woody_zimmerman_118_2007Even readers who snoozed through high school or college history class might have heard the name Rockefeller somewhere. To refresh that fuzzy memory, I’ll simply say that John D. Rockefeller was one of the greatest tycoons in American history. Worth more than a billion dollars by 1900 – when a billion was still serious money – he was certainly the richest man in America at the time. Some historians consider him the richest man in history.

John D. lived from 1839 to 1937, so his remarkable story is receding slowly into the mists of time. Most people today don’t realize that he was not born into money, nor did he start high on the corporate ladder. In 1855, at age 16, he started work as an office clerk at a Cleveland firm that bought, sold and shipped grain, coal and other commodities. One biographer wrote that John D. considered September 26 - the day he started the position and entered the business world - so significant that as an adult he commemorated this “job day” with an annual celebration. In the early 1860s his work involved railroads and the telegraph – both brand-new technologies. But people still lit their homes with whale-oil lamps – the best fuel for that purpose at the time.

The War Between the States was also going on then. This created scarcities of many commodities – including whale oil – and drove their prices very high. The war, speculation, and the extreme difficulty of obtaining whale oil combined to push its price to $2.00 a gallon – an unheard level at a time when many men put in a hard day of work (or soldiering) for pay of $1.00. Naturally, the public was outraged, demanding that Mr. Lincoln do something.

Being somewhat preoccupied by the fate of the country, Mr. Lincoln did nothing about whale oil. But clever businessmen and ambitious entrepreneurs who understood the potential of petroleum – which had been discovered in northwestern Pennsylvania in 1859 – quickly seized on kerosene as a substitute for whale oil and began to market it across the nation. As oil-refining grew into an industry, the price of kerosene fell precipitously, pulling the price of whale oil down with it. By the late 1860s, whale oil was selling for just 10¢ a gallon – its price having been depressed by the competition of kerosene. The whale oil industry was destroyed, and petroleum became the country’s future. (The whales were saved, too.)

John D. Rockefeller had nothing to do with whale oil, but he did grasp the importance of petroleum to the country’s future – well before the internal-combustion engine came along. More importantly, he realized that rail-transport was the key to making petroleum commercially viable. Rockefeller and a group of fellow investors invested in a Cleveland refinery to get started in the oil business. Eventually they pioneered the rail-shipment of kerosene and other oil-products to railheads, and the shipment of those products to retail outlets via other transport media. (See photo below.) This reduced the cost of their goods significantly, driving many of their less efficient competitors out of business. The Rockefeller group began to buy bankrupt rival producers for pennies on the dollar, increasing their holdings dramatically.

In the free-wheeling competitive environment of the late 19th century, however, Rockefeller and his partners exceeded any bounds we should consider tolerable today. They quickly realized that they could hasten the collapse of rival oil firms if they raised their rail-transport costs precipitously, or denied them rail-transport entirely. By the late 19th century, Rockefeller had cornered 90% of all oil-transport rail-car stock in the country. He used this near-monopoly to drive competitors to the wall, making them prospects for cheap takeover.

By 1870, Rockefeller and his partners had formed the Standard Oil Trust – today we should call it a “holding company” – of firms that operated semi-independently in various states, while still under the control of Rockefeller and his partners. All this was done in the pre-electronic era, when all filing, reporting and accounting was performed manually, by armies of clerks working with pen and paper. Only the telegraph furnished “modern” communications. Although some of his practices were reprehensible, Rockefeller’s accomplishment was truly stupendous.

Because monopolies represented a threat to the nation’s security – especially with respect to oil – Rockefeller’s business eventually attracted the attention of the federal government. The feds, alone, were able to deal with multi-state conglomerates like Standard Oil. Laws were passed, and the “trust busters” began to break up the monopolistic trusts. Theodore Roosevelt and William Howard Taft – both Republicans – were the presidents most active in this.

It’s also fair to note that as his fortune grew, Rockefeller became a great philanthropist – donating some $500 million to charitable causes. He also raised a talented and ambitious family. Many of his children and grandchildren held political offices and performed public service.

I say all this to show my readers how John D. Rockefeller made his money, and to help them recognize emerging “Rockefellers” who are using some of the same stratagems as John D. and others of his era.

