As oil prices continue to plunge this winter, we’re getting into the oil business – with a look at our love affair with “black gold.”
At the beginning of the 20th century, oil was hardly on America’s energy map. Coal was king, supplying as much as 90% of the nation’s energy needs. And the second most used energy source? Wood. But in just a few short decades Americans would come to depend on oil to heat their homes, get to work, power their military, and supply the plastics for their appliances. By the dawn of the 21st century, President George W. Bush would declare America “addicted” to the substance. So in this episode, the hosts and their guests look to the roots of that addiction, and explore how oil has shaped the American lifestyle and economy over time.
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ED: This is BackStory. I’m Ed Ayers. In the 1950s, American oil companies touted the dependability of their products. Take this TV spot promising hot water whenever you needed it.
WOMAN ON TV SPOT: And I know for fact that only oil heat can give me so much so fast. And it’s so dependable.
ED: Now dependable might not be the first word that Americans today would associate with oil, noticing how much the price seems to fluctuate. And truthfully the American history of the substance has always been a little rocky, from the first boom town that went bust in the late 19th century to the 1970s, when Americans came face to face with the prospect of no oil.
Basically our whole way of life can ground to a halt. Today on BackStory, oil. The history of America’s love affair with a commodity that’s never fully loved it back.
PETER: Major funding for BackStory is provided by an anonymous donor, the University of Virginia, the National Endowment for the Humanities, and the Joseph and Robert Cornell Memorial Foundation.
ED: From the Virginia Foundation for the Humanities, this is BackStory. We’re the American Backstory hosts.
PETER: Welcome to the show. I’m Peter Onuf here with Brian Balogh.
BRIAN: Hey, Peter.
PETER: And Ed Ayers.
ED: Hey, everybody.
PETER: We’ll begin 1901. Oil had just been struck at a place called Spindletop in East Texas. Emerged from the earth in what was called a gusher, a tremendous plume of oil that shot from the top of the dirk and flooded the area around it. Here’s a firsthand account from a person who witnessed the event.
MALE SPEAKER: It looked like snow. And it had discolored all the houses in town, and the silverware, and the silver in your pocket.
PETER: It looked like snow. Quite the description of what was in essence a gigantic oil spill.
KATHRYN MORSE: American’s saw oil as exciting, as dynamic, as abundant, and as a promise of wonderful things. It was a visual spectacle to be celebrated, and they didn’t think much beyond that.
PETER: This is Kathryn Morse, a historian at Middlebury College. She combed through news reports of oil industry accidents from the turn of the century and found out that they were often portrayed in almost sublime terms, as kind of wonders of nature. She describes one account of a 1910 gusher in California when oil spewed uncontrollably for a year and a half.
KATHRYN MORSE: The Los Angeles Time featured a beautiful photograph of the gusher spouting high into the air, showing the reflection not only of the gusher in the sky, but in the pool of oil as well, and proclaimed it California’s most wonderful oil picture. The Lakeview gusher and it’s great lake of oil.
PETER: Morse says gushers were events. Crowds would come from miles around to sit and watch. Families with children would bring picnics. And when a spark caught and lit the disastrous scene on fire, well, then it was a bigger event. Here’s how one witness put it.
MALE SPEAKER 1: It was the most beautiful sight ever witnessed in the oil regions. Blazing fluids spouting up high in the air and breaking in a shower of fiery drops. A wonderful fountain of fire.
KATHRYN MORSE: It was truly seen as a spectacular visual spectacle. And there are postcards showing these flaming geysers at night lighting up the night sky and drawing hundreds to watch this intense visual spectacle of a flaming line of light shooting into the air.
PETER: It’s a pretty far cry, obviously, from the way we tend to think about oil accidents today. Think back to Exxon Valdez, or to the BP oil spill the Gulf of Mexico in 2010. Now Kathryn Morse says that early witnesses to oil accidents did worry about containing all the valuable oil.
KATHRYN MORSE: But it wasn’t really a question about the health of the earth for a very long time, until Americans’ ideas about oil and understanding of its effects changed dramatically later in the 20th century.
ED: In the 150 odd years since Americans first discovered how to get oil out of the ground, we have come to rely on the stuff in nearly every aspect of our daily lives. We’re extraordinarily dependent on a steady supply of it, and yet, by its very nature, oil is one of the most unsteady commodities there is. And so today on the show, with concerns over the Keystone XL pipeline fueling debates about America’s energy future, we’re reflecting on the changing ways in which Americans have dealt with the inevitable, oil getting out of control.
We’ll consider the story of John D. Rockefeller and Standard Oil, hear why one Texas governor sent troops to the oil fields in the 1930s, and look back on the year that put the idea of energy independence on America’s political map.
PETER: But first, a story from the time of America’s very first oil boom. It wasn’t in Texas, California, or Oklahoma. It was in Western Pennsylvania. Oil was struck there in 1859, and it unleashed a stream of prospectors who rushed to the region hoping to strike it rich.
But it was a risky business. Only about half of the wells in those early days became productive. Oil geology was still in its infancy. And so some prospectors turned to the supernatural.
