks, Standard Oil invited all of the oil exchanges to send delegates to check their measurements. No errors were found, and honesty of Standard Oil's field storage units were never again seriously questioned <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 84</ref>.

* '''Building of pipelines''' - Standard Oil followed a policy geared to win the good-will of landowners along their right of way and was generous in the prices it paid to private individuals and in adjustments for damages <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 81</ref>.

* '''Increased standard of living''' - Through its superior quality goods and uniform standards, Standard Oil helped to increase the standard of living in millions of homes using kerosene. Furthermore, in efforts to create new markets, Standard Oil distributed heat stoves, lamps, and other utensils at little or no profit to consumers <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 116</ref>.

== Government influence on Standard Oil ==
Standard Oil's methods were fair, free-market methods, as covered above. However, it is important to note in what ways Standard Oil was in fact made larger than it would have been due to active government intervention in the free market (unlike the mainstream view that the Gilded Age was largely laissez-faire):

* '''Patents''' - Government granting of patent monopolies shielded Standard Oil from competition. Hidy note that Standard Oil "relied heavily on patent rights to attain an advantage over competitors in cost and quality of products. ... Patents for the mechanical fabrication of cans were practically monopolized by Standard Oil companies." <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 93</ref> Furthermore, "the Standard Oil combination received and fully utilized patents granted by the federal government. That patent monopoly constituted the foundation for the large earnings of several Standard Oil units for more than fifteen years." <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 168</ref> In this manner, government in fact ''granted'' Standard Oil monopolies in small regions (look up "Intellectual Property" for an explanation on why patent monopolies are not free-market tools but instead government intervention in the free market which curtails competition).

* '''Tariffs''' - Tariffs are another government intervention in the free market which contributed the the size of Standard Oil. There was a consistent tariff on kerosense in the US. In 1865 the kerosene tariff was increased to 40 cents per gallon <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 6</ref>. In 1984, kerosene was placed on the free list, yet with a catch: if another country had a tariff on the goods of the US, then the kerosene tariff on that country was 40 percent. As D.T. Armentano explains, tariffs restrict foreign competition, which is a vital section of the free market (after all, foreign competition is simply business which is outside of the arbitrarily-drawn line of a given country) <ref>Armentano, D.T. ''Monopoly''. Freedom Daily. 1992</ref>. In this way, by preventing possibly more efficient foreign competitors, Standard Oil was shielded from competition and hence from pressure to lower its prices even further. Indeed, abroad Standard Oil was force to lower its prices to compete with Russian oil <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 139</ref>. The protective tariffs prevented the same from occurring in the US. This is another example of government intervention during the Gilded Age distorting market forces and creating inefficient, less competitive scenarios.

== Other important points of note ==

* '''Competition''' - While Standard Oil owned 88% of refining business at its height (by no means a monopoly), its market share had already decreased to 64% by 1911 (before the anti-trust case) <ref>DiLorenzo, Thomas. ''The Truth About the "Robber Barons"''. Mises Daily. 2006. http://mises.org/daily/2317#3</ref>. Indeed, many competitors were present and ready to pick up any time that Standard Oil did not meet expectations <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 88</ref><ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 120</ref>. Furthermore, whenever Standard Oil hesitated in taking an action into a new field, competitors sprang up in the new area, as was the case with discovery of the inferior grade Lima oil which would require new processing techniques <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 156</ref>. This suggests that competition was hardly stifled and that Standard Oil retained the top spot thanks to its efficiency and quality (and its size was likely increased by the government ''help'', including patents and tariffs, mentioned above).

* '''Trust cohesion''' - It is important to remember that Standard Oil was not a single monolithic company which was run strictly top-down. Indeed, minority interest in different companies had to be considered and Hidy note that "instances are not lacking of objections to recommendations by committees and outright refusal to cooperate on the part of companies, even when 100 percent of their stock was held by the Trust." <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 64</ref> This adds further evidence that Standard Oil survived because of its bending to satisfy many different desires and was always at a risk of member managers breaking off to form new refineries.

== References ==
{{reflist}}

Standard Oil

2011-11-08T22:57:11Z

Wheylous: /* Mainstream Portrayal */

{{Stub}}

'''Standard Oil''' was an American company principally concerned with oil refining to produce kerosene and petroleum byproducts (such as paraffin wax, lubricating oils, and naphtha) from its foundation in 1870 to its breakup by the Supreme Court in the 1911 antitrust case of ''Standard Oil Co. of New Jersey v. United States''.