The newest “Rockefeller” extant is Warren Buffet, President Obama’s zillionaire pal, who made big news – and achieved permanent FOB (Friend of Barack) status – by aligning himself with Mr. Obama’s tax-the-rich policies. Mr. Buffet famously claimed that his secretary pays a higher income-tax rate than he does. Delicately omitting the fact that his secretary probably earns close to $500,000 a year in salary, Mr. Buffet urged that legislation be enacted to ensure that all “millionaires” are taxed at the same rate she pays. His proposal came to be called the “Buffet Rule” during the 2012 presidential campaign. Mr. Buffet’s suggested legislation was not passed, although Mr. Obama did obtain higher tax rates for individuals earning more than $400,000 a year. (I’m sure his secretary was pleased.)

I call Mr. Buffet the “new Rockefeller” because it’s becoming apparent that he uses some of the same tactics to control oil markets as did the original John D. The difference is that Mr. Buffet is working hand-in-glove with Mr. Obama’s government, not against it.

Hottentots in Africa probably know that private oil interests want to build a nearly 1,200-mile pipeline – i.e., Keystone – from Hardisty, Alberta (Canada) to Steele City, Nebraska, to transport crude oil extracted from Canadian shale. The Obama government has been “studying” the proposed pipeline project for nearly five years, thereby delaying a construction project that would certainly mean thousands of American construction jobs, as well as valuable Midwest refining of hundreds of thousands of barrels of oil per day. Besides the Canadian oil, perhaps 100,000 barrels a day of North Dakota shale-oil would also be carried by Keystone.

Environmentalists fervently oppose Keystone on grounds that it will exacerbate climate change (i.e., Global Warming) by increasing CO2 emissions. But Keystone proponents argue that the climate has not warmed in 15 years. Besides, even the State Department’s own study shows that the Canadian oil will be extracted, refined and used whether or not the pipeline is built, since the Canadians will ship it to their west coast by other means, absent Keystone. A Harris poll taken on June 7, 2013, shows that 82% of Americans believe Keystone will be in the nation’s interest. Of course, Mr. Obama knows all this. So what’s holding up the approval?

As usual, we should follow the money. It’s well known that Mr. Buffet has contributed heavily to Mr. Obama’s political campaigns – perhaps more than $1 million. OK, so he and Obama are best pals. We knew that. It’s less well known that WB opposes the Keystone Pipeline. But why? Is he a closet environmentalist? No, it’s still the money. With tycoons, it’s always The Money.

At present, North Dakota’s oil is mostly shipped via the Burlington, Northern and Santa Fe railroad. The Berkshire Hathaway (BH) conglomerate owns that railroad, and BH is controlled by Warren Buffet. Burlington, Northern and Santa Fe is doing a nice business shipping North Dakota crude, but Keystone would disrupt that business and cost Mr. Buffet a bundle. This is how the dots are connected.

Besides owning a railroad that ships North Dakota crude, Berkshire Hathaway also owns Union Tank Car – one of the biggest makers of railroad oil tank-cars. That business is booming because there’s not enough shipping capacity for the Dakota shale-oil. According to Toby Kolstad (president of the consultant firm Rail Theory Forecasts LL), “People who want to ship oil can’t get [rail tank cars]. They’re desperate to get anything to move crude oil.” (This report was carried by Bloomberg in January 2013.)

Thus, a powerful tycoon opposes construction of an oil pipeline that would clearly impact his railroad oil-transport business. He makes big political donations to the president, who will decide on the pipeline. Meanwhile, the same tycoon controls who gets railroad oil tank-cars, and how many. (Does this sound vaguely familiar?)

William C. Triplett II – former counsel to the Senate Foreign Relations Committee – writes, “A chart of dollars out of Berkshire Hathaway and into the Democratic National Committee would look very ugly.”

When will Big Media “discover” the connection between Warren Buffet and the stalled Keystone pipeline? One can hardly imagine the uproar, should a Republican president be mixed up in such an intrigue. It’s another scandal-in-waiting. Time to blow the whistle.

 

 

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Rockefeller oil-transport, ca. 1885


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John D. Rockefeller, Sr. – ca. 1920