Rockefeller saved the whales

Posted by Marc Hodak on May 11, 2007 under Unintended consequences | Comments are off for this article

This morning, I was involved in a roundtable discussion on “Business and Society” hosted by the Aspen Institute. It was held in the boardroom of the Rockefeller Foundation, and we held our meeting beneath John D’s benevolent gaze.

The discussion was about how one measures business success. It wasn’t long before one of the participants mentioned externalities, and everyone was nodding. In our schools, kids are routinely taught about externalities before they even understand how incentives are internalized in the basic logic of supply and demand. I began to note that externalities were very difficult to quantify relative to the costs of mitigating them, and that not all externalities are bad. Sensing that “uh huh, so what” reaction one generally gets to economic theory, I searched for a concrete example. Rockefeller himself handed one to me–on a silver platter, of course.

Pointing to his portrait, I asked, “How many ‘save-the-whales’ types think of Rockefeller as a hero, or as someone who preserved the U.S. forests?” I noted that everyone had heard stories of how Rockefeller made his fortune by inventing Big Oil. He was practically Mr. Externality. People also remember him as doing a lot of good through his philanthropies, as if that kind of offset his bad business behavior. But he saved the whales and the forests not as a philanthropist, but as a consequence of building Standard Oil.

In the 19th century, whale oil was the most popular lamp fuel before kerosene came along, and wood was the most common fuel for heating homes. Most people prone to considering externalities as a significant basis for concern, including many around the table that morning, tend to also absorb the Malthusian implications of the disaster that awaited whales and forests if Rockefeller’s cheaper and better substitute hadn’t come along.