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Monopolizing Useless Resources
Oil was found in Lima, Ohio, in 1885. It was one of the most productive oil regions by 1886. Except the oil was “heavy” — thick and sulfurous. It smelled so bad that not only did people refuse to use it to light kerosene lamps, but some cities outlawed its transportation. It was practically unusable. John D. Rockefeller started to buy up the sulfurous Lima oilfields. He bought so many barrels that the board of directors protested until Rockefeller agreed to put up millions of his own capital to finance it.
Rockefeller hired a German chemist, Herman Frasch, to figure out how to make this oil useful. In 1887, Frasch patented a process to eliminate sulfur from the Lima oils. Overnight, Rcokefeller’s 40-million barrel stock of cheap Lima oil skyrocketed in value.
Rockefeller used the same strategy 10 years later. The Mesabi Iron Range was a 120-mile strip in northern Minnesota. The iron wasn’t hard rock but rather fine and powdery. It was practically worse than useless — it clogged furnaces or blew out chimneys. On the other hand, it was found close to the surface and could be shoveled out cheaply (rather than mined in expensive underground mines). As Rockefeller bought controlling interests in the Mesabi ore companies, steel magnates thought he was making a huge mistake. Andrew Carnegie couldn’t understand why Rockefeller was investing money in useless ores.
Over the next few years, the industry found ways to adapt their furnaces to the cheap Mesabi ore. Six years later, Rockefeller would sell his interest in the Mesabi Range by forming U.S. Steel for $80 million. He originally paid around $1.5 million.