All Commentary
Wednesday, January 1, 1992

Book Review: The Prize: The Epic Quest For Oil, Money, And Power by Daniel Yergin

Simon and Schuster, 1230 Avenue of the Americas, New York, NY 10020 • 1991 • 877 pages • $24.95 cloth

Oil has often been referred to as the lifeblood of any economy. While this is an overstatement, oil has been the most critical, nonhuman economic resource throughout most of the 20th century. Daniel Yergin illustrates the economic, political, societal, and geo-strategic importance of this commodity.

Yergin takes the reader on an enjoyable and thorough journey through the history of oil, from the drilling of the first well by Colonel Edwin Drake in Pennsylvania in 1859 up to Saddam Hussein’s invasion of Kuwait in a mad grab for wealth and oil in August 1990. Yergin explores oil’s role in war, describes the ever-changing structure of the oil industry, and discusses the prominent and often colorful petroleum players. The Prize is a well-written and well-researched addition to a branch of history that, until very recently, had been sadly neglected—business history.

My sole criticism of Yergin’s effort is his periodic indifference to the role of markets in the oil industry. At times he acknowledges the benefits of innovation, entrepreneurship, productivity, organization, and the price system that markets bring to bear. However, he also issues caveats relating to the old “instability” straw man as it pertains to free markets.

For instance, Yergin declares in the book’s epilogue that “The years of past oil crises have demonstrated that, given time, markets will adjust and allocate.” Earlier, he even summarizes the development of the oil pricing system as it led to today’s futures markets: “Once it had been Standard Oil that had set the price. Then it had been the Texas Railroad Commission system in the United States and the majors in the rest of the world. Then it was OPEC. Now price was being established, every day, instantaneously, on the open market, in the interaction of the floor traders on the Nymex [New York Mercantile Exchange] with buyers and sellers glued to computer screens all over the world. It was like the late 19th-century oil exchanges of western Pennsylvania, but reborn with modern technology. All players got the same information at the same moment, and all could act on it in the next.” A vast improvement, one might say. However, when discussing the ill effects that the 1986 drop in oil prices had on the U.S. domestic oil industry, the author wonders: “Perhaps when it came to ‘market forces,’ there could be too much of a good thing.”

In fact, Yergin is inconsistent in his view as to whether the private sector or the government should control oil production. In analyzing the early days of oil production in Russia, Yergin writes: “The development of the industry was severely restricted by the region’s backwardness and its remoteness [i.e., in Baku] and the corrupt, heavy-handed, and incompetent Czarist administration, which ran the minuscule oil industry as a state monopoly. Finally, at the beginning of the 1870s, the Russian government abolished the monopoly system and opened the area to competitive free enterprise. The result was an explosion of entrepreneurship. The days of hand-dug oil pits were over. The first wells were drilled in 1871-72; and by 1873, more than twenty small refineries were at work.” Yet, in contrast, Yergin’s discussion of the anemic state of current Soviet oil production doesn’t address these critical issues of private property, entrepreneurship, and profit incentives.

Yergin does explore the legitimate debate as to when national security takes precedence over the market, and when the two might be in conflict. It seems clear that the burden of proof lies with the national security advocates who argue for limitations on the market. The author makes no clear declaration in either direction on such matters, but seems tacitly to lean toward the national security/market limiting agenda.

Having acknowledged various inconsistencies and shortcomings on matters of economics, I still can heartily recommend The Prize on the basis of its great historic breadth. Yetgin explores the significance of and roles played by, for example, Winston Churchill, Standard Oil and John D. Rockefeller, the Middle East and OPEC, Mexico, the United States government and its often schizophrenic policies toward the oil industry, Axis and Allied World War I1 strategies, the Shah of Iran and his successor the Ayatollah Khomeini, Israel, Egypt’s Nasser and the Suez Canal, discoveries in the North Sea and in Alaska, and even T Boone Pickens. Such a list merely scratches the surface, however. Yergin’s tome must be read to gain a true appreciation of its vast scope.

While Yergin was writing a history of oil’s role in the world, and seemed to tie this role into most historic events of the past century, he still possessed the ability to discern the limits of oil. He deserves credit for acknowledging the economic successes of West Germany and various Pacific Rim countries, all huge oil importers. While oil’s stature in the world economy will remain high, even Yetgin notes the ascendency of the information or knowledge economy. The silicon chip, created out of sand, is emblematic of the economy of the mind, in which limits won’t be set by amounts of off but only by the restrictions placed on human innovation and creativ/ty. Perhaps the development of this knowledge economy will be the subject of another epic treatise of business history a century from now.

Mr. Keating is New York Director of Citizens for a Sound Economy.

  • Raymond J. Keating is an author and serves as Chief Economist with the Small Business & Entrepreneurship Council.