== History ==
History pending. Meanwhile, consult Wikipedia. Alternatively, for a much more thorough look at its history, read ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)'' by Ralph Hidy and Muriel Hidy.

== Mainstream Portrayal ==
Standard Oil has been presented in mainstream history as one of the big ways in which capitalism failed in the Gilded Age and has been presented as proof for the necessity of regulating the free market. It was supposedly a company which used the free market to become too big and used the power to hurt the consumer.
Some of the accusations against Standard Oil are as follows:

=== Destruction of competition ===
Standard Oil was supposed to have used three methods of curtailing competition:

1) Buying up competitors: Standard Oil would buy up its competitors to destroy competition. Many small refiners were allegedly bought up aggressively.

2) Predatory pricing: Standard Oil would cut its prices below those of competitors to destroy their sales and force them to accept buyout proposals.

3) Preferential rail rates: Standard oil would strike deals with railroads to secure lower rail rates for its products over their competitors' products.

=== Monopoly pricing === - After Standard Oil destroyed its competitors and had monopoly power, it would raise its prices above the market level and extort high rates from consumers

=== Controlling the price of oil === - Through its size, Standard Oil could control the prices of crude oil.

=== Hidden companies === - Standard Oil sometimes bought companies and did not publicly announce that it was their holding.

== Libertarian Response ==
Standard Oil has been much misunderstood, both in its status as capitalism baddie and as a company which used the free market to gain advantage.

A general overview first:

Standard Oil emerged out of a period of cutthroat competition in the 1860s <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 9</ref>. It was a time when many young entrepreneurs tried their hands at the refining business <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 4</ref>. Supply was unstable and prices fluctuated wildly <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 9</ref>. Surface oil stores were tapped quickly for easy profit and then businessmen moved on <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 9</ref>. Standard Oil introduced order to a hectic market. They were able to stabilize prices and supply in an insecure market.

A response to mainstream accusations:
* '''Destruction of competition''' - Standard Oil did indeed outcompete many of its competitors
1) Buying up competitors: The majority of Standard Oil buyouts were not aggressive and benefited both parties. As Hidy note, "Tockefeller and his associates ... won the confidence of competitors through comprehensive voluntary association." <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 33</ref>. Many of the former executives of the firms which were bought up were offered high-ranking position in the new company and a guarantee of equality in management <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 34</ref> and were integrated into the management due to their experience in refining and their knowledge of local markets.
The Standard Oil trust was not comprised of one company which had bought out all others. Instead, the Trust was very much a cooperation of different companies {{Citation needed}} which sought to improve their competitive advantage and which still maintained competition even in-between the member companies <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 71</ref>.

Furthermore, it is important to note, as Hidy do, that numerous oilmen successfully resisted pressure to be bought and to be out-competed <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 34</ref>

2) Predatory Pricing: This claim does not stand strongly against either history, sound economic thought, or logic:

- ''History'': There is no evidence for large-scale predatory pricing on the part of Standard Oil {{Citation needed}}. There have been recorded cases of such "price cutting wars," yet most have been initiated by competitors of Standard Oil, not Standard Oil itself {{Citation needed}}.

Furthermore, price cutting has been previously shown to be ineffective (and indeed counter-productive), as seen in the case of Herbert Dow {{Citation needed}}. Dow was selling cheap Bromine in Germany, angering the competing Bromkonvention which decided to retaliate by flooding the US market with below-cost bromine. Dow simply ordered his agents to buy up the cheap bromine and resell it in Germany below Bromkonvention's prices yet still at a profit (relative to the below-cost price), effectively destroying the attempt at predatory pricing.

Sometimes rebates that Standard Oil offered are pointed to as a way to obtain extra customers, yet 1) this is a fair market practice, and 2) competitors were using rebates as well <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 118</ref>

- ''Sound Economic thought'': The idea of predatory pricing begs the question "what qualifies as predatory pricing?" Price cutting by itself is not a negative thing in the market and is indeed how competition works{{Citation needed}}. When companies employ more efficient methods of production, they may lower their prices, thus gaining an advantage on the market. Furthermore, price cutting is an effective and recognized tactic to enter a new market which may already have an existing market power.

