U.S. History
Ch. 20
The Gilded Age Part II:
The Birth of Corporate America
Up until the late 1800s, most businesses were owned directly by one person or a few partners.
Then advances in technology made many business owners want to buy new equipment to help their
factories run more efficiently. Business owners needed to find a way to get more money to invest
their businesses. One way that businesses acquired this money was to form a corporation. A
corporation is a business owned by investors who buy part of the company through shares of stock.
Investors give the corporation some money to help the business improve. If the business does well,
the investor gets to share in the profits (through the stock market). A corporation has some
advantages over a privately owned business:
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By selling stock to investors, a business can raise large amounts of money to make improvements (buy
new equipment, build new factories) which will help it make more profits.
Banks view corporations as more stable than businesses. Banks are more likely to loan money to
corporations than privately owned businesses.
A corporation limits risks to investors (unlike if the investors opened their own business). If a
corporation goes bankrupt, the investors may lose some money but not as much as if it was a privately
owned business (i.e. investors are not responsible for paying a corporations debts).
Corporations were formed in every imaginable industry – textiles, oil, steel, farming equipment,
railroads, etc… The main goal of these corporations was to maximize its profits (meaning their goal
was to make the most money possible). Corporations devised many different ways to maximize their
profits.
Monopoly in Real Life…
Many corporations found that one of the best ways to make money was to put all of their
competitors out of business. A company that wipes out all of its competitors is called a monopoly.
John D. Rockefeller controlled a powerful oil corporation (called the Standard Oil Company). He
opened his first oil refinery in 1863 (an oil refinery is a factory that turns the crude oil that comes out
of the earth into a useable substance). Rockefeller began using his investors’ money to buy all of the
oil refineries in the country. If a competitor refused to sell Rockefeller his refinery, Rockefeller would
find a way to put his rival out of business (i.e. setting up secret deals with the railroad companies). By
1880 Rockefeller’s Standard Oil Company owned over 95% of the oil refineries in the country. The
monopoly allowed Rockefeller to set very high prices for oil and people had no choice but to pay
those high prices because they couldn’t buy oil from anyone else.
Rockefeller and other corporate monopolies became very wealthy through this practice (very,
very, very wealthy). Even when the economy was going through recessions and depressions, the
monopolies remained quite profitable. Rockefeller’s fortune was estimated to be over $2 billion when
he died (which is a lot of money when you compare it to the railroad workers’ wage of a fourteen
cents an hour).
Government Aid to Corporations…
Monopolies were one method that corporations used to maximize their profits, but they used
other tactics too. The government helped corporations in a couple of different ways. The
government provided corporations with subsidies. A subsidy is government money given to a
business when the government feels that helping that business is in the best interest of the whole
country. The government wanted businesses to be profitable because it would help boost the
economy of the country (and make our nation more stable and powerful). The government gave
millions of acres of free land to businesses (especially railroad corporations).
The government had a very “llaissez faire” (hands off) attitude when it came to regulating
business. The government did not interfere with the economy or establish laws that regulated
businesses very much. The government believed that if businesses were left alone, they would
regulate (police) themselves. This allowed businesses to use whatever tactics necessary to maximize
their profits.
The 14th Amendment was passed during the Reconstruction Era. The amendment stated that
all people born in the United States were entitled to the rights guaranteed in the U.S. Constitution.
The Amendment was intended to secure equal rights for African Americans following the abolition
of slavery. However, soon after the Amendment was ratified, the Supreme Court began to demolish it
as a protection for blacks and to develop it as a protection for corporations. By 1886 the Supreme
Court accepted the argument that corporations were “persons” and their money and property was to
be protected by the U.S. Constitution. After this ruling it became very difficult for states to pass laws
regulating businesses (i.e. states could not tell a monopoly to lower its prices). Between 1890 and
1910 the Supreme Court 93% of the cases it heard regarding the 14th Amendment were from
corporations and only 7% were from African Americans.
