Random Reminiscences of Men and Events Part 4

The chief advantages from industrial combinations are those which can be derived from a cooperation of persons and aggregation of capital.

Much that one man cannot do alone two can do together, and once admit the fact that cooperation, or, what is the same thing, combination, is necessary on a small scale, the limit depends solely upon the necessities of business. Two persons in partnership may be a sufficiently large combination for a small business, but if the business grows or can be made to grow, more persons and more capital must be taken in. The business may grow so large that a partnership ceases to be a proper instrumentality for its purposes, and then a corporation becomes a necessity. In most countries, as in England, this form of industrial combination is sufficient for a business co-extensive with the parent country, but it is not so in America. Our Federal form of government making every corporation created by a state foreign to every other state, renders it necessary for persons doing business through corporate agency to organize corporations in some or many of the different states in which their business is located.

Instead of doing business through the agency of one corporation they must do business through the agencies of several corporations. If the business is extended to foreign countries, and Americans are not to-day satisfied with home markets alone, it will be found helpful and possibly necessary to organize corporations in such countries, for Europeans are prejudiced against foreign corporations, as are the people of many of our states. These different corporations thus become cooperating agencies in the same business and are held together by common ownership of their stocks.

It is too late to argue about advantages of industrial combinations.

They are a necessity. And if Americans are to have the privilege of extending their business in all the states of the Union, and into foreign countries as well, they are a necessity on a large scale, and require the agency of more than one corporation.

The dangers are that the power conferred by combination may be abused, that combinations may be formed for speculation in stocks rather than for conducting business, and that for this purpose prices may be temporarily raised instead of being lowered. These abuses are possible to a greater or less extent in all combinations, large or small, but this fact is no more of an argument against combinations than the fact that steam may explode is an argument against steam. Steam is necessary and can be made comparatively safe. Combination is necessary and its abuses can be minimized; otherwise our legislators must acknowledge their incapacity to deal with the most important instrument of industry.

In the hearing of the Industrial Commission in 1899, I then said that if I were to suggest any legislation regarding industrial combinations it would be: First, Federal legislation under which corporations may be created and regulated, if that be possible. Second, in lieu thereof, state legislation as nearly uniform as possible, encouraging combinations of persons and capital for the purpose of carrying on industries, but permitting state supervision, not of a character to hamper industries, but sufficient to prevent frauds upon the public. I still feel as I did in 1899.

THE NEW OPPORTUNITIES

I am far from believing that this will adversely affect the individual. The great economic era we are entering will give splendid opportunity to the young man of the future. One often hears the men of this new generation say that they do not have the chances that their fathers and grandfathers had. How little they know of the disadvantages from which we suffered! In my young manhood we had everything to do and nothing to do it with; we had to hew our own paths along new lines; we had little experience to go on. Capital was most difficult to get, credits were mysterious things. Whereas now we have a system of commercial ratings, everything was then haphazard and we suffered from a stupendous war and all the disasters which followed.

Compare this day with that. Our comforts and opportunities are multiplied a thousand fold. The resources of our great land are now actually opening up and are scarcely touched; our home markets are vast, and we have just begun to think of the foreign peoples we can serve--the people who are years behind us in civilization. In the East a quarter of the human race is just awakening. The men of this generation are entering into a heritage which makes their fathers'

lives look poverty-stricken by comparison. I am naturally an optimist, and when it comes to a statement of what our people will accomplish in the future, I am unable to express myself with sufficient enthusiasm.

There are many things we must do to attain the highest benefit from all these great blessings; and not the least of these is to build up our reputation throughout the whole world.

The great business interests will, I hope, so comport themselves that foreign capital will consider it a desirable thing to hold shares in American companies. It is for Americans to see that foreign investors are well and honestly treated, so that they will never regret purchases of our securities.

I may speak thus frankly, because I am an investor in many American enterprises, but a controller of none (with one exception, and that a company which has not been much of a dividend payer), and I, like all the rest, am dependent upon the honest and capable administration of the industries. I firmly and sincerely believe that they will be so managed.

THE AMERICAN BUSINESS MAN

You hear a good many people of pessimistic disposition say much about greed in American life. One would think to hear them talk that we were a race of misers in this country. To lay too much stress upon the reports of greed in the newspapers would be folly, since their function is to report the unusual and even the abnormal. When a man goes properly about his daily affairs, the public prints say nothing; it is only when something extraordinary happens to him that he is discussed. But because he is thus brought into prominence occasionally, you surely would not say that these occasions represented his normal life. It is by no means for money alone that these active-minded men labour--they are engaged in a fascinating occupation. The zest of the work is maintained by something better than the mere acc.u.mulation of money, and, as I think I have said elsewhere, the standards of business are high and are getting better all the time.