BRIAN: One of the best known stories of paranormal activity in the oil fields around this time featured a man named Abraham James. He arrived in Western Pennsylvania in 1866, and on October 31, appropriately enough, something spooky happened to him.
James and three other men were riding in a buggy near Pleasantville Pennsylvania when James suddenly and without warning–
ROCHELLE ZUCK: Is thrown out of the buggy by unseen forces, and moved–
BRIAN: Unseen forces? You mean non human sources.
ROCHELLE ZUCK: That’s correct.
BRIAN: This is Rochelle Zuck, who was written about James and his deep connections to the spiritualist movement. Spiritualism, which took off in America right around the same time as the oil industry, centered on the belief that it was possible for the living to communicate directly with the spirits of the dead. So on that day in 1866, when James was thrown from his wagon, he was supposedly receiving messages from the spirit plane.
ROCHELLE ZUCK: His spirits communicate to the men that this particular spot is the site of a tremendous oil reserve, and a well should be placed on this location. And James, under the influence of these spirit guides, thrusts a penny into the ground.
BRIAN: James and his cohorts eventually sunk an oil well on that spot. It was a solid hit. And the well would eventually produce more than 100 barrels a day and spark yet another wave of speculators. It wasn’t unusual to see prospectors using all kinds of methods for divining where the oil was going to be. They used dowsing rods and other kinds of tools, sometimes just their noses. But among these seekers, it was the spiritualists that most captured the attentions of the oil men. I sat down with Zuck to talk about why oil prospecting and spiritualism were such a good match for each other.
ROCHELLE ZUCK: Accounts of James suggest that the spiritualist were looking to demonstrate spiritualism’s practical applications. And spiritualists felt that with their potential for understanding the unseen aspects of the natural world, they felt that they had unique contributions to make to the oil industry, whose success depended on the location of unseen oil reserves. And so the oil industry and spiritualism, to an extent, one could argue that both are invested in a belief in the unseen, whether that unseen represents deceased loved ones or these underground oil reserves.
BRIAN: And were the spiritualists successful in demonstrating the practicality of their beliefs? Did the spiritualists help promote oil in any way?
ROCHELLE ZUCK: They did. One thing that’s important to note is that spiritualism had an established literary network. And so when James, for example, strikes oil, this is written up in spiritualist publications across the country, as well as local papers and publications related specifically to oil. So one of the things that spiritualism brought to the endeavour was this established literary network.
BRIAN: Why do you think oil men were particularly attracted to the spiritualists?
ROCHELLE ZUCK: I think there’s a number of reasons. First, in a world where there are no oil experts, someone like James was as good as the next guy, and oil men were willing to entertain a number of methods. As one writer for the New York Tribune reflected quote, “This business is all lottery.”
This second is that it’s important to remember that in the 19th century, industry and industrialization were often framed as potentially corruptive influences to American culture.
BRIAN: This is era of the robber baron.
ROCHELLE ZUCK: This is the era of the robber barren, but we also have this legacy that equates farming and agrarian production with civic virtue, coming out of the Jeffersonian tradition, for example. There are also religious discourses that suggest that the pursuit of wealth and capital is potentially corruptive for individuals and societies. And so spiritualism also offered a kind of guiding morality to the oil industry, in the sense that someone like James is framed as a synthesis of the spiritual, the industrial, and the scientific. And so it is a way, I think, for the oil industry to frame itself as not antithetical to people’s moral and spiritual lives.
BRIAN: Do you think that once the science of geology was better established that all of these spiritualists became an embarrassment for the oil industry?
ROCHELLE ZUCK: I think there is a certain amount of that, yes. Because you see, for example, in accounts from the mid 20th century an attempt to distinguish the modern scientific industry from what is framed as its chaotic and superstitious beginnings. And so James and his harmonial well become a kind of amusing footnote in the broader story of the oil industry, as this industry seeks to present itself as cutting edge, modern, scientific, and professional.
BRIAN: Rochelle Zuck is a professor at the University of Minnesota – Duluth.
PETER: It’s time for a short break, but don’t go away. When we get back, we’ll consider two different ways of controlling one of the most volatile commodity markets in history.
BRIAN: You’re listening to BackStory. We’ll be back in a minute.
PETER: We’re back with BackStory, the show that looks to the past to understand the America of today. I’m Peter Onuf.
BRIAN: I’m Brian Balogh.
ED: And I’m Ed Ayers. We’re talking today about what’s been called black gold by some and the devil’s excrement by others. And that would be oil. And we’re reflecting on the ways that Americans have attempted to keep a steady supply of it flowing into our lives. We’re going to turn now to one of the most iconic images of the oil industry’s dark side, the Standard Oil octopus. Now you’ve probably seen this image. It features a giant octopus with tentacles controlling Congress, state houses, railroads, the shipping industry, and businessmen, and politicians. But there’s another image that’s been invoked to describe the behavior of this 19th century behemoth, an image that’s much more becoming too Standard Oil founder John D. Rockefeller. That image, a rose.