- ''Logic'': Predatory pricing fails on the logical front as a tool which simply cannot work to systematically drive out competitors <ref name="DiLorenzoMyth">DiLorenzo, Thomas. "The Myth of Predatory Pricing." Cato Institute Policy Analysis No. 169, 1992. http://www.scribd.com/fullscreen/31267845</ref>. To quote DiLorenzo extensively -

: "In the first place, such practices are very costly for the large firm, which is always assumed to be the predator. If price is set below average cost, the largest firm will incur the largest losses by virtue of having the largest volume of sales. Losing a dollar on each of 1,000 widgets sold per month is more costly than losing a dollar on each of 100 widgets.

: Second, there is great uncertainty about how long a price war would last. The prospect of incurring losses indefinitely in the hope of someday being able to charge monopolistic prices will give any business person pause. A price war is anextremely risky venture. Standard Oil was not the only trust accused of predatory pricing; antitrust folklore has it that virtually all of the late-19th-century trusts were guilty of the practice. However, as I have shown elsewhere, the industries accused of becoming monopolies during the congressional debates on the 1890 Sherman Antitrust Act all dropped their pricesmore rapidly than the general price level fell during the 10 years before the Sherman Act. It would certainly havebeen irrational for those businesses to have engaged in predatory pricing for an entire decade in the dim hope of someday being able to charge prices slightly above the competitive market rate.

: Third, there is nothing stopping the competition (or "prey") from temporarily shutting down and waiting for the priceto return to profitable levels. If that strategy is employed, price competition will render the predatory pricing strategyunprofitable--all loss and no compensatory benefit. Alternatively, even if the preyed-upon firms went bankrupt, otherfirms could purchase their facilities and compete with the alleged predator. Such competition is virtually guaranteed if the predator is charging monopolistic prices and earning above-normal profits.

: Fourth, there is the danger that the price war will spread to surrounding markets and cause the alleged predator to incurlosses in those markets as well.

: Fifth, the theory of predatory pricing assumes the prior existence of a "war chest of monopoly profits" that the predatorcan use to subsidize its practice of pricing below average cost. But how does that war chest come into being if the firmhas not yet become a monopoly? That part of the theory is simply a non sequitur." <ref name="DiLorenzoMyth" />

Furthermore, the idea of predatory pricing only considers the supply side of the equation without taking into account the demand side. Assuming that a company manages by some magical means to use predatory pricing to destroy a few competitors and then institute "monopoly prices" (see below), consumers in other parts of the nation who hear of such behavior must really be of a low mental caliber to buy up the cheaper products of Standard Oil when it came to their market knowing that this would help Standard Oil destroy competition and institute new high prices.

3) Preferential rail rates: Standard Oil did indeed make deals with railroads for cheaper product transport, as did many of its competitors, hardly making it an unfair market practice. In fact, almost all of the refiners in the country enjoyed some of the advantages of favorable railroad rates at one time or another <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 202</ref>. Railroads were quietly seeking the business of Standard Oil's competitors <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 198</ref>. Hidy note that "In fact, bargaining with railroads was a delicate task and the results were not always satisfactory. ... Once bulk stations had been built on a particular line, Standard Oil marketers could not easily transfer their business to another line and their bargaining capacity was curtailed. ... Standard Oil enjoyed advantages in rates, but the favors were neither so easily come by nor so certain as critics implied." <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 119</ref> Furthermore, if Standard Oil could secure for the railroads a stable inflow of traffic, then this is a legitimate market practice by any standard, as production is streamlined and stabilized. It is also important, as Hidy note, that "Rebates to Standard Oil on crude oil shipments had been virtually eliminated without recourse to legislative enactment." <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 89</ref>

The argument breaks down even more considering that Standard Oil increasingly transported oil through pipelines and not on rails <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 215</ref>.

* '''Monopoly pricing''' - The argument that Standard Oil extorted high prices from the public is simply unsupported by evidence. Indeed, the opposite appears to be true: Refine oil prices "fell from over 30 cents per gallon in 1869, to 10 cents in 1874, to 8 cents in 1885, and to 5.9 cents in 1897." <ref>Galles, Gary ''100 Years of Myths about Standard Oil''. Mises Daily. 2011. http://mises.org/daily/5274</ref> Being a large market power, but a market power nonetheless, Standard Oil could not create monopoly prices for fear of competitors springing up to win over dissatisfied customers.

