Standard Oil, Like a Phoenix Rising from the Ashes (Bust the Trusts! The Right Way for Once!)

What is it with me and bashing evil corporations of late (not necessarily on this blog, though I’m sure if you look through the archives…)? I hope it’s not habit-forming.

Well, could be that some of them, at least at some point in their history, became what they are with special thanks to the government. Could also be that some of them have been grandfathered in and are protected from competition from those who haven’t been grandfathered in. Might also have a little something to do with the fact that some of them have benefitted from foreign policy meddling and institutionalized theft committed by the state. But other than that, I have few complaints. Here’s a comment I left (since edited) at the end of a survey that sparked this article:

“I like surveys that have political and societal relevance. I believe in the desirability and functionality of free markets. And Exxon Mobil is a great company all things considered. However, they could not have gotten to where they are today without a little outside help. Some of this came from the consumer, to be sure. But some of it came from the state through the virtual cartel status granted to all major [US, Dutch, and British, at least] oil companies going back at least to the 1953 [CIA instigated] Iranian Coup… [This] greatly benefitted the Seven Sisters oil companies (a number of which [were Standard Oil descendants that later] merged to become Exxon Mobil) and is one of the main causes of unease in the Middle East and around the world today. They, like all oil companies, great and small, foreign and domestic, have also benefitted from oil’s status as de facto commodity backing for the US dollar. The world reserve currency known as the Federal Reserve Note is denominated in crude oil. The oil companies have a vested interest in maintaining this corrupt arrangement.”

Federal Reserve Octopus

What say you? Are some/most/all big corporations what they are today more thanks to competition or more thanks to monopoly? Here’s one for extra points: what about “small business,”? Aren’t they also protected from competition, in certain industries more than others, by regulations that keep newcomers out and by subsidies that keep competing technologies down?

For the record, anti-trust legislation actually has the effect of restraining competition, thereby securing monopoly, so when I say “bust the trusts” I don’t advocate anti-trust legislation, I simply want to let free market competition give some of these bigger guys a run for “their” money! The burden of proof is on them to show that they would really be as big as they are today were they under a system of laissez-faire capitalism. I guess you could say I’m with the left-libertarians on this one (except for the fact that I dared to use the word “capitalism”).

Standard Oil Octopus

Also, Brandon and I had our little chat on conspiracy theories. The collusion of big businesses (usually involving the state at some level) to form cartels (take note that Standard Oil, known to us today as Exxon Mobil and Chevron, was owned by John D. Rockefeller, who also had a hand in creating the Federal Reserve; I wouldn’t say everything that has happened in regards to these two was meticulously plotted, but I wouldn’t call it mere coincidence, either) happens to be one of the ones that I subscribe to. I think Adam Smith can back me up on this one. And unlike some who use the quote to support anti-trust legislation, I’ll give you more than just the first two sentences in order to show why such laws are not the best conclusion:

People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices. It is impossible indeed to prevent such meetings, by any law which either could be executed, or would be consistent with liberty and justice. But though the law cannot hinder people of the same trade from sometimes assembling together, it ought to do nothing to facilitate such assemblies; much less to render them necessary.

Monopoly Octopus

Celebrating Chevron’s Profits

Recently there was a bad fire at the Chevron refinery in Richmond, CA, as you probably know.  The refinery will be offline for an unknown period, probably months.  Upon reading this, and knowing that the CA government prohibits “imports” of gasoline from other states, I knew the retail price would jump.  I made a mental note to fill up my Thunderbird next morning.  Too late – regular had jumped from $3.85 to $4.01.  This morning it was $4.06, and $4.13 by afternoon.

My reaction?  I’m delighted that the market is doing its job of balancing supply, which has suddenly dropped, with demand.  But predictably, ignorant fools have jumped on this situation, as in this letter in this morning’s San Francisco Chronicle:

Please ask Chevron to explain why the cost of gasoline will go up because of an accident at their plant.

Don’t they have insurance to cover the loss of their equipment? Is Chevron going to recoup the lost income (deducted from the billions of dollars in profit that they make every year) from us?

If the accident was determined to be due to Chevron’s negligence, are they going to compensate all of their neighbors “inconvenienced” by this?

But most of all, please ask all the other oil companies why their costs are going up because of a fire at a Chevron refinery.

If the other companies are not suffering a financial loss from this devastating environmental disaster in the Bay Area, why are prices expected to rise at Exxon-Mobil, Royal Shell Dutch, BP (Arco, lest anyone forget) and any other company I might be too angry to remember at this moment?

I might have to hold my breath until you find out the answers to these questions or until the air clears, whichever comes first. I’ll let you guess which one that will be.

Chevron probably doesn’t carry insurance because they are big enough to be self-insured, and the risks may be too large and uncertain for an insurance company to estimate.  But insurance is irrelevant to retail pricing.  The basic problem is the all too common myth on which this letter is based: that cost determines price.  The myth is that suppliers add up their costs and then tack on as much profit as they think they can get away with.  As anyone who has studied economics should know, supply and demand jointly determine price in a competitive market such as gasoline.  Set your price too high and you lose customers and your profit declines.  Set it too low and your margin declines, and you may sell out your supplies.  The sweet spot varies constantly with shifting supply and, to a lesser extent, shifting demand.

Of course, profits benefit Chevron’s shareholders.  But they are vastly more valuable to Chevron’s customers because they are the driving force (putting aside government interference) that tells Chevron what kind of products we want, where they are offered, how they are delivered, etc.

Of course, government interference is substantial and shouldn’t be set aside.  Politicians worried about rising gas prices could help out by lifting the prohibition on imports.

Hurray for profits!