Chapter 20, Section 2:The Rise of Big Business

Main Idea: As industry boomed, American

businesses grew and developed new ways of organizing and limiting

competition.

A. Growth of the Steel Industry• The Growth of RRs boosted the steel industry (needed rails, locomotives, etc).

Making Steel a New WayMaking Steel a New Way• The Bessemer Process

– Developed in the 1850s by William Kelly in the US & Henry Bessemer in England. This made steel stronger & less expensive.

– As a result, many things began to made of steel, such as RR rails, nails, screws, framework (girders) for taller buildings, etc.

Thriving Steel MillsThriving Steel Mills• Mill towns spring up throughout the Midwest, & Pittsburgh, PA became the

steel capital of the US.• Many jobs were created, but also a lot of pollution, as well (yellow rivers, gray

air, black soot).

Examples: railroads, skyscrapers, nails, pins

The Steel Industry1850’s – The Bessemer Process allowed steel to be produced cheaply.Therefore, the steel industry grew rapidly.

Henry Bessemer

Bessemer converter, Kelham Island Museum, Sheffield, England (2002)

B. Andrew Carnegie’s Steel EmpireControlling the Steel IndustryControlling the Steel Industry

•A Scottish immigrant who opened a steel mill after seeing the Bessemer Process on a trip to England.•Bought out rival mills, as well as iron mines, RRs, steamships & warehouses.•Created a monopoly in steel through vertical integration, by controlling all phases of manufacturing, from raw material to finished product.

The “Gospel of Wealth”The “Gospel of Wealth”•He believed the rich had a duty to help the poor & improve society. He called this the “gospel of wealth.”•He was a philanthropist, spending his later years giving tens of millions of dollars to charity & helping people. His favorite cause was libraries.

– “ I started life as a poor man, and I wish to end it that way.”

· Carnegie reportedly gave $350 million of his $400 million fortune to charities, including $60 million to build libraries.

Harper's Weekly April 11, 1903

• By 1919, 2,811 libraries had been founded at a total cost of $56,704,188.

C. The Corporation & the Bankers

• As small, local factories gave way to big, national ones, the way businesses organized & operated changed. – Capital = money for investment (needed to expand).

The Rise of the CorporationThe Rise of the Corporation• Corporation – a business owned by investors

who buy shares of stock (stockholders).– Stock - shares in a business owned by investors. – $ is used to expand business & increase profits.– Dividend - corporate profits shared with investors– Board of Directors – elected by investors to run

the business & increase profit (1 share = 1 vote).• Buying stock is less risky than starting &

operating your own private business. – Proprietors must pay all debts if a private

business goes bankrupt; Stockholders can only lose what they invest if a public business fails.

Banks & IndustryBanks & Industry•Corporations also borrowed large amounts of $ from banks to expand even faster.•JP Morgan was the most powerful banker & used his power & $ to control corporations.•He invested heavily in troubled corporations during difficult economic times in order to gain control of their boards of directors.•Then, he reduced competition & ensured profits.

– “I like a little competition, but I like combination more.”

•He gained control of most of the major rail lines & bought up many steel companies, including Carnegie Steel. By 1901, his US Steel Company was worth over $1 billion.

an economic system in which resources and means of production are

privately owned and prices, production, and the distribution

of goods are determined mainly by competition

in a free market

freedom of private business to organize and operate for profit in a competitive system without

interference by government beyond regulation necessary to protect public interest

U.S. Economy•Free Enterprise Capitalism

•Private Property & Enterprise

•Competition Driven•Profit Driven•Consumer Driven

D. Rockefeller’s Oil Empire• US was rich w/ natural resources (raw materials),

such as iron ore, coal, lumber, minerals, etc.• Oil was first discovered in Titusville, PA in 1859

Rockefeller & Standard OilRockefeller & Standard Oil• John D. Rockefeller built an oil refinery to purify

crude oil into kerosene for stoves & lamps• He bought up other refineries & then combined

them to create the Standard Oil Company of Ohio• He did whatever he could to eliminate competition

– Slashed prices to drive others out of business– Pressured customers to not deal with other oil companies– Forced RRs to grant rebates to his company only

The Standard Oil TrustThe Standard Oil Trust• Trust - group of corps. run by 1 board of directors.

– Standard Oil now managed all former rivals by controlling their stock.

• Monopoly - control of an industry by 1 corporation.– Standard Oil controlled 95% of all US oil refining.

• Other corporations in other industries did the same.– By 1890s, monopolies & trusts controlled most industries.

Vertical and Horizontal Integration

Vertical and Horizontal Integration

Standard Oil Co.Standard Oil Co.

E. The Case For & Against TrustsForFor

1. Carnegie argued that too much competition ruined businesses & put people out of work: Wealth & Its Uses.

– “Millionaires are the bees that make the most honey, and contribute most to the hive even after they have gorged themselves”

2. Goods could be made more cheaply to keep prices down

3. Americans enjoyed higher wages & a better quality of life than before (#1 in the world by 1900).

AgainstAgainst1. Lack of competition drives

up prices & keeps product quality down.

2. Smaller businesses can’t compete with corporations & have no chance to survive.

3. Trusts had too much political influence & “bought” politicians ($ = power).

4. Workers of corporations are often exploited & abused.

Sherman Antitrust Act – 1890 Banned the formation of trusts &

monopolies, but it was too weak to be effective.

“On Wealth”“On Wealth”

Andrew CarnegieAndrew Carnegie

$ “Gospel of Wealth” (1901):

$ Inequality is inevitable and good.

$ Wealthy should act as “trustees” for their “poorer brethren.”

$ “Gospel of Wealth” (1901):

$ Inequality is inevitable and good.

$ Wealthy should act as “trustees” for their “poorer brethren.”

$ Wealth no longer looked upon as bad.

$ Viewed as a sign of God’s approval.

$ Christian duty to accumulate wealth.

The Protectors of Our Industries

The Protectors of Our Industries

F. Captains of Industry or Robber Barons?

Captains of Industry (+)Captains of Industry (+)

1. Their leadership made the US the #1 industrial giant of the world.

2. They were self-made men (rags to riches).

3. They gave back to charity later in life (philanthropists).

Robber Barons (-)Robber Barons (-)1. They used cutthroat

tactics to drive out others out of business (many are now illegal).

2. They had too much $ & power (political influence)

3. They were ruthless businessmen whose workers were often exploited (hard work, low pay, unsafe conditions)

Caption reads: "Carnegie in his Great Double Role. As the tight-fisted employer he reduces wages that he may play philanthropist and give away libraries.”

Andrew Carnegie in his “Great Double Role”

“Congress—Who’s In It and Who Owns It”

The Bosses of the Senate