The argument of monopoly pricing further fails when considering substitute goods - alternative goods that customers may buy to achieve the same ends with different means. For example,

: "Coal continued to be a cheaper generator of heat and energy than petroleum. Vegetable and animal oils were used as illuminants and lubricants by the very large segments of the world's population living in relatively unindustrialized countries. ... Tallow and stearine candles constituted strong rivals to those made form paraffin was in some markets. In Europe, especially, artificial gas and later electricity gained on kerosene as a source of light ..." <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 129</ref>

Thus, monopoly prices in kerosene and other products made by Standard Oil would have simply been replaced with substitute goods which Standard Oil did not control.

* '''Controlling the price of oil''' - Standard Oil did not control the oil extraction business <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 88</ref>. At the end of its years as a trust it attempted to enter the market but was never a large force on the extraction market. Indeed, it bought its raw material from thousands of producers of crude oil <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 208</ref>. The prices of crude oil were determined on the stock exchange <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 89</ref> and Standard Oil did not speculate on the exchanges <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 88</ref>

* '''Hidden companies''' - As Hidy notes, "How hidden the companies actualy were is not known, but the implcation of critics was that Standard Oil was putting something over on the public. Standard Oil men certainly disliked the use of the practice by competitors." <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 118</ref>

== The unsung benefits of Standard Oil ==

* '''Environmental friendliness/Curtailing of waste''' - Standard Oil came at a time when many of its competitors extracted only one product from oil and moved on without creating byproducts. Standard Oil instead squeezed the most it could out of oil and created numerous products from the products left after the creation of kerosene such as paraffin wax and lubricating oils, which allowed it to decrease its kerosene prices <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 193</ref>. Acid sludge was sold to fertilizer companies instead of the Atlantic Ocean and coke byproducts were either used internally or sold to outside companies <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 192-193</ref>.

* '''Quality of products/Self-regulation''' - Standard Oil worked to bring both a higher and more uniform standard of products to the market <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 211</ref><ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 210</ref>. Indeed, it also built better infrastructure than competitors: when constructing its pipelines, it sunk the pipe beneath the earth at least eighteen inches deep, except over solid rock, while some competitors only sank their line when int crossed tilled land. This resulted in whipsawing of the pipes of competitors when cold weather came <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 81</ref>.

Standard Oil also provides an example of market regulations at work. Standard Oil engaged outside experts to investigate complaints and to recommend methods for improvement whenever necessary <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 140</ref>. When there were leaks in its barrels it immediately sealed them and sought out the cause (resulting in environmentally-friendly policies due to a desire to not lose profit). Furthermore, when there were allegations that the company was using inaccurate and fraudulent measurements on its tanks, Standard Oil invited all of the oil exchanges to send delegates to check their measurements. No errors were found, and honesty of Standard Oil's field storage units were never again seriously questioned <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 84</ref>.

* '''Building of pipelines''' - Standard Oil followed a policy geared to win the good-will of landowners along their right of way and was generous in the prices it paid to private individuals and in adjustments for damages <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 81</ref>.

* '''Increased standard of living''' - Through its superior quality goods and uniform standards, Standard Oil helped to increase the standard of living in millions of homes using kerosene. Furthermore, in efforts to create new markets, Standard Oil distributed heat stoves, lamps, and other utensils at little or no profit to consumers <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 116</ref>.

== Government influence on Standard Oil ==
Standard Oil's methods were fair, free-market methods, as covered above. However, it is important to note in what ways Standard Oil was in fact made larger than it would have been due to active government intervention in the free market (unlike the mainstream view that the Gilded Age was largely laissez-faire):

* '''Patents''' - Government granting of patent monopolies shielded Standard Oil from competition. Hidy note that Standard Oil "relied heavily on patent rights to attain an advantage over competitors in cost and quality of products. ... Patents for the mechanical fabrication of cans were practically monopolized by Standard Oil companies." <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 93</ref> Furthermore, "the Standard Oil combination received and fully utilized patents granted by the federal government. That patent monopoly constituted the foundation for the large earnings of several Standard Oil units for more than fifteen years." <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 168</ref> In this manner, government in fact ''granted'' Standard Oil monopolies in small regions (look up "Intellectual Property" for an explanation on why patent monopolies are not free-market tools but instead government intervention in the free market which curtails competition).