University of Texas historian H.W. Brands says this metaphor was first articulated by Rockefeller’s son, John Rockefeller Jr., and basically says this.
H.W. BRANDS: Running a business is like cultivating an American beauty rose. And so you plant the bush, and you go out there in the spring, and you look at the buds that come out, but you don’t allow all of the buds that come out to go to maturity, because they would bleed off the energy of the plant. No, you go through, and you quite ruthlessly cut away the less sturdy ones, until there’s just one blossom. And all the energy of the plant goes into that one blossom. And that one prize specimen, that one American beauty rose, that’s like Standard Oil.
We wanted to focus on this image instead of the octopus because we thought it was such an odd analogy to represent an oil company. It basically suggests that competition isn’t advantageous in a capitalist society, at least in the case of oil.
H.W. BRANDS: In another business, in the steel business for example, you can sort of discover new supplies of iron ore, but it can’t all come to market all at once the way it does in the oil business. So oil was more prone to these booms and busts than other businesses at the time.
ED: Booms and bust. That seems to be the very story of oil. And it was true even in the pre automobile era, when people used oil’s derivatives to light their homes and to lubricate the machinery of their ever bigger industrial economy. Even big cities like Cleveland felt the turbulence of the market, and that’s because the city’s economic backbone was refining the oil that had recently been discovered nearby.
In the 1860s a 20 something John D. Rockefeller was one of the many refinery owners in Cleveland who jostled for a place in the suddenly crowded field.
H.W. BRANDS: The cost of entry was still quite low. And there were the equivalent of mom and pop refineries. The chemistry wasn’t difficult. The engineering wasn’t hard. The recipes for making this stuff were pretty straightforward. And so somebody could come along and say, OK, this is what they’re buying the oil for, this is what they’re selling it for. I can refine it, and I can make some money.
And so for several years from the mid 1860s until the early 1870s, it was pretty much a harem scarem kind of operation.
ED: By the late 1860s, there were so many refineries in Cleveland that their capacity was estimated at triple the crude oil output from Pennsylvania. Most refineries were losing money while not actually producing a very good product. And that drove Rockefeller nuts, so he decided to tame the boom bust cycle. He would take control. To use the metaphor his son would later employ, Rockefeller would prune the thorny rose bush of oil production in Cleveland and soon of all the United States.
After years of saving his money and during a very controversial and ultimately failed deal as something like a cartel with the railroads of Pennsylvania, Rockefeller decided to finally make his move in Cleveland. In 1872, he got out his pruners, and this soft spoken 32-year-old approached each of the dozens of refineries in the city with a simple choice.
H.W. BRANDS: He would offer either a share of this new corporation that he was making, the Standard Oil trust, or he’d pay them cash. And the really smart ones, the ones with the greatest insight, the farthest sighted ones, would take Standard Oil stock. The next smartest ones would take the money. The ones with the least foresight would say, no I like my business. I’m going to keep. Because what Rockefeller then would do, would be to proceed to drive those people out of business.
ED: This event of buying out or under selling competition would come to be known as the Cleveland Massacre. It took Rockefeller less than three months. And then he moved on to other cities to use the same tactic.
H.W. BRANDS: By 1880 or so, he controlled 93% or 94% of the refining capacity of America. Now in all of this, Rockefeller thought that he was doing the country a good turn. He also thought that he was doing the competitors that he drove out of business a good turn. And he’s likened himself, saying I was the angel of mercy who swept down and scooped them up, and gave them good money for these piles of junk that they had. I said come on, get on in the ark, and we’ll carry you to safety. And this was something that he really believed.
ED: Standard Oil lived up to its name. It set a standard low price and kept a standard of quality high. Rockefeller prided himself on this achievement and on the way that he executed it. After all, he only made his move on the Cleveland competition after years of planning, and building his capital, and wooing skittish investors in New York to give them the edge. Rockefeller prided himself on playing the long game, but other people were playing an even longer game, like a woman named Ida Tarbell.
H.W. BRANDS: Ida Tarbell was the daughter of one of his competitors and somebody that he had run out of business back in the 1870s.
ED: At that time, Tarbell was only 14 years old, but the experience was seared in her brain for the next 30 years. She had patience and a vision similar Rockefeller’s, particularly when it came to painstaking research and reporting.
H.W. BRANDS: And remembering what her father had gone through, and believing that his demise had been the direct consequence of the actions of John Rockefeller, she wrote this expose that was serialized in the McClure’s Magazine at the beginning of the 20th century, called The History of is Standard Oil Corporation. And it laid bare the various, what she considered to be, nefarious practices of John D. Rockefeller. And it gave great impetus to the progressive movement.
ED: The government had been looking into Standard Oil’s monopolist activities since the late 1880s. And more progressive laws had been passed to prevent it from dominating the industry, particularly the Sherman Antitrust Act of 1890. And Tarbell revealed through her investigation that Standard Oil maintained secret deals with railroad companies that helped them squash their competition.
The revelations fueled growing antitrust sentiment. And in 1911, the Supreme Court found Standard Oil to be illegal. When that happened, Rockefeller was playing golf, and a reporter asked what advice he would give to investors.