I confess I have no sympathy with the idea so often advanced that our basis of all judgments in this country is founded on money. If this were true, we should be a nation of money h.o.a.rders instead of spenders. Nor do I admit that we are so small-minded a people as to be jealous of the success of others. It is the other way about: we are the most extraordinarily ambitious, and the success of one man in any walk of life spurs the others on. It does not sour them, and it is a libel even to suggest so great a meanness of spirit.

In reading the newspapers, where so much is taken for granted in considering things on a money standard, I think we need some of the sense of humour possessed by an Irish neighbour of mine, who built what we regarded as an extremely ugly house, which stood out in bright colours as we looked from our windows. My taste in architecture differed so widely from that affected by my Irish friend, that we planted out the view of his house by moving some large trees to the end of our property. Another neighbour who watched this work going on asked Mr. Foley why Mr. Rockefeller moved all these big trees and cut off the view between the houses. Foley, with the quick wit of his country, responded instantly: "It's invy, they can't stand looking at the ividence of me prosperity."

In my early days men acted just as they do now, no doubt. When there was anything to be done for general trade betterment, almost every man had some good reason for believing that his case was a special one different from all the rest. For every foolish thing he did, or wanted to do, for every unbusiness-like plan he had, he always pleaded that it was necessary in his case. He was the one man who had to sell at less than cost, to disrupt all the business plans of others in his trade, because his individual position was so absolutely different from all the rest. It was often a heart-breaking undertaking to convince those men that the perfect occasion which would lead to the perfect opportunity would never come, even if they waited until the crack o' doom.

Then, again, we had the type of man who really never knew all the facts about his own affairs. Many of the brightest kept their books in such a way that they did not actually know when they were making money on a certain operation and when they were losing. This unintelligent compet.i.tion was a hard matter to contend with. Good old-fashioned common sense has always been a mighty rare commodity. When a man's affairs are not going well, he hates to study the books and face the truth. From the first, the men who managed the Standard Oil Company kept their books intelligently as well as correctly. We knew how much we made and where we gained or lost. At least, we tried not to deceive ourselves.

My ideas of business are no doubt old-fashioned, but the fundamental principles do not change from generation to generation, and sometimes I think that our quick-witted American business men, whose spirit and energy are so splendid, do not always sufficiently study the real underlying foundations of business management. I have spoken of the necessity of being frank and honest with oneself about one's own affairs: many people a.s.sume that they can get away from the truth by avoiding thinking about it, but the natural law is inevitable, and the sooner it is recognized, the better.

One hears a great deal about wages and why they must be maintained at a high level, by the railroads, for example. A labourer is worthy of his hire, no less, but no more, and in the long run he must contribute an equivalent for what he is paid. If he does not do this, he is probably pauperized, and you at once throw out the balance of things.

You can't hold up conditions artificially, and you can't change the underlying laws of trade. If you try, you must inevitably fail. All this may be trite and obvious, but it is remarkable how many men overlook what should be the obvious. These are facts we can't get away from--a business man must adapt himself to the natural conditions as they exist from month to month and year to year. Sometimes I feel that we Americans think we can find a short road to success, and it may appear that often this feat is accomplished; but real efficiency in work comes from knowing your facts and building upon that sure foundation.

Many men of wealth do not retire from business even when they can.

They are not willing to be idle, or they have a just pride in their work and want to perfect the plans in which they have faith, or, what is of still more consequence, they may feel the call to expand and build up for the benefit of their employees and a.s.sociates, and these men are the great builders up in our country. Consider for a moment how much would have been left undone if our prosperous American business men had sat down with folded hands when they had acquired a competency. I have respect for all these reasons, but if a man has succeeded, he has brought upon himself corresponding responsibilities, and our inst.i.tutions devoted to helping men to help themselves need the brain of the American business man as well as part of his money.

Some of these men, however, are so absorbed in their business affairs that they hardly have time to think of anything else. If they do interest themselves in a work outside of their own office and undertake to raise money, they begin with an apology, as if they are ashamed of themselves.

"I am no beggar," I have heard many of them say, to which I could only reply: "I am sorry you feel that way about it."

I have been this sort of beggar all my life and the experiences I have had were so interesting and important to me that I will venture to speak of them in a later chapter.

CHAPTER IV

SOME EXPERIENCES IN THE OIL BUSINESS

During the years when I was just coming to man's estate, the produce business of Clark & Rockefeller went on prosperously, and in the early sixties we organized a firm to refine and deal in oil. It was composed of Messrs. James and Richard Clark, Mr. Samuel Andrews, and the firm of Clark & Rockefeller, who were the company. It was my first direct connection with the oil trade. As the new concern grew the firm of Clark & Rockefeller was called upon to supply a large special capital.

Mr. Samuel Andrews was the manufacturing man of the concern, and he had learned the process of cleansing the crude oil by the use of sulphuric acid.

