Notes: The Prize by Daniel Yergin (Part 1)

"the best histories on any one topic are often histories of basically everything"

Some notes I wrote while reading Part 1 of Daniel Yergin’s The Prize: The Epic Quest for Oil, Money & Power. 

If you know Mr. Yergin, please tell I’d love to have him on my podcast. You can reach me at dwarkesh@dwarkeshpatel.com.

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It’s interesting to me how the best histories on any one topic are often histories of basically everything. Kotkin’s biography of Stalin starts with a digression on Bismarck’s legacy and how the age of colonization changed the way European powers thought about modernization. The Making of the Atomic Bomb has detailed descriptions of the culture of early 20th century European science and the progression of the second World War. Caro’s Lyndon Johnson biographies will teach you about 19th century Texas politics, hill country skirmishes with Indians, the history of the US senate, and much more.

In many cases, writing these kinds of books takes years or (in the case of Caro) even decades longer than the authors initially expected. Because they get nerd-sniped and rabbit-holed by a million different things. And they come away convinced by their research that you really can’t understand their topic until first you understand everything about everything.

The Prize stands firmly in this tradition of history, and it is for this reason that I highly recommend the book. It’s a special experience to get to understand centuries of history from the perspective of one author and (at least nominally) one topic. So far I’ve only read Part 1, but I already have a few notes I want to riff on.

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Today we think of oil and cars as natural companions, but it’s really interesting to consider that for the first 60 years of our use of oil, the substance was used only mainly for lighting. This was the case for the overwhelming majority of Standard Oil’s history, and during the time in which oil bubbles spawned entire cities dedicated to the pumping and refining oil, and the industry instigated national political movements and backlashes.

In fact, there was a genuine open question when Edison invented the lightbulb as to whether Standard Oil would go bankrupt. Oil drilling in Pennsylvania begins in the 1850s, and only once Ford start mass producing cars in the 1910s was an alternate use of oil found.

It’s interesting to think about this example in the context of AI. I think all the AI use cases we can think of today are like what lamp kerosene is to oil - it’s very hard to anticipate the most productive use cases of cheap and plentiful intelligence.

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Every once in a while, someone writes a report or paper whose implications are so important, that if you read it before the rest of the world, you can see the future. For the atomic bomb, it was Szilard’s 1931 paper on the nuclear chain reaction. For LLMs, it was Kaplan’s 2020 paper on transformer scaling laws. For oil, the corresponding result was Professor Benjamin Silliman’s 1855 report on how petroleum could be distilled to make illuminants, lubricants, and more. 

Given how much we in the AI world obsess about scaling laws, it’s funny to see an analogous phenomenon in other eras and industries.

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Standard Oil’s corporate governance is super interesting, and I’m not sure if it has any modern equivalents. Rockefeller took acqui-hiring to the extreme. 

In the process of trying to get a competitor to sell their business to him, he would be ruthless - getting railroads to charge the competitor extra fees (some of which would actually be redirected to Standard Oil itself), selling in the competitors territory for a loss to drive him out of business, etc.

But once the man did sell, Rockefeller would hire the former competitor to join his top executive team. These key executives would run the massive Standard Oil global empire out of their office at 26 Broadway Street in New York.

Fascinating that the only people Rockefeller thought talented, hard-nosed, and pragmatic enough to manage his oil empire for him were the people who dared to compete against him. 

I became more sympathetic to Standard Oil after reading this book. Getting unrefined oil from one place to another, refining it in a standardized way so it wouldn’t kill people in explosions (5-6k deaths a year during that time from such accidents), increasing efficiency from economies of scale, investing in R&D, shipping and distributing the product around the world using a massive transportation network of rails, pipelines, and boats so that millions of people could benefit safe, plentiful lighting - this is extremely hard. We shouldn’t assume it would have just happened naturally without someone like Rockefeller.

The dangers of using amateur refined kerosene were so great that consumers gravitated to the uniformly packaged and colored Standard Oil products (and the company chose the name “Standard” for a reason).

And when I read the parts about Ida Tarbell’s investigative journalism and the anti-trust lawsuit and the eventual breakup of Standard - honestly kinda feels like they destroyed a beautiful and unique institution.

Worth noting that Rockefeller’s reputation seems to have improved over the course of time - he seems to have been hated nationally when Standard Oil was at its peak (Theodore Roosevelt campaigned and won the Presidency on the promise of breaking up Standard Oil). 

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Where did the producer surplus of oil go? I can’t find a clear split online, but from reading the book, I was surprised to learn that a lot of it seems to have gone to the refining of oil, and not to the land owners or drillers - Rockefeller refused to have anything to do with drilling, since choosing the right plot involved a great deal of unnecessary risk, and the big profits were in refining anyways. 

But Standard had stayed out of one critical part of the business—the production of oil. It was too risky, too volatile, too speculative. Who knew when any particular well might go dry? Better to let the producers carry that risk and stick to what could be rationally organized and managed—refining, transportation, and marketing.