* '''Tariffs''' - Tariffs are another government intervention in the free market which contributed the the size of Standard Oil. There was a consistent tariff on kerosense in the US. In 1865 the kerosene tariff was increased to 40 cents per gallon <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 6</ref>. In 1984, kerosene was placed on the free list, yet with a catch: if another country had a tariff on the goods of the US, then the kerosene tariff on that country was 40 percent. As D.T. Armentano explains, tariffs restrict foreign competition, which is a vital section of the free market (after all, foreign competition is simply business which is outside of the arbitrarily-drawn line of a given country) <ref>Armentano, D.T. ''Monopoly''. Freedom Daily. 1992</ref>. In this way, by preventing possibly more efficient foreign competitors, Standard Oil was shielded from competition and hence from pressure to lower its prices even further. Indeed, abroad Standard Oil was force to lower its prices to compete with Russian oil <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 139</ref>. The protective tariffs prevented the same from occurring in the US. This is another example of government intervention during the Gilded Age distorting market forces and creating inefficient, less competitive scenarios.

== Other important points of note ==

* '''Competition''' - While Standard Oil owned 88% of refining business at its height (by no means a monopoly), its market share had already decreased to 64% by 1911 (before the anti-trust case) <ref>DiLorenzo, Thomas. ''The Truth About the "Robber Barons"''. Mises Daily. 2006. http://mises.org/daily/2317#3</ref>. Indeed, many competitors were present and ready to pick up any time that Standard Oil did not meet expectations <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 88</ref><ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 120</ref>. Furthermore, whenever Standard Oil hesitated in taking an action into a new field, competitors sprang up in the new area, as was the case with discovery of the inferior grade Lima oil which would require new processing techniques <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 156</ref>. This suggests that competition was hardly stifled and that Standard Oil retained the top spot thanks to its efficiency and quality (and its size was likely increased by the government ''help'', including patents and tariffs, mentioned above).

* '''Trust cohesion''' - It is important to remember that Standard Oil was not a single monolithic company which was run strictly top-down. Indeed, minority interest in different companies had to be considered and Hidy note that "instances are not lacking of objections to recommendations by committees and outright refusal to cooperate on the part of companies, even when 100 percent of their stock was held by the Trust." <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 64</ref> This adds further evidence that Standard Oil survived because of its bending to satisfy many different desires and was always at a risk of member managers breaking off to form new refineries.

== References ==
{{reflist}}

Standard Oil

2011-11-08T22:54:47Z

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'''Standard Oil''' was an American company principally concerned with oil refining to produce kerosene and petroleum byproducts (such as paraffin wax, lubricating oils, and naphtha) from its foundation in 1870 to its breakup by the Supreme Court in the 1911 antitrust case of ''Standard Oil Co. of New Jersey v. United States''.

== History ==
History pending. Meanwhile, consult Wikipedia. Alternatively, for a much more thorough look at its history, read ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)'' by Ralph Hidy and Muriel Hidy.

== Mainstream Portrayal ==
Standard Oil has been presented in mainstream history as one of the big ways in which capitalism failed in the Gilded Age and has been presented as proof for the necessity of regulating the free market. It was supposedly a company which used the free market to become too big and used the power to hurt the consumer.
Some of the accusations against Standard Oil are as follows:

* '''Destruction of competition''' - Standard Oil was supposed to have used three methods of curtailing competition:
1) Buying up competitors: Standard Oil would buy up its competitors to destroy competition. Many small refiners were allegedly bought up aggressively.

2) Predatory pricing: Standard Oil would cut its prices below those of competitors to destroy their sales and force them to accept buyout proposals.

3) Preferential rail rates: Standard oil would strike deals with railroads to secure lower rail rates for its products over their competitors' products.

* '''Monopoly pricing''' - After Standard Oil destroyed its competitors and had monopoly power, it would raise its prices above the market level and extort high rates from consumers

* '''Controlling the price of oil''' - Through its size, Standard Oil could control the prices of crude oil.

* '''Hidden companies''' - Standard Oil sometimes bought companies and did not publicly announce that it was their holding.

== Libertarian Response ==
Standard Oil has been much misunderstood, both in its status as capitalism baddie and as a company which used the free market to gain advantage.

A general overview first:

Standard Oil emerged out of a period of cutthroat competition in the 1860s <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 9</ref>. It was a time when many young entrepreneurs tried their hands at the refining business <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 4</ref>. Supply was unstable and prices fluctuated wildly <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 9</ref>. Surface oil stores were tapped quickly for easy profit and then businessmen moved on <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 9</ref>. Standard Oil introduced order to a hectic market. They were able to stabilize prices and supply in an insecure market.