In 1865 the partnership was dissolved; it was decided that the cash a.s.sets should be collected and the debts paid, but this left the plant and the good-will to be disposed of. It was suggested that they should go to the highest bidder among ourselves. This seemed a just settlement to me, and the question came up as to when the sale should be held and who would conduct it. My partners had a lawyer in the room to represent them, though I had not considered having a legal representative; I thought I could take care of so simple a transaction. The lawyer acted as the auctioneer, and it was suggested that we should go on with the sale then and there. All agreed, and so the auction began.

I had made up my mind that I wanted to go into the oil trade, not as a special partner, but actively on a larger scale, and with Mr. Andrews wished to buy that business. I thought that I saw great opportunities in refining oil, and did not realize at that time that the whole oil industry would soon be swamped by so many men rushing into it. But I was full of hope, and I had already arranged to get financial accommodation to an amount that I supposed would easily pay for the plant and good-will. I was willing to give up the other firm of Clark & Rockefeller, and readily settled that later--my old partner, Mr.

Clark, taking over the business.

The bidding began, I think, at $500 premium. I bid a thousand; they bid two thousand; and so on, little by little, the price went up.

Neither side was willing to stop bidding, and the amount gradually rose until it reached $50,000, which was much more than we supposed the concern to be worth. Finally, it advanced to $60,000, and by slow stages to $70,000, and I almost feared for my ability to buy the business and have the money to pay for it. At last the other side bid $72,000. Without hesitation I said $72,500. Mr. Clark then said:

"I'll go no higher, John; the business is yours."

"Shall I give you a check for it now?" I suggested.

"No," Mr. Clark said, "I'm glad to trust you for it; settle at your convenience."

The firm of Rockefeller & Andrews was then established, and this was really my start in the oil trade. It was my most important business for about forty years until, at the age of about fifty-six, I retired.

The story of the early history of the oil trade is too well known to bear repeating in detail. The cleansing of crude petroleum was a simple and easy process, and at first the profits were very large.

Naturally, all sorts of people went into it: the butcher, the baker, and the candlestick-maker began to refine oil, and it was only a short time before more of the finished product was put on the market than could possibly be consumed. The price went down and down until the trade was threatened with ruin. It seemed absolutely necessary to extend the market for oil by exporting to foreign countries, which required a long and most difficult development; and also to greatly improve the processes of refining so that oil could be made and sold cheaply, yet with a profit, and to use as by-products all of the materials which in the less-efficient plants were lost or thrown away.

These were the problems which confronted us almost at the outset, and this great depression led to consultations with our neighbors and friends in the business in the effort to bring some order out of what was rapidly becoming a state of chaos. To accomplish all these tasks of enlarging the market and improving the methods of manufacture in a large way was beyond the power or ability of any concern as then const.i.tuted. It could only be done, we reasoned, by increasing our capital and availing ourselves of the best talent and experience.

It was with this idea that we proceeded to buy the largest and best refining concerns and centralize the administration of them with a view to securing greater economy and efficiency. The business grew faster than we had antic.i.p.ated.

This enterprise, conducted by men of application and ability working hard together, soon built up unusual facilities in manufacture, in transportation, in finance, and in extending markets. We had our troubles and set-backs; we suffered from some severe fires; and the supply of crude oil was most uncertain. Our plans were constantly changed by changed conditions. We developed great facilities in an oil centre, erected storage tanks, and connected pipe-lines; then the oil failed and our work was thrown away. At best it was a speculative trade, and I wonder that we managed to pull through so often; but we were gradually learning how to conduct a most difficult business.

FOREIGN MARKETS

Several years ago, when asked how our business grew to such large proportions I explained that our first organization was a partnership and afterward a corporation in Ohio. That was sufficient for a local refining business. But, had we been dependent solely upon local business, we should have failed long since. We were forced to extend our markets into every part of the world. This made the sea-board cities a necessary place of business, and we soon discovered that manufacturing for export could be more economically carried on there; hence refineries were established at Brooklyn, at Bayonne, at Philadelphia, at Baltimore, and necessary corporations were organized in the different states.

We soon discovered, as the business grew, that the primary method of transporting oil in barrels could not last. The package often cost more than the contents, and the forests of the country were not sufficient to supply cheaply the necessary material for an extended time. Hence we devoted attention to other methods of transportation, adopted the pipe-line system, and found capital for pipe-line construction equal to the necessities of the business.

To operate pipe-lines required franchises from the states in which they were located--and consequently corporations in those states--just as railroads running through different states are forced to operate under separate state charters. To perfect the pipe-line system of transportation required many millions of capital. The entire oil business is dependent upon the pipe-line. Without it every well would be less valuable and every market at home and abroad would be more difficult to serve or retain, because of the additional cost to the consumer. The expansion of the whole industry would have been r.e.t.a.r.ded without this method of transportation.

Then the pipe-line system required other improvements, such as tank-cars upon railroads, and finally the tank-steamer. Capital had to be furnished for them and corporations created to own and operate them.