This seems very anti-Georgist. Why did drilling become a commodity, and refining the bottleneck step where surplus could be siphoned? Maybe because oil was extremely plentiful, whereas standardization and economies of scale mattered a lot more for the value-added parts?

Another answer is that there were so many individual drillers with a fraction of the market share that they ended up competing away each other’s profits - meanwhile, Rockefeller at his peak controlled an astonishing 90% of global refining.

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It didn’t take much in terms of capital or skills to set oneself up as a refiner. As Rockefeller later recalled, “All sorts of people went into it : the butcher, the baker, and the candlestick-maker began to refine oil.” In fact, Rockefeller and his associates became quite concerned when they learned that a German baker they liked had foolishly traded his bakery for a low-quality refinery.

Open source and distilled models lol

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Rockefeller was the original effective altruist:

He applied to philanthropy the same kind of methodical investigation and careful consideration that he brought to business; eventually, his donations would extend through the sciences, medicine, and education.

In fact, Norman Borlaug’s research into agricultural productivity, which saved a billion lives (yes, billion with a b), was funded by the Rockefeller foundation. Rockefeller also provided the initial funding for what is today the University of Chicago.

Rockefeller was also genuinely frugal, pious, conscientious, and hard-working - even after he became the world’s richest man. And he tried to impart these virtues onto his children:

Thus, the children would have only one tricycle among them so that they might learn to share. In New York City, young John D. Rockefeller, Jr., would be made to walk to and from school even as other children of the rich were carried back and forth in rigs, accompanied by grooms, and he earned pocket money working on his father’s estates for the same wages as the laborers.

I think Rockefeller’s conscientiousness trait is especially important in explaining his success given what kind of business Standard Oil was. For example, how many times is “order” mentioned in the passage below?

“He instinctively realized that orderliness would only proceed from a centralized control of large aggregations of plant and capital, with the one aim of an orderly flow of products from the producer to the consumer. That orderly, economical, efficient flow was what we now, many years later, call ‘vertical integration.’”

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Consider what the global demand meant. The substance for the popular form of lighting worldwide was provided not merely by one country, but, for the most part, by one state, Pennsylvania. Never again would any single region have such a grasp on supply of the raw material. Almost overnight, the export business became immensely important to the new American oil industry and to the national economy. In the 1870s and 1880s, kerosene exports accounted for over half of total American oil output. Kerosene was the fourth-largest U.S. export in value; the first among manufactured goods.

I know semiconductors aren’t a raw material so the analogy is imperfect but still, Taiwan’s a fun comparison. 

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We went from oil lamps to electric lamps in 50 years, but it took 100 years to go from oil cars to electric cars. 

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Tents, lean-tos, shacks, saloons, gambling houses, whorehouses—all sprang up in Beaumont to serve the various needs of the lusting population. According to one estimate, Beaumont drank half of all the whiskey consumed in Texas in those early months. Fighting was a favorite pastime. There were two or three murders a night, sometimes more. Once sixteen bodies were dredged out of a local river, their throats slit, the victims of a night’s mayhem. One of the most popular entertainments in the saloons was betting on how long it would take a rattlesnake to eat a bird that was put into its cage. Even more popular were the prostitutes who swarmed into Beaumont, and the names of some of Beaumont’s madams—Hazel Hoke, Myrtle Bellvue, and Jessie George—became legendary.

This reads similar to the stories of silver mining towns in Central America setup by the Spanish colonists (from Charles Mann’s 1493) - a bunch of rowdy unwed young men put together in the same place - what else did you expect?

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The growth of Standard Oil had not occurred in a vacuum. It was a product of the swift industrialization of the American economy in the last few decades of the nineteenth century, which within a remarkably short time had transformed a decentralized and competitive economy of many small industrial firms into one dominated by huge industrial combinations called trusts, each one sitting astride an industry, many with interlocking investors and directors.

Seems similar to the modern debate about big tech.

John Rockefeller had already amassed vast wealth, he was tired, and he began to plan for retirement. Though he was only in his mid-fifties, the constant strain of business, and of the attacks, was taking its toll.

Gates, Bezos, Larry and Sergey - similar story. Once your company hits the big leagues, your job becomes about dealing with lawsuits and Congressional hearings - why bother anymore? Go start charities or build rocketships instead.

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After the breakup of Standard Oil, Rockefeller got more than 2x richer! He still got shares in the daughter companies, and they all became more valuable once a piece of research that was neglected by the former centralized Standard Oil was adopted by the new Standard Oil of Indiana. A scientist figured out how to double the yield of usable gasoline from crude, and given that auto had become by now the main use of oil, this made all the Standard Oil shards more valuable.

This may be evidence that the anti-trust was needed - 26 Broadway had turned down the million dollar ask to commercialize this tech, but Standard Oil Indiana took the scientist up on it.