|July 8th, 1839
|May 23, 1937
|“Don’t be afraid to give up the good and go for the great.”
|American Businessman, Philanthropy
|Region of World
|The United States
Over the course of the United States several businessmen have risen to power and gained billions of dollars worth of wealth.
John Rockefeller was an oil tycoon in the 19th century who at his peak had over 3% of the total net worth of the United States. He had one main thing that made him rich… leveraged buyouts across the U.S oil sector.
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Without further ado, here is the 1 main thing that made Rockefeller Rich.
What Is A Leveraged Buyout?
What made John Rockefeller rich was not a superior product or service. In many ways his company, standard oil, was the exact same as other competitors.
What Rockefeller excelled at was something called leveraged buyouts.
A leveraged buyout is when one company begins to buy up shares of a competitor company with their excess capital. Overtime what ends up happening is you will come to own the other company once you cross over 51% ownership.
Today leveraged buyouts are rare. Typically most companies prefer to outright acquire or merge with another company. The reason we don’t see too many leveraged buyouts today is because of the speed of information transfer.
In the 19th century of Rockefeller you could slowly start to acquire shares of a company through different mediums. Nowadays however this is significantly harder as people will catch one.
In the time of John Rockefeller however it was easier to get rich by slowly accumulating shares of competitor companies over time. Rockefeller was strategic about these acquisitions and it allowed him to slowly come to dominate an entire industry.
How John Rockefeller Used Leveraged Buyouts To Become Rich.
At the end of the U.S civil war in 1866 Rockefeller recognized the need for a more efficient means of obtaining and refining oil.
Previously whale oil was used as kerosene to light and fuel homes throughout North America. Rockefeller began to look into easy ways to get cheap oil to the end consumer so that they would only buy his oil.
What Rockefeller did was to go to some of his competitors in Cleveland, Ohio and make a deal with them to ship their oil on the same railroad cars. This drastically undercut everyone’s cost to ship their oil.
While this was happening Rockefeller started to quietly buy up shares of his competitors who were not in on the transportation deal.
What happened was that the entire U.S population switched to the cheaper oil, which was Rockefeller and his team of competitors using cheap rail service.
Rockefeller would pour every penny back into buying up his competitors who were not in on the rail deal with leveraged buyouts. Eventually Rockefeller would come to own a massive portion of the oil producers in Cleveland, Ohio.
Once Standard Oil became the most rich oil company Rockefeller would invite his other competitors over to his house where he would show them his company books that outline how profitable he was. After this he would then make an offer on their company or tell them he would bankrupt them by selling oil at a loss until they went bankrupt.
It was through this leveraged buyout that John Rockefeller became incredibly rich. At its peak in 1880 standard oil was producing over 85% of the world’s total oil.
Did Rockefeller Get Rich From Unethical Business Practices?
At its peak Standard Oil controlled over 3% of the total net worth of the United States. Several people think that Rockefeller and his company became rich through unethical business practices.
Rockefeller did in fact push his competition out of business and come to monopolize the oil industry by controlling over 90% of the U.S energy market.
However in doing so Rockefeller did push for what competition was left to become extremely innovative to preserve their companies.
What ended up happening was that the bad companies would be absorbed by Standard Oil making Rockefeller richer while the few good oil companies would start to innovate.
From this we got the golden age of U.S oil production in the late 19th century. During this time what competitors were left to standard oil were forced to innovate on easier ways to extract, refine, and transport.
Rockefeller did personally practice unethical business practices but at the same time pushed the entire oil sector to produce over 200 new products and services.
Further, he forced the railroad industry to change as well. Before Rockefeller became rich the railroad industry was driven by old tycoons. After Rockefeller started to dominate the oil the U.S rail industry had to start innovating.
How Rich Was John Rockefeller In Today’s Dollars?
It is difficult to estimate the total net worth of John Rockefeller at his peak in today’s dollars. While his liquid net worth at its peak would be around $27 billion his total capital is significantly higher.
At one point Standard Oil controlled around 3% of the total net worth of the U.S market. This was in the 1880’s when standard oil was producing 90% of the U.S oil and 85% of the world’s oil.
In September of 2021 the total net worth of the United States was around $142 trillion dollars. This means that if we assume that Standard Oil was never forcibly broken up and continued to grow with the U.S then Rockefellers net worth would be….
$4.26 trillion dollars.
That is not even factoring in the world’s consumption and demand for oil, which at its peak Standard Oil produced 85% of.
At the end of the day what made Rockefeller rich was his ability to leverage buyouts, think ahead of his competition, and work literally nonstop.
In the early days of Standard Oil it is reported that Rockefeller hardly slept. He was too preoccupied with growing his business and saw where his hard work was going to take him.
Because of this constant work and stress John Rockefeller would suffer from several stress related illnesses throughout his life. One of the major ones was stress induced alopecia which made Rockefeller lose all the hair on his body.
What If Standard Oil Was Never Broken Up?
In 1911 the U.S supreme court ordered that Standard Oil be broken up into 34 separate companies. Today some of these companies are still around, examples are Exxonmobil and Chevron.
If Standard Oil was never broken up then chances are it would still have been able to buy out competitors. This means that over time eventually Standard Oil would come to hold at least 90% of the world’s total oil production and refinement.
The total value of the world’s sectors that would come to need this oil is hard to quantify. Standard Oil would at least come to make, at the bare minimum, between $1.5-$2.1 trillion dollars per year. That is the estimate of a recent 2021 article outlining the value of the oil production sector worldwide.
However, if we account for the nature of Standard Oil and its ability to buy out everything dealing with oil then this value becomes significantly more.
If we account for everything (cars, chemicals, gas, etc.) it’s not hard to see standard oil cross the $10 trillion dollar per year value.
There you have it, an entire article that goes over how John Rockefeller became rich. In many ways he can be considered the world’s richest man for now.
It remains to be seen if anybody will ever be able to get near the wealth that John Rockefeller had during his peak.
Here at The History Ace I strive to publish the best history articles on the internet. If you liked content like this then share around the web, it really helps me to get history out there.
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