H.W. BRANDS: And Rockefeller, at the moment when his life’s handiwork was being broken into pieces– Standard Oil was being broken up– he said if you have any money, invest in Standard Oil.
ED: It was the dawn of the automobile age, and suddenly, the man who had dedicated his life to consolidating oil’s production under a single company’s roof seemed to be saying there were big profits to be made in a much more competitive market.
H.W. BRANDS: This was just after Henry Ford had rolled out the Model T. Ships were starting to convert from coal to oil. And he realized, perhaps, that maybe Standard Oil altogether wasn’t nimble enough to deal with these new challenges. And in fact, he was absolutely right. If somebody had invested in Standard Oil at the moment of the break up when everybody else was selling Standard Oil Stock, they would have become enormously wealthy over the next 20 or 30 years.
ED: That’s historian H.W. Brands. He writes about the robber barons of the 19th century in American colossus. His other books include Greenback Planet, The Money Men, and The Age of Gold.
PETER: The story of Standard Oil is a story about controlling production, but only to a certain extent. You see, John D. Rockefeller’s vision of the oil business focused on the middle man, the refiners. Controlling the actual extraction of oil, even Rockefeller wasn’t bold enough to try that. And part of the reason why has to do with what’s known as the rule of capture.
ED: Now the rule of capture basically amounts to finders keepers. The idea being that oil belongs to whoever managed to extract it, or capture it, from the ground, even if it comes from under someone else’s land. The rule dates back to English common law and disputes between landowners and hunters about wild game.
The reason it was applied to oil extraction was because scientists in the middle of the 19th century thought that underground oil behaved like a wild animal. It could migrate from here to there. And so it couldn’t easily be assigned to one landowner or another.
PETER: The upshot was that rapid extraction was incentivized. If you didn’t drain the oil under your own land, a neighbor, who could also get at that coil through an access point on his land, could drain it himself. Over the years, the rush to extract oil as quickly as possible resulted in untold environmental degradation. But it also resulted in a kind of democratization of oil business. All you needed to do to get in on the action was get your hands on a drill and secure the rights to the few hundred square feet needed to set that drill up. It was known as wildcatting, and for decades, the mythology of the wildcatter loomed large in American’s imaginations.
BRIAN: In 1926, a 70-year-old wildcatter named C.L. Joiner showed up in East Texas. He had with him a rusty rig and a pitch for investors. Geologists working for the big oil companies had already decided that the region was dry, but Joiner wasn’t convinced. He raised enough money to drill one dry well and then another. But in 1930, his third well hit the jackpot. He had tapped into what remains to this very day the largest oil field in the lower 48. Matthew Huber is a professor of geography, who sat down with me to explain what happened next. Almost immediately, legions of prospectors streamed to the region to sign land leases with the poor farmers there, and oil started flowing like crazy.
But, and here’s the twist, profits didn’t follow. To put it simply, the market was flooded with oil. Prices were already low thanks to the depression, and this new glut of oil sent prices through the floor. Huber says that people were actually losing money.
MATTHEW HUBER: And so the producers are on the brink of bankruptcy. The farmers who had signed these oil leases are receiving minuscule royalty checks. This kind of dream of instant oil love very quickly turned to chaos and anger, and people very quickly realized there needed to be some mechanism to stop this oil production. And that’s where you start to see people threatening violence on pipelines, because if you blow up the pipelines, there’s no way to get the oil to market. You start to see threats coming out that people were going to literally hang people, and that kind of vigilante type of violence to stop people from producing oil.
BRIAN: But of course the first instinct of a producer, when his price drops, is to produce more to make up for it, right?
MATTHEW HUBER: Absolutely. So everyone’s trying to produce more to make up for the less money they’re getting per barrel, and that exacerbates the problem.
BRIAN: So on August 16, 1931, Texas governor Ross Sterling took action. He declared martial law and called out the National Guard to enforce strict limits on how much could be pumped from the ground. I asked Huber whether this worked.
MATTHEW HUBER: It did work for a time. And interestingly, people were very appreciative. Unfortunately, refiners were not so happy. They were thinking what’s going on here. We have the governor imposing martial and raising the price of our prime input, so they sued the state of Texas. And eventually, in 1932, the federal courts declared the imposition of martial law unconstitutional. And that essentially lifted this control mechanism, and the flood sort of recommenced. And by the time FDR comes into office, the crisis conditions have pretty much gotten back to where they started.
BRIAN: FDR’s Interior Secretary, a guy named Harold Ickes, took the crisis in the southwest extremely seriously. He saw overproduction as a national problem that demanded a strong, sweeping, national response.
MATTHEW HUBER: Ickes was, and his letters to Roosevelt, talking about how he wanted to become an oil dictator. I even read a letter to FDR that was talking about how Mussolini had done some wonderful things with oil in the Italian Navy and that we should look at that as a model.