Cutting Expenses to Maximize Profits…
Another way that corporations sought to maximize their profits was to run their factories as
cheaply as possible. Some factories cut costs by requiring workers to bring their own tools or to bring
coal to heat the factories. Others refused to buy safety equipment to protect the workers. It was
common for workers to be hurt (or even killed) on the job due to a lack of safety equipment.
Railroad workers lost hands, feet and fingers from being crushed between cars. In 1889 government
records show that 22,000 railroad workers were killed or injured on the job! Corporations were not
required to compensate employees who had been injured while working. Corporations maximized
their profits by keeping wages very low. In the 1880s the average weekly wage was less than $10,
barely enough to pay a small family’s expenses. The government’s laissez faire view of the economy
meant that few laws were enacted to protect the rights of workers (i.e. there were no child labor laws,
minimum wage requirements or worker safety laws at the time).
The Result?
Corporations made huge profits in the late 1800s and early 1900s. The economic growth
that occurred during this period helped to make our country stronger. Additionally a very small
percentage of our population grew very wealthy (men like Andrew Carnegie and John Rockefeller).
Name:
Date:
Core:
U.S. History
The Gilded Age, Part 2:
Reflection Questions
Directions: Use the Gilded Age Part 2, The Birth of Corporate America handout to answer the
following questions.
Fact Check…
1. Which of the following best defines “ccorporation”?
a. Corporation: working together with others in a productive way
b. Corporation: when businesses wipe out the competition and no other businesses exist
c. Corporation: a business owned by investors who purchase a piece of the company
through shares of stock
d. Corporation: a privately owned business
2. Throughout the early part of American history, most businesses were privately owned. Why
did many business owners switch to the corporate model in the late 1800s? _______________
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3. What is the main goal of a corporation? ____________________________________________
4. Which of the following statements about monopolies is false?
a. A company that wipes out all of its competitors is called a monopoly.
b. Monopolies result in much lower prices for consumers. In a country with a lot of
monopolies, the prices of products are very low.
c. Monopolies are good for business owners because they can charge high prices for their
products and consumers have no choice but to buy those products (or go without)
d. Monopolies allow business owners to charge high prices for products because they do
not have to worry about a competitor selling the same product for a lower price
5. Identify three ways that the government helped corporations to grow during the Gilded Age
a. ________________________________________________________________________
b. ________________________________________________________________________
c. ________________________________________________________________________
6. Which of the following is an example of a “llaissez-faire” approach to economics?
a. The U.S. government gave railroad companies millions of acres of land and business
subsidies to promote economic growth in the 1800s
b. President Obama hired people to rebuild America’s infrastructure in 2009 in hopes of
lowering the unemployment rate and stimulating the economy.
c. The U.S. government did not enact any minimum wage laws in the late 1800s.
Fair or unfair…
Reader Response…
1. Do you think monopolies are fair or unfair? Explain your position using evidence
from the text.
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4
Exemplary
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Insightful, well
organized, and fluent
Deep understanding
of text is
demonstrated
At least two specific
references to text are
used to support ideas
Text references are
well interpreted and
clearly connected to
response
Clear connections
made between text
and self, text and
outside world, and/or
text and text
3
Proficient
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Thoughtful, organized,
and fluent
Clear understanding of
the text is
demonstrated
At least two relevant
references to text are
used to support ideas
Text references are
explained and
connected to response
Relevant connections
made between text
and self, text and
outside world, and/or
text and text
2
Progressing
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Organized and
somewhat fluent
Basic understanding
of text is displayed
At least one relevant
example from text is
used to support ideas
Text references are
somewhat connected
to response
Some connections
made between text
and self, text and
outside world, and/or
text and text
1
Beginning
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Disorganized or
confusing
Limited or no
understanding of text is
displayed
Limited or no examples
from text are used to
support ideas
Text reference seems
irrelevant to response
No connections made
between text and self,
text and outside world,
and/or text and text