A response to mainstream accusations:
* '''Destruction of competition''' - Standard Oil did indeed outcompete many of its competitors
1) Buying up competitors: The majority of Standard Oil buyouts were not aggressive and benefited both parties. As Hidy note, "Tockefeller and his associates ... won the confidence of competitors through comprehensive voluntary association." <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 33</ref>. Many of the former executives of the firms which were bought up were offered high-ranking position in the new company and a guarantee of equality in management <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 34</ref> and were integrated into the management due to their experience in refining and their knowledge of local markets.
The Standard Oil trust was not comprised of one company which had bought out all others. Instead, the Trust was very much a cooperation of different companies {{Citation needed}} which sought to improve their competitive advantage and which still maintained competition even in-between the member companies <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 71</ref>.

Furthermore, it is important to note, as Hidy do, that numerous oilmen successfully resisted pressure to be bought and to be out-competed <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 34</ref>

2) Predatory Pricing: This claim does not stand strongly against either history, sound economic thought, or logic:

- ''History'': There is no evidence for large-scale predatory pricing on the part of Standard Oil {{Citation needed}}. There have been recorded cases of such "price cutting wars," yet most have been initiated by competitors of Standard Oil, not Standard Oil itself {{Citation needed}}.

Furthermore, price cutting has been previously shown to be ineffective (and indeed counter-productive), as seen in the case of Herbert Dow {{Citation needed}}. Dow was selling cheap Bromine in Germany, angering the competing Bromkonvention which decided to retaliate by flooding the US market with below-cost bromine. Dow simply ordered his agents to buy up the cheap bromine and resell it in Germany below Bromkonvention's prices yet still at a profit (relative to the below-cost price), effectively destroying the attempt at predatory pricing.

Sometimes rebates that Standard Oil offered are pointed to as a way to obtain extra customers, yet 1) this is a fair market practice, and 2) competitors were using rebates as well <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 118</ref>

- ''Sound Economic thought'': The idea of predatory pricing begs the question "what qualifies as predatory pricing?" Price cutting by itself is not a negative thing in the market and is indeed how competition works{{Citation needed}}. When companies employ more efficient methods of production, they may lower their prices, thus gaining an advantage on the market. Furthermore, price cutting is an effective and recognized tactic to enter a new market which may already have an existing market power.

- ''Logic'': Predatory pricing fails on the logical front as a tool which simply cannot work to systematically drive out competitors <ref name="DiLorenzoMyth">DiLorenzo, Thomas. "The Myth of Predatory Pricing." Cato Institute Policy Analysis No. 169, 1992. http://www.scribd.com/fullscreen/31267845</ref>. To quote DiLorenzo extensively -

: "In the first place, such practices are very costly for the large firm, which is always assumed to be the predator. If price is set below average cost, the largest firm will incur the largest losses by virtue of having the largest volume of sales. Losing a dollar on each of 1,000 widgets sold per month is more costly than losing a dollar on each of 100 widgets.

: Second, there is great uncertainty about how long a price war would last. The prospect of incurring losses indefinitely in the hope of someday being able to charge monopolistic prices will give any business person pause. A price war is anextremely risky venture. Standard Oil was not the only trust accused of predatory pricing; antitrust folklore has it that virtually all of the late-19th-century trusts were guilty of the practice. However, as I have shown elsewhere, the industries accused of becoming monopolies during the congressional debates on the 1890 Sherman Antitrust Act all dropped their pricesmore rapidly than the general price level fell during the 10 years before the Sherman Act. It would certainly havebeen irrational for those businesses to have engaged in predatory pricing for an entire decade in the dim hope of someday being able to charge prices slightly above the competitive market rate.

: Third, there is nothing stopping the competition (or "prey") from temporarily shutting down and waiting for the priceto return to profitable levels. If that strategy is employed, price competition will render the predatory pricing strategyunprofitable--all loss and no compensatory benefit. Alternatively, even if the preyed-upon firms went bankrupt, otherfirms could purchase their facilities and compete with the alleged predator. Such competition is virtually guaranteed if the predator is charging monopolistic prices and earning above-normal profits.

: Fourth, there is the danger that the price war will spread to surrounding markets and cause the alleged predator to incurlosses in those markets as well.

: Fifth, the theory of predatory pricing assumes the prior existence of a "war chest of monopoly profits" that the predatorcan use to subsidize its practice of pricing below average cost. But how does that war chest come into being if the firmhas not yet become a monopoly? That part of the theory is simply a non sequitur." <ref name="DiLorenzoMyth" />

Furthermore, the idea of predatory pricing only considers the supply side of the equation without taking into account the demand side. Assuming that a company manages by some magical means to use predatory pricing to destroy a few competitors and then institute "monopoly prices" (see below), consumers in other parts of the nation who hear of such behavior must really be of a low mental caliber to buy up the cheaper products of Standard Oil when it came to their market knowing that this would help Standard Oil destroy competition and institute new high prices.