BRIAN: Icke’s vision of converting oil into a federally run utility didn’t meet with much enthusiasm on the part of states’ rights types. In the end, control of the industry was left to the state agencies. In the case of Texas, state’s Railroad Commission. Over the next several years, that commission instituted something called pro rationing, whereby monthly quotas, or allowables, were issued to every well owner in the state. As for the idea of a national solution, Huber told me it didn’t disappear entirely.
MATTHEW HUBER: What the federal government did do is create what was called the Interstate Oil Compact Commission, which was a handful of states: Oklahoma, Texas, Louisiana Kansas, Illinois, other oil producing states. And they would come together, and meet, and study the conditions of the national market to try to coordinate how much oil should be produced. The other important part of this story is the federal government had the Bureau of Mines project on a month by month basis how much oil was demanded by estimating how many cars there were, and how many heating oil units, and various sort of statistical methods for projecting this.
And those projections became the kind of basis for which Texas and other states determined how much should be produced. So what they were trying to do is, again, align production so that it did not exceed projected demand.
BRIAN: So Matt, forgive me for jumping ahead, but we’ve got state mechanisms for issuing allowances. We’ve got the states cooperating with each other through a regional council. And we’ve got estimates of demand so that the allowables, as you put it, are tailored to keep the price steady or increasing, given that demand. Can you spell OPEC?
MATTHEW HUBER: Exactly. Yeah, and in fact, it’s very clear that OPEC was founded in the early ’60s. And they studied, particularly, the Texas Railroad Commission, and the very eloquent way in which they were able to coordinate this incredible system of production management to keep prices stable and increasing.
BRIAN: These days, we tend to talk about oil as a kind of precious resource that needs to be conserved. In a few minutes, we’ll hear more about what happened in the 1970s to usher in that way of thinking. What this story shows us, Huber says, is that at least when it comes to oil, scarcity is an idea that kind of has to be invented.
MATTHEW HUBER: If you look, again, at not just the 1930s, but the whole history of oil, you really find that the real menace for the industry and states that control oil is abundance, and not scarcity. And that scarcity actually has to be actively managed by sets of institutions like the Texas Railroad Commission, like OPEC, to create the scarcity needed for profitable forms of accumulation in those particular industries.
And what’s really striking about this history, again, is that you find it’s really quite difficult to manage those forms of scarcity. OPEC was quite successful in the 1970s, and they raised prices fourfold, but by 1986 OPEC was in disarray, and the price of oil had collapsed to about $8 to $10 a barrel.
And this was inflicting horrible suffering, again, on the independent oil producers in Texas. And it forced George H. W. Bush to travel to Saudi Arabia in 1986 to beg Saudi Arabia to stop producing so much oil, again, on behalf of the oil industry, which he is known for being friendly with. Ironically, OPEC in the ’80s and ’90s was probably less successful than the Texas Railroad Commission in the ’50s and ’60s at managing this scarcity.
BRIAN: That’s Matthew Huber, a professor of geography at Syracuse University. He’s the author of Life Blood: Oil, Freedom, and the Forces of Capital. It’s time for another short break. When we get back, how the year 1973 changed everything we know about oil.
PETER: You’re listening to BackStory. We’ll be back in a moment. This is BackStory. I’m Peter Onuf.
BRIAN: I’m Brian Balogh.
ED: And I’m Ed Ayers. Today in the show, we’re taking the long view on the way that Americans have struggled to feed their appetite for oil. We just heard a story about their dramatic steps that one big oil state took to limit the amount of oil being produced there, Texas. And we want to take a few minutes now to reflect on that story.
BRIAN: So Ed, Peter, in that Texas story, we heard about martial law. And we heard about this state commission that for decades had been controlling the output of oil wells. We heard about OPEC. None of which we associate with the workings of a truly free market. And yet all of those were set up in order to keep the market functioning smoothly, so I have to ask you, was there ever such a thing as a naturally functioning free market in American history?
PETER: No. The answer is no. Just think of the word nature. There’s no market in nature. It’s nature that has to be transformed in order to create commodities for which there is demand, and none of this happens without sophisticated means of transportation, exchange, cultivation, manufacture. All of it requires the development of human capacity. Civilization. So the idea of a natural market, I’d say, is an oxymoron.
ED: Ah, Peter. Now things were so crude and simple back in your period.
BRIAN: I get it. Crude.
PETER: Yeah, crude. Definitely.
ED: They were so crude, they didn’t even have crude oil.
PETER: But they did have tobacco, Ed, as you well know. And tobacco, you say well, here’s something that grows in the Chesapeake area, and it’s a great boom in early Jamestown. Everybody’s growing tobacco. They can’t even feed themselves because they’re growing so much tobacco, because there is this market that they’re tapping in Europe. Who knew that a weed growing in America could come in such a high price in Europe. Well, it doesn’t for that long, does it?
Because the market is flooded. What do they do? They have various schemes for limiting growth. That is burning down tobacco. Grading some as trash and eliminating it. Establishing, well, government regulation and control. And without that government regulation and control, there’s going to be no market for American tobacco. Tobacco producers can go home, and they grow food, and they can, well, return to nature.
