that was collected from the distillers and applied to the ethyl alcohol used in camphene as well . The tax quickly became significant : initially it was only 20 cents per proof gallon ( i . e ., 20 cents per gallon of 100 proof , or 50 % alcohol , solution ), but escalated dramatically , to $ 2 per gallon by the war ’ s end . As with so much government activity , the consequences of the tax were not quite what was intended . These “ high tax rates of the Civil War had less of an effect on its consumption as a beverage than on its non-beverage uses ,” according to one taxation historian . “ Its use as a fuel for illumination ceased .”
This surprising cessation can hardly be classed as a deliberate subsidy to the fossil fuel industry — which was then just the tiny kerosene industry — of the early 1860s . The drafters of the Act were clearly more interested in financing a war by taxing liquor sales than they were in favoring crude oil by taxing camphene . It was the cost structure of kerosene that made this cessation permanent . Growing kerosene volumes permitted scale economies , and other uses would be found for the crude oil “ waste ” that spread more thinly the refining costs .
John D . Rockefeller became the world ’ s wealthiest man in 30 short years in the late 19th century because of his appreciation of the commercial potential of crude oil refining . He was a ruthless competitor , employing business practices that would later be outlawed . His cut-throat methods captured the headlines , but it was the chemical nature of crude oil — initially its bright kerosene flame and later its tremendous energy density that permitted myriad other profitable uses — that was his most powerful asset .
Crude oil began to be used in heating and electrical generating systems . Some 25 years after kerosene was first sold , German engineers designed a simple combustion engine to power their new-fangled automobiles . The crude oil cut that was a bit lighter than kerosene , something then called “ ligroin ” and what we might today call “ octane ,” worked perfectly in the combustion chamber and created a new market that spread refining costs still thinner . By the late-1890s , the price of kerosene had declined by over 80 % from the levels of the 1860s .
Electrical engineers developed arc lighting and then incandescent lighting in the late-19th century , setting in motion events that would eliminate the need for lighting fluid of any variety . Crude oil producers and refiners were not distressed by this development : the dawning markets for motor gasoline , heating systems , power generators and machine lubricants offered sales potentials that dwarfed the kerosene market . The engines later required to power airplanes needed a slightly heavier fuel than that used to power automobiles ; kerosene fit the bill perfectly , and the kerosene portion of crude oil is today used in jet fuel .
Crude oil has been a juggernaut , its many uses often surprising and unexpected . Crude derivatives would displace other tree-extracted chemicals in markets where shortages and taxes played no role . The adhesives used to make masking and packaging tapes , for example , were originally made by blending natural rubber with rosins culled from pine sap . The “ catalytic cracking ” process used in oil refineries to make ethylene for polyethylene and other plastics also produced a liquid that appeared to be useless but was later found , in resinous form , to blend perfectly with the rubber to make those same adhesives sticky . This refinery by-product , called “ piperylene ,” was much cheaper to produce than tree rosins , and its chemical purity made it more resistant to yellowing . Initially a by-product , piperylene took over a market involving tens of millions of pounds a year in a few short years in the 1960s and 1970s without the aid of any shortage or war or government subsidy .
“ The capitalists ,” Soviet leader Vladimir Lenin is said to have predicted , “ will sell us the rope with which we will hang them .” Such a transaction never actually occurred , but financial historians must concede that the cynicism dripping from such a prediction was not completely baseless . The commercial world is driven by profits often realized in a short-sighted or extemporaneous manner . These many uses of crude oil , for example , were often driven less by market needs or government policy than by gainfully-applied serendipity .
Theorists should probably tread lightly when attempting to generalize concerning financial and economic events . There are any number of ways to make a profit . Businesspeople try to look at all of them , and they do so without the slightest regard for philosophical consistency .
Daniel C . Munson enjoys reading and writing economic and scientific history . His writings have appeared in Barron ’ s , Financial History and other publications .
www . MoAF . org | Winter 2021 | FINANCIAL HISTORY 35