3) Preferential rail rates: Standard Oil did indeed make deals with railroads for cheaper product transport, as did many of its competitors, hardly making it an unfair market practice. In fact, almost all of the refiners in the country enjoyed some of the advantages of favorable railroad rates at one time or another <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 202</ref>. Railroads were quietly seeking the business of Standard Oil's competitors <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 198</ref>. Hidy note that "In fact, bargaining with railroads was a delicate task and the results were not always satisfactory. ... Once bulk stations had been built on a particular line, Standard Oil marketers could not easily transfer their business to another line and their bargaining capacity was curtailed. ... Standard Oil enjoyed advantages in rates, but the favors were neither so easily come by nor so certain as critics implied." <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 119</ref> Furthermore, if Standard Oil could secure for the railroads a stable inflow of traffic, then this is a legitimate market practice by any standard, as production is streamlined and stabilized. It is also important, as Hidy note, that "Rebates to Standard Oil on crude oil shipments had been virtually eliminated without recourse to legislative enactment." <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 89</ref>

The argument breaks down even more considering that Standard Oil increasingly transported oil through pipelines and not on rails <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 215</ref>.

* '''Monopoly pricing''' - The argument that Standard Oil extorted high prices from the public is simply unsupported by evidence. Indeed, the opposite appears to be true: Refine oil prices "fell from over 30 cents per gallon in 1869, to 10 cents in 1874, to 8 cents in 1885, and to 5.9 cents in 1897." <ref>Galles, Gary ''100 Years of Myths about Standard Oil''. Mises Daily. 2011. http://mises.org/daily/5274</ref> Being a large market power, but a market power nonetheless, Standard Oil could not create monopoly prices for fear of competitors springing up to win over dissatisfied customers.

The argument of monopoly pricing further fails when considering substitute goods - alternative goods that customers may buy to achieve the same ends with different means. For example,

: "Coal continued to be a cheaper generator of heat and energy than petroleum. Vegetable and animal oils were used as illuminants and lubricants by the very large segments of the world's population living in relatively unindustrialized countries. ... Tallow and stearine candles constituted strong rivals to those made form paraffin was in some markets. In Europe, especially, artificial gas and later electricity gained on kerosene as a source of light ..." <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 129</ref>

Thus, monopoly prices in kerosene and other products made by Standard Oil would have simply been replaced with substitute goods which Standard Oil did not control.

* '''Controlling the price of oil''' - Standard Oil did not control the oil extraction business <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 88</ref>. At the end of its years as a trust it attempted to enter the market but was never a large force on the extraction market. Indeed, it bought its raw material from thousands of producers of crude oil <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 208</ref>. The prices of crude oil were determined on the stock exchange <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 89</ref> and Standard Oil did not speculate on the exchanges <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 88</ref>

* '''Hidden companies''' - As Hidy notes, "How hidden the companies actualy were is not known, but the implcation of critics was that Standard Oil was putting something over on the public. Standard Oil men certainly disliked the use of the practice by competitors." <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 118</ref>

== The unsung benefits of Standard Oil ==

* '''Environmental friendliness/Curtailing of waste''' - Standard Oil came at a time when many of its competitors extracted only one product from oil and moved on without creating byproducts. Standard Oil instead squeezed the most it could out of oil and created numerous products from the products left after the creation of kerosene such as paraffin wax and lubricating oils, which allowed it to decrease its kerosene prices <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 193</ref>. Acid sludge was sold to fertilizer companies instead of the Atlantic Ocean and coke byproducts were either used internally or sold to outside companies <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 192-193</ref>.

* '''Quality of products/Self-regulation''' - Standard Oil worked to bring both a higher and more uniform standard of products to the market <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 211</ref><ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 210</ref>. Indeed, it also built better infrastructure than competitors: when constructing its pipelines, it sunk the pipe beneath the earth at least eighteen inches deep, except over solid rock, while some competitors only sank their line when int crossed tilled land. This resulted in whipsawing of the pipes of competitors when cold weather came <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 81</ref>.

Standard Oil also provides an example of market regulations at work. Standard Oil engaged outside experts to investigate complaints and to recommend methods for improvement whenever necessary <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 140</ref>. When there were leaks in its barrels it immediately sealed them and sought out the cause (resulting in environmentally-friendly policies due to a desire to not lose profit). Furthermore, when there were allegations that the company was using inaccurate and fraudulent measurements on its tanks, Standard Oil invited all of the oil exchanges to send delegates to check their measurements. No errors were found, and honesty of Standard Oil's field storage units were never again seriously questioned <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 84</ref>.

* '''Building of pipelines''' - Standard Oil followed a policy geared to win the good-will of landowners along their right of way and was generous in the prices it paid to private individuals and in adjustments for damages <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 81</ref>.

* '''Increased standard of living''' - Through its superior quality goods and uniform standards, Standard Oil helped to increase the standard of living in millions of homes using kerosene. Furthermore, in efforts to create new markets, Standard Oil distributed heat stoves, lamps, and other utensils at little or no profit to consumers <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 116</ref>.

== Government influence on Standard Oil ==
Standard Oil's methods were fair, free-market methods, as covered above. However, it is important to note in what ways Standard Oil was in fact made larger than it would have been due to active government intervention in the free market (unlike the mainstream view that the Gilded Age was largely laissez-faire):

* '''Patents''' - Government granting of patent monopolies shielded Standard Oil from competition. Hidy note that Standard Oil "relied heavily on patent rights to attain an advantage over competitors in cost and quality of products. ... Patents for the mechanical fabrication of cans were practically monopolized by Standard Oil companies." <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 93</ref> Furthermore, "the Standard Oil combination received and fully utilized patents granted by the federal government. That patent monopoly constituted the foundation for the large earnings of several Standard Oil units for more than fifteen years." <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 168</ref> In this manner, government in fact ''granted'' Standard Oil monopolies in small regions (look up "Intellectual Property" for an explanation on why patent monopolies are not free-market tools but instead government intervention in the free market which curtails competition).

* '''Tariffs''' - Tariffs are another government intervention in the free market which contributed the the size of Standard Oil. There was a consistent tariff on kerosense in the US. In 1865 the kerosene tariff was increased to 40 cents per gallon <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 6</ref>. In 1984, kerosene was placed on the free list, yet with a catch: if another country had a tariff on the goods of the US, then the kerosene tariff on that country was 40 percent. As D.T. Armentano explains, tariffs restrict foreign competition, which is a vital section of the free market (after all, foreign competition is simply business which is outside of the arbitrarily-drawn line of a given country) <ref>Armentano, D.T. ''Monopoly''. Freedom Daily. 1992</ref>. In this way, by preventing possibly more efficient foreign competitors, Standard Oil was shielded from competition and hence from pressure to lower its prices even further. Indeed, abroad Standard Oil was force to lower its prices to compete with Russian oil <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 139</ref>. The protective tariffs prevented the same from occurring in the US. This is another example of government intervention during the Gilded Age distorting market forces and creating inefficient, less competitive scenarios.

== Other important points of note ==

* '''Competition''' - While Standard Oil owned 88% of refining business at its height (by no means a monopoly), its market share had already decreased to 64% by 1911 (before the anti-trust case) <ref>DiLorenzo, Thomas. ''The Truth About the "Robber Barons"''. Mises Daily. 2006. http://mises.org/daily/2317#3</ref>. Indeed, many competitors were present and ready to pick up any time that Standard Oil did not meet expectations <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 88</ref><ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 120</ref>. Furthermore, whenever Standard Oil hesitated in taking an action into a new field, competitors sprang up in the new area, as was the case with discovery of the inferior grade Lima oil which would require new processing techniques <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 156</ref>. This suggests that competition was hardly stifled and that Standard Oil retained the top spot thanks to its efficiency and quality (and its size was likely increased by the government ''help'', including patents and tariffs, mentioned above).

* '''Trust cohesion''' - It is important to remember that Standard Oil was not a single monolithic company which was run strictly top-down. Indeed, minority interest in different companies had to be considered and Hidy note that "instances are not lacking of objections to recommendations by committees and outright refusal to cooperate on the part of companies, even when 100 percent of their stock was held by the Trust." <ref>Hidy, Ralph and Hidy, Muriel. ''Pioneering in big business, 1882-1911, (History of Standard Oil Company New Jersey)''. 1955, p. 64</ref> This adds further evidence that Standard Oil survived because of its bending to satisfy many different desires and was always at a risk of member managers breaking off to form new refineries.

== References ==
{{reflist}}