BRIAN: I do think we have one way in which we have quote, “natural markets,” without the state, and that’s what’s supposed to be so unnatural in the market. That’s monopoly. I think one way that producers can really control the supply of their goods and create stability is through either monopoly or oligopoly. And you can have that without the state interfering at all. And they simply work out among themselves. Can you spell De Beers? Can you spell diamond production, for instance?
ED: Can you spell Standard Oil?
BRIAN: Can you spell Standard Oil? That’s your century, Ed.
PETER: Well, I think you put your finger on it, Brian. Because until you have a value to a scarce good, you don’t have any kind of market. When you have a value put on a scarce good, then you have a natural monopoly of those who possess the good.
A free market, that’s the great invention. There’s nothing, absolutely nothing, natural about a free market. It is a way of countering the tendency of advantage seeking of one group or one individual over others.
ED: So was the free market an invention of the 18th century, Peter? Was that–
PETER: Yeah, its Adam Smith who articulates the notion of a truly free market. And it’s against monopolies that have grown up over the centuries that have distorted exchange. And so a free market comes at a moment in history in which you get rid of regulations and limitations on trade and exchange that seem to be undermining or subverting the wealth of the nation, as Smith put it.
BRIAN: Well let’s return to oil. Now, imposing martial law was literally sending guys with the guns into the oil fields to make sure that nobody produced any oil. That’s a pretty messy way to regulate a market. One of the reasons we think we have a free market is we’ve come up with much more subtle ways. What they did, for instance, in the case of oil, was they said, oh we need to conserve the long term supplies of oil. So we need to tell people how much they can produce, not because we’re fixing prices, no, no, no, no. That wouldn’t be us. But because we don’t want to deplete these oil reserves. So we want to conserve them. We want to use them in a steady and rational way.
And what I’m getting at is we come up with broader agendas that we wrap the market within. In the case of oil, it was, well we want a long term supply of oil, so even in Texas, that individualistic kind of state, we’re going to give the Texas Railroad Commission the power to allocate how much oil should be produced, because of the larger goal of conservation and long term supply of oil. After all, we don’t want to literally burn through all of this oil in 10 years. We want it to be around for a long time.
PETER: So Brian, you’re suggesting that what we take to be our environmental sensitivity and consciousness about looming scarcities, well, the real source of that in our culture comes from within industries that want to persuade us that the thing they’re selling us is in short supply and we need to be good stewards.
BRIAN: Absolutely. And whether it comes out of the ground, or whether the producer has to invest a lot to invent it, the way pharmaceutical companies argue, the argument is always the same. If you want us to spend our capital and invest in finding this stuff, developing, coming up with supply chains, we have to be pretty sure that we can have an adequate price and a stable price down the road.
ED: The most valuable commodity on BackStory, of course, is time. And we may be–
PETER: We’ve wasted it.
ED: No, no, no. There’s been a gusher of insight here, but I think we’re going to have to turn off the valve.
BRIAN: Oh, shut up so we can push the price up, Ed.
PETER: If you’re just joining us, this is BackStory, and we’re talking about the history of oil in America. It’s a story characterized by excess, both in its extraction, and, as we hear about a lot these days, in our consumption of it. We’ve heard about the impact of that excess on markets. We want to take a few minutes now to consider some of the social excesses that have accompanied the discovery of oil throughout American history.
We got our hands on some oral history recordings from the 1950s. They are the voices of people remembering life near East Texas oil fields around the turn of the century. As you’ll hear in these excerpts, the boom towns that cropped up there were adrift with lawlessness, saloons, gambling, and murder.
MALE SPEAKER 2: Ah, there wasn’t no law much them days. Everybody was– free America then.
MALE SPEAKER 3: So that was a bad place.
MALE SPEAKER 4: It was a tough place.
MALE SPEAKER 3: It really was.
MALE SPEAKER 2: You betcha. Free America. Do as you please. Yes, sir.
MALE SPEAKER 3: Seemed a bit rougher because you didn’t have the bright lights, and the paving, or anything. Just mud and step from one board to another going down streets. Have board sidewalks where they have them at all. Living condition was very, very bad.
MALE SPEAKER 4: So overpopulated that they run the gas out from these big wells, and run it out a ways, and guide it, then they’d set that on fire to burn it. I have saw as many as 150 to 200 man lying around that fire in a big ring at night to sleep.
MALE SPEAKER 5: Why did they go there?
MALE SPEAKER 4: Because the was no other place for them to sleep. They couldn’t get no other place.
MALE SPEAKER 3: They a lot of saloons. Saloon on practically every corner almost. Or quite a few saloons.
MALE SPEAKER 5: How many saloons do you suppose they had here?
MALE SPEAKER 4: It was 52 at one time.
MALE SPEAKER 5: 52 saloons? And how many officers to enforce law?
MALE SPEAKER 6: They only had two officers here, active officers. And every direction you’d look there’d be a fistfight. And their jail was a big tree with a log chain around, and then they’d lock them to that tree, out in the open. That’s the only jail they had at that time. Five, six, seven, eight men or women chained to that tree.
MALE SPEAKER 5: How many people do you suppose were killed on–
MALE SPEAKER 2: I don’t no ideas. Don’t have no ideas. Lot’s of them though. Lot’s of them.
MALE SPEAKER 3: And there’s a lot of murders. Just a lot of them. And a lot of them never were solved. It was nothing uncommon to hear of a couple fellas get picked up out of the river.
MALE SPEAKER 2: We found quite a few of those floating in the river near. If they had an opportune, they would just knock a man in the head, or either shoot him, take what money he had and throw his body in the river.
MALE SPEAKER 7: No coffin. No services of any kind of description.
MALE SPEAKER 8: And that time went on and declared martial law, and got a bunch of soldiers in there, and kind of cleaned the town up.
MALE SPEAKER 9: Got it cleaned up, and law enforcement officers where they would do the job. Then as [INAUDIBLE] gradually subsided, so [INAUDIBLE] of this riffraff gradually drifted away.
MALE SPEAKER 10: You look back on those as the good old days?
MALE SPEAKER 11: Well, I can’t say that. Can’t say that. I’d hate awful bad to have to live that way again.
ED: Those were voices remembering the East Texas oil boom of the early years of the 20th century. They were recorded in the 1950s by the Briscoe Center for American History at the University of Texas Austin. We’ll link to extended versions of those recordings at backstoryradio.org.
BRIAN: A few minutes ago, we were discussing the ways that active government intervention had always been necessary to keep oil prices high enough to ensure that there were profits to be made by the producers. At the same time, however, it’s been necessary to keep oil prices low enough so that American consumers could continue to, well, consume it.
One way to do that was to skimp on the revenue that was shared with those who owned the land above oil. And that’s where our final story begins today.
ED: By the 1950s, many American companies had set up shop in the Middle East. These companies were technically partnered with the oil producing companies, but, in reality, says author Andrew Scott Cooper, nations, such as Saudi Arabia, were usually subservient to the whims of the oil giants.
ANDREW SCOTT COOPER: This naturally generated an enormous amount of antagonism and resentment on part of Iranians, Libyans, Saudis, who quite rightly said this is our resource you’re exploiting, and you’re telling us how much money we’re going to get paid for it. This is wrong.
ED: Unfortunately for them, there was only so much those countries could do about it. They got together to form OPEC in 1960. Now Americans, by that time, were consuming plenty of foreign oil, but the US was still also the world’s largest oil producer. And President Eisenhower had instituted quotas ensuring that Americans didn’t become too dependent on imported oil.
BRIAN: All of that changed in 1973. BackStory producer Nina Earnest spoke to Andrew Scott Cooper about the year that ushered oil into the modern age.
NINA EARNEST: 1973 started off with a harsh winter. Many Americans were using oil to heat their homes, but it just didn’t seem like there was enough to keep everyone warm. And why was that? Domestic oil wells had hit max production a few years earlier in 1970. And with Eisenhower’s quantitative import controls still in place, supply had sort of plateaued. And so by the beginning of 1973, Americans were very much feeling the discrepancy between how much oil the country had and how much it wanted to use.
MALE SPEAKER 12: The energy crisis in the United States grows more acute daily. Thousands and thousands of private homes have been without heat for lengthy periods this winter. The government has–
ANDREW SCOTT COOPER: Universities shut down. Schools shut down. Airports shut down. Airlines flying from New York to California were forced to stop in Pittsburgh and refuel. They didn’t even have enough fuel to get from one side of the country to the other. And so through 73, you see this awareness that we have a real problem on our hands.
NIXON: America’s energy demands have grown so rapidly that they now outstrip our energy supplies. As a result, we face the possibility of temporary fuel shortages and some increases in fuel prices in America.
NINA EARNEST: That’s President Richard Nixon. He gave this speech, the first presidential address on energy, to Congress on April 18 of that year. In it, he laid out his ideas to combat the mounting fuel shortage. And his number one plan–
RICHARD NIXON: I am ending quantitative controls on oil imports and establishing a national–
ANDREW SCOTT COOPER: And that meat that the US could now import as much oil as it wanted to from any other country in the world.
NINA EARNEST: So how much oil did they buy? Well, a lot. Once the quotas were gone, imports surged. By summer of 1973, the United States was bringing in 6.2 million barrels per day, up nearly two million from the year before.
ANDREW SCOTT COOPER: So you can see that, on the one hand he’s trying to deal with a short term problem, and he’s got a short term fix, but he creates a whole other long term issue here of dependency on foreign oil.
NINA EARNEST: When oil guzzling America jumped into the world market, a tight supply got even tighter. Prices started to climb, and the shortage got worse.
ANDREW SCOTT COOPER: Over7 the summer of 1973, there were already lines forming outside gas stations. The country is extremely vulnerable to any interruption in the fuel supply, and it is going to take one trigger event to cause a national crisis.
NINA EARNEST: That trigger event came in October, October 6 to be exact.
MALE SPEAKER 13: There is artillery fire on the Suez Canal, the Egyptian threat. And air activity over the Golan Heights.
NINA EARNEST: It was the start of the Yom Kippur War, when Egypt and Syria led an Arab assault against Israel. That’s when Middle East oil producers got the idea to try and sway the developed world away from supporting their enemy.
MALE SPEAKER 14: The oil producing countries of the Arab world decided to use their oil as a political weapon. They will reduce oil production by 5% a month until the Israelis withdraw from occupied territories. If the Arab countries keep that pledge, it would reduce their production by almost 50% in one year.
NINA EARNEST: Nixon brushed this threat off. Just a few days later, he authorized Congress to send a huge 2.2 billion aid package to its ally, Israel. And that did not go over so well with the Arab states. In retaliation, countries like Saudi Arabia completely cut off oil supplies to the United States. The message was clear. Until you stop supporting Israel, we’re going to stop sending you oil.
The Yom Kippur War was over by the end of October, but the embargo’s effect was just beginning.
MALE SPEAKER 15: A country more accustomed to surplus than shortage has seen some strange events lately.
ANDREW SCOTT COOPER: When the fuel runs out, we forget that basically our whole way of life can ground to a halt. There were stampedes in the United States in grocery stores. And there were shortages of all sorts of consumer products.
MALE SPEAKER 16: When people go to the grocery store and find there’s no food on the shelves and can’t find anything to wear to in stores, then they’ll realize what’s going on.
MALE SPEAKER 17: We need a revolution, really. It’s not just diesel fuel. It’s everything.
ANDREW SCOTT COOPER: There were riots. People pulled guns on fellow drivers outside gas stations. The National Guard was called out to escort fuel tankers driving across country, because fuel tankers were being hijacked.
NINA EARNEST: All of this caught the United States off guard. Americans had come to take cheap oil and the bounty associated with it for granted. And on the world stage, well, as a superpower, they just weren’t used to being told what to do by seemingly weaker countries.
ANDREW SCOTT COOPER: But in 1973, it became very apparent that a country called Saudi Arabia with an autocratic monarch and only 4.5 million people becomes a petrol power, and is able to exert influence over the United States. Suddenly, the world’s greatest power doesn’t appear to be the world’s greatest power again, at least not economically.
NINA EARNEST: At the end of December, foreign oil producers drove the point home that they were finally turning the tables after decades of exploitation. At a meeting in Tehran, OPEC doubled oil prices in one fell swoop from nearly $6 to $12 a barrel. The Shah of Iran, who announced the decision, made the intention clear.
ANDREW SCOTT COOPER: He said you are going to have to live in our world now. You can no longer exploit us. He says the industrial world will have to realize that the area of their terrific progress and even more terrific income and wealth based on cheap oil is finished. And that’s a lesson that Western governments have never forgotten.
NINA EARNEST: Which leads to one final first of the year. In 1973, there seemed to be this realization. If the United States has to look beyond its own borders for oil, it won’t have real control over its foreign policy. So in November, Nixon announced a new initiative for the United States, energy independence. The idea was to wean America off foreign oil by 1980. And even though Nixon’s project independence failed, the dream did not die. In the decade since, President after President and Congress after Congress have been in search of this elusive ideal. Four decades later, it still stands true that declaring independence is a lot easier than actually achieving it.
RICHARD NIXON: In the last third of this century, our independence will depend upon maintaining and achieving self sufficiency in energy.
JIMMY CARTER: Beginning this moment, this nation will never use more foreign oil than we did in 1977. Never.
RONALD REAGAN: By deregulating oil, we’ve come closer to achieving energy independence and helped bring down the cost of gasoline and heating fuel.
GEORGE BUSH: America is addicted to oil.
ED: Nina Ernest is one of our producers.
[MUSIC – DIANA GARDINER, “PRESIDENT NIXON, DON’T RATION MY GAS”]
PETER: That’s going to do it for us today, but we’re eager to hear your thoughts. You’ll find us at backstoryradio.org. You can find out more information on all of today’s guests there and subscribe to our weekly podcast. You can also weigh in on our upcoming shows, including our June show on the history of corporate power in the United States. Whatever you do, don’t be a stranger.
BRIAN: Today’s episode of BackStory was produced by Tony Field, Nina Earnest, Andrew Parsons, and Jesse Dukes. Emily Charnock is our research and web coordinator. And Jamal Millner is our engineer. BackStory’s executive producer is Andrew Wyndham. Special thanks this week to Darren Dochuk, Brian Black, Robert Ellickson, Ross Pifer, and Margaret Schlankey at the Briscoe Center for American History at the University of Texas Austin. Major support for BackStory is provided by an anonymous donor, the University of Virginia, the National Endowment for the Humanities, and the Joseph and Robert Cornell Memorial Foundation. Additional funding is provided by Weinstein Properties. And by the Tomato Fund, cultivating fresh ideas in the arts, the humanities, and the environment. And History Channel, history made every day.
FEMALE SPEAKER: Brian Balogh is professor of history at the University of Virginia. Peter Onuf is professor of history emeritus at UVA and senior research fellow at Monticello. Ed Ayers is president and professor of history at the University of Richmond. BackStory was created by Andrew Wyndham for the Virginia Foundation